Hewlett Packard Enterprise ((HPE)) has held its Q1 earnings call. Read on for the main highlights of the call.
Hewlett Packard Enterprise’s recent earnings call painted a picture of robust growth tempered by certain operational challenges. The company reported strong revenue growth, primarily driven by its server and Intelligent Edge segments, alongside a notable increase in AI system orders and GreenLake adoption. However, challenges in the server segment, including pricing and inventory issues, coupled with recent tariff impacts, have led to operating margin pressures. To mitigate these challenges, HPE is implementing workforce reductions and cost-saving measures.
Strong Revenue Growth
Hewlett Packard Enterprise reported a remarkable 17% year-over-year revenue growth in the first quarter, marking the fourth consecutive quarter of improved top-line growth. The server business was a standout performer, with a 30% revenue increase year-over-year, and the hybrid cloud segment also showed strong performance.
Intelligent Edge Success
The Intelligent Edge segment continued to shine, recording a 2% quarter-over-quarter revenue growth. This segment saw double-digit year-over-year order growth across all key geographies and products, including campus switching, underscoring its strategic importance to HPE.
AI System Orders and Revenue
HPE’s focus on AI systems is paying off, with $1.6 billion in new AI system orders booked in the first quarter. Cumulative AI system orders have reached $8.3 billion, and AI systems revenue for the quarter was $900 million, highlighting the company’s strong position in this burgeoning market.
GreenLake Growth
GreenLake remains a key differentiator for HPE, with over 41,000 enterprises now using the GreenLake Cloud. The annual recurring revenue (ARR) for GreenLake surpassed $2 billion for the first time, marking a 46% increase year-over-year.
New Product Launches
Demonstrating its commitment to innovation, HPE launched several new products, including the ProLiant Gen 12 server platform and new vertical solutions for the Intelligent Edge segment. These launches are expected to bolster HPE’s competitive edge in the market.
Server Segment Challenges
Despite strong revenue growth, the server segment faced unexpected challenges. Operating margins fell to 8.1%, impacted by pricing strategy issues and increased competition, highlighting the need for strategic adjustments.
Tariff and Inventory Pressures
Recent US tariff announcements and higher-than-normal AI inventory levels posed significant challenges. The impact of tariffs is anticipated to be more pronounced in the second quarter, potentially affecting server margins further.
Operating Margin Decline
HPE reported a non-GAAP operating margin of 9.9%, down 160 basis points year-over-year and 120 basis points sequentially. This decline was primarily due to headwinds in gross margin from the server segment.
Workforce Reductions
As part of its cost-saving measures, HPE plans to reduce its workforce by 5% over the next 12 to 18 months, impacting approximately 2,500 positions. This move is aimed at achieving greater operational efficiency.
Forward-Looking Guidance
Looking ahead, HPE has set ambitious targets for fiscal 2025. The company expects constant currency revenue growth of 7% to 11%, with revenue weighted towards the second half of the year. Non-GAAP diluted net earnings per share are projected to range between $1.70 and $1.90. Additionally, HPE aims to achieve at least $350 million in gross savings by fiscal 2027 through workforce reductions and attrition management.
In conclusion, Hewlett Packard Enterprise’s earnings call highlighted a company experiencing strong growth, particularly in its server and Intelligent Edge segments, while also facing challenges that require strategic adjustments. The company’s forward-looking guidance suggests continued growth, albeit with a focus on managing operational efficiencies and addressing market pressures.