HPE(US:HPE)2024-03-01 02:32Financial Data and Key Metrics Changes - Revenue for Q1 2024 was $6.8 billion, a decrease of 14% year-over-year in constant currency, primarily due to a softening networking market and GPU availability issues [27][12][9] - Non-GAAP gross margin improved to 36.2%, up 200 basis points year-over-year, reflecting a shift towards higher-margin revenue [12][28] - Non-GAAP diluted net earnings per share reached $0.48, exceeding the midpoint of guidance despite lower revenue [12][29] Business Line Data and Key Metrics Changes - Server revenues declined 23% year-over-year to $3.4 billion, impacted by backlog normalization and GPU supply constraints [31][12] - Intelligent Edge revenues were $1.2 billion, up 2% year-over-year, but demand softened due to customer digestion of prior shipments [33][12] - Hybrid cloud segment revenues were $1.2 billion, down 10% year-over-year, with strong growth in subscription revenue [34][12] Market Data and Key Metrics Changes - HPE GreenLake ARR grew 41% year-over-year to over $1.4 billion, indicating strong market demand for as-a-service offerings [14][28] - AI server orders reached $4 billion, with significant contributions from HPE Cray EX and ProLiant Gen11 solutions [15][31] - The company expects the networking market to remain weak throughout fiscal year 2024, with a potential recovery in the second half [10][38] Company Strategy and Development Direction - HPE is streamlining its reporting segments and focusing on a new specialized sales model to enhance execution and profitability [10][13] - The company is confident in its long-term strategy aligned with market mega trends, particularly in edge computing, hybrid cloud, and AI [14][12] - The pending acquisition of Juniper Networks is expected to enhance HPE's edge-to-cloud strategy and expand its networking business [21][22] Management's Comments on Operating Environment and Future Outlook - Management acknowledged the challenges in the networking market and GPU supply but expressed confidence in the long-term growth potential of AI and hybrid cloud segments [12][38] - The company anticipates a strong second half of fiscal year 2024, driven by AI systems revenue and traditional buying seasons [49][38] - Management emphasized the importance of cost management and operational discipline in navigating current market conditions [12][28] Other Important Information - The company generated $64 million in cash flow from operations but consumed $482 million in free cash flow during the quarter [36][12] - HPE's cash conversion cycle improved to seven days, reflecting better inventory management [37][12] - The company plans to maintain its dividend and focus on debt repayment to uphold an investment-grade credit rating [41][12] Q&A Session Summary Question: GPU availability and delays - Management noted that delays were primarily due to customers taking longer to prepare data center space and GPU supply constraints, with expectations for improvement in the future [45][12] Question: Revenue shortfall analysis - The revenue shortfall was mainly attributed to networking issues, with expectations for a stronger second half driven by AI systems revenue [48][49] Question: Changes in Intelligent Edge demand - Management indicated that demand softness was observed, but there was no significant channel inventory problem, and they expect a slight improvement in the back half of the year [51][52] Question: Backlog contribution to Intelligent Edge - Backlog has normalized, with expectations for slight improvements in the networking segment in the second half of the fiscal year [56][57] Question: Server market recovery - Management expects sequential improvement in server demand, driven by a shift to Gen11 and recovering demand [62][63] Question: AI revenue linkage to ARR growth - AI system orders are expected to contribute significantly to ARR growth, with many orders processed through the HPE GreenLake platform [66][69]