HPE Q2 Earnings

The Six Five team discusses HPE Q2 Earnings.

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Transcript:

Pat Moorhead: HPE beat on EPS by a pretty good margin, 6%. They missed on revenue, which is primarily that compute line there. Stock took a little bit of a tumble but is slowly moving back. So I want to put a focus on two things. First of all, intelligent edge, 50% year-on-year growth, 56% in constant currency. That is insane. I don’t think I’ve seen a big breakout from HPE that big ever. And by the way, that’s before the integration of the 5G and the security acquisitions that they made for the edge. Absolutely stunning. I was also impressed, record gross margin percent, they raised full year EPS guide. It’s too bad that the street kind of yawned at that. Bookings, right? Hey, how durable is this? 1.5X the normal rate.

And you remember right when they were having a hard time getting supply, that was 2X the normal rate of bookings were. HPE GreenLake hit a big milestone, $10 billion, and for this quarter, $1 billion of ARR. Little focus on HPC and AI, although it wasn’t 56%, that group went up 22%. And in the call, Antonio called out that the AI portion of that grew even further. And I am really, really excited about what HPE Discover brings at the table. HPE has some real high performance computing gems with Cray, the way that they do interconnects, the way that they do cooling. And then when you layer on top of that GreenLake, I’m excited about what’s coming up to show.

Daniel Newman: Yeah, pat, I think you hit it on the head. There’s some lumpy business with things like server that tends to cause some gyrations in the overall performance of the company. I think the ARR growth in the mid double digits continues to be the strength of the company. Its pivot to GreenLake continues to be sort of its core messaging. Can you put everybody on as a service platform on-prem to kind of take advantage of this opportunity of hybrid cloud? I thought it was interesting when we talked about the company Slingshot Fabric. It’s got a story around AI for data fabric that I don’t think a lot of people are talking about. And I think they’ve made a number of acquisitions in data, data management, storage related and AI ops over the last few years. And I think there’s going to be a chance for HPE to get that story in market and more appreciated, because I think things like that tend to get lost inside of the broader HPE portfolio.

The HPC business showed a lot of strength and resilience and I think in our conversation, you and I had the chance to talk to CEO Antonio Neri about the overall state of the business and you felt a lot of optimism on his end. It was a pretty well managed quarter. They managed the margins pretty well. I think it’s another company who are really helping to explain to the market the value of AI in terms of accelerating its growth. And that’s what I think where everyone’s at right now, is it’s kind of this winding and bend in the road is there’s the people that are continuing on a path knowing that AI has to be baked into a product, but there’s not really a clear, “How does this help us make more money?” And then there’s the companies that are really clearly discerning, “This is how AI is going to help the business make more money.” And people are getting really excited about that.

But the diversification of the business is looking pretty good. It seemed like they maintained share in most of the areas where they were focused. But they’re a story of subscription. They’re a story of consumption. That’s been the pivot. It’s four years now into the pivot. The era of rising above a billion and people want to see that number keep growing. Is it being fully appreciated and valued? I still don’t think so. But I do think that as the crawl in the portfolio and that area continues to grow, the company is continuing to win customers and that will eventually enable the value of the business to shine.