HPE(US:HPE)2024-06-05 00:25Financial Data and Key Metrics Changes - The company reported revenue growth of 4% year-over-year and 7% quarter-over-quarter in constant currency, reaching $7.2 billion, exceeding the midpoint of prior guidance by approximately $400 million [27] - Non-GAAP diluted net EPS was $0.42, exceeding the high end of the guidance range, driven by strong revenue and cost discipline [29] - Free cash flow exceeded $600 million, with cash flow from operations at $1.1 billion [38] Business Line Data and Key Metrics Changes - AI systems revenue more than doubled sequentially to over $900 million, with cumulative AI systems orders reaching $4.6 billion [9][30] - Server revenues were $3.9 billion, up 16% sequentially and 18% year-over-year, driven by both AI systems and traditional servers [30] - Hybrid cloud revenues were $1.3 billion, up 1% sequentially but down 9% year-over-year [33] - Intelligent Edge revenues were $1.1 billion, down 9% sequentially and 19% year-over-year, with expectations for modest sequential growth in the latter half of the year [35] Market Data and Key Metrics Changes - Enterprise customer interest in AI is rapidly growing, with enterprise orders now comprising more than 15% of cumulative AI systems orders, and the number of enterprise AI customers nearly tripling year-over-year [10] - The number of customer organizations using HPE GreenLake increased by almost 9% sequentially to 34,000 [17] - Annualized revenue run rate (ARR) grew 39% year-over-year to above $1.5 billion [28] Company Strategy and Development Direction - The company is focusing on translating strong AI customer demand into revenue growth while maintaining cost discipline and operational efficiency [9][24] - HPE is investing in innovation across AI, hybrid cloud, and networking to drive higher profitability over time [30][42] - The company is committed to simplifying business processes and implementing automation and AI to enhance customer service and productivity [21][42] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the second half of fiscal 2024, raising full-year revenue and non-GAAP earnings per share guidance [8][23] - The company anticipates continued revenue growth driven by increased AI systems demand and ongoing improvement in traditional infrastructure markets [8][39] - Management noted that while there are challenges in the inflationary commodity market, they are managing costs effectively [48] Other Important Information - The company announced a restructuring of the sale of its stake in H3C, which is expected to provide opportunities for significant share sales in the coming months [22] - HPE is in the regulatory process for the proposed acquisition of Juniper Networks, expected to close by the end of 2024 or early 2025 [21] Q&A Session Summary Question: AI system margins compared to segment averages - Management indicated that AI revenue reached $900 million, with operating profit margins holding up well despite inflationary pressures and a competitive market [48][50] Question: Context on enterprise AI orders - Management noted that enterprise demand for AI has accelerated, with significant interest from various sectors, including sovereign clouds and traditional enterprises [55][56] Question: Sequential decline in AI backlog - Management explained that the slight decline in backlog was due to strong demand and revenue conversion, with confidence in capturing future AI opportunities [70] Question: GreenLake revenue and AI growth - Management confirmed that AI was the fastest-growing element of ARR in Q2, indicating strong integration of AI across their portfolio [76]