Hewlett Packard Enterprise
posted mixed results for its fiscal second quarter ended April 30, while slightly reducing guidance for the full year. But the company—like many other enterprise technology players—sees a rapidly expanding opportunity in demand for computing power to run generative artificial-intelligence applications.
HP Enterprise shares (ticker: HPE) were down about 8.6% in premarket trading, at $14.18.
HP Enterprise CEO Antonio Neri emphasized in a statement that the company has been successfully shifting its product portion to a higher-margin product mix, “led by the Intelligent Edge segment and the strong demand for our AI offering further strengthen the investment opportunity for our shareholders.”
For the quarter, HP Enterprise posted revenue of $7 billion, up 4% from the year-ago quarter or 9% in constant currency, falling shy of both the company’s guidance range of $7.1 billion to $7.5 billion and Street consensus at $7.3 billion.
But adjusted profits were 52 cents a share, at the high end of the guidance range of 42 to 52 cents. Under generally accepted accounting principles, the company earned 32 cents a share, in the middle of the guidance range of 27 to 35 cents.
The company also noted that non-GAAP gross margin hit an all-time high of 36.2%, two percentage points above the year-ago level.
HP Enterprise noted that its “intelligent edge” segment grew 50% from a year ago to $1.3 billion, with operating margin of 26.9%, up from 12.6% a year earlier. Revenue in the “high-performance computing and artificial intelligence” segment was $840 million, up 18%. That group includes high-powered computing systems used to train AI models.
In an interview with Barron’s, Neri noted that the company has seen even faster growth in orders for AI-based systems, as interest increases in creating AI systems built on large language models.
Revenue from the “compute” segment was down 8% to $2.8 billion, while storage revenue was $1 billion, down 3%.
For the July quarter, the company sees revenue of $6.7 billion to $7.2 billion, at the midpoint of the range falling short of the Street at $7.2 billion. The company sees non-GAAP profits for the quarter of 44 to 48 cents, bracketing Street consensus at 46 cents.
HP Enterprise now sees full year revenue up 4% to 6% in constant currency, which compares to a previous single point forecast of 6% growth. (Note that two quarters ago the forecast was for 3% growth.) HP Enterprise now sees full year non-GAAP profits of $2.06 to $2.14 a share, up from a prior forecast of $1.96 to $2.04 a share. The company continues to see full year free cash flow of between $1.9 billion to $2.1 billion.
Neri says HP Enterprise is “uniquely positioned” to benefit from the AI trend, as it sells more high-end computing systems. He says the company saw strong orders in the quarter for systems from both Fortune 500 companies and “native AI companies,” and also booked a substantial order from a large cloud provider, which he declined to name.
Neri noted that the company has been building systems using all available high-end chips, including A100 and H100 processors from
Nvidia
(NVDA), as well as parts from both
Advanced Micro Devices
(AMD) and
Intel
(INTC). Neri said software the company acquired as part of its 2019 acquisition of the supercomputing company Cray is “interconnect networking fabric” that can tie together thousands of processors. He said that GPU availability is “a challenge” in the short-term, but he thinks chip availability will be addressed in 2024.
Neri also notes that in the most recent list of the world’s most powerful supercomputers, HP Enterprise systems account for three of the top 10, including a Cray system at the Department of Energy’s Oak Ridge National Laboratory, which ranks at the very top of the list. That system is build on AMD processors.
Write to Eric J. Savitz at eric.savitz@barrons.com
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