Hewlett Packard Enterprise Co Q2 FY2025 earnings call

Key Points

• Q2 delivered solid results with revenue and non-GAAP diluted net earnings per share above guidance.
• Addressed operational challenges in service segment, expecting margin improvement by year-end.
• Saw dynamic macro and trade policy environment, but pipeline was stronger than Q1.
• Revenue growth in all product segments led by AI system revenue conversion in server, strong performance in Intelligent Edge, and hybrid cloud growth.
• Addressed server execution issues with rigorous reporting, tighter deal desk controls, and inventory management.
• Launched advanced private cloud portfolio, new networking capabilities, and enhanced storage and server platforms in partnership with NVIDIA.
• Committed to closing Juniper Networks transaction for synergies.

Server revenue was $4.1 billion, up 7% year over year and down 5% sequentially, accounting for a significant portion of total revenue. Intelligent Edge revenue was $1.2 billion, up 8% year over year, contributing to growth. Hybrid Cloud revenue was $1.5 billion, up 15% year over year, with strong performance in storage and private cloud. Financial Services revenue was $856 million, up 1% year over year. Each segment showed distinct growth patterns and contributions to overall revenue.

Guidance

• Tightened revenue outlook to 7% - 9% year-over-year growth.
• Raised low end of non-GAAP diluted net earnings per share range.
• Expect Intelligent Edge to grow mid-single digits, Hybrid Cloud to grow high single digits, and Server to grow low double digits.
• Full-year non-GAAP gross margin expected below 30% with Q4 exiting above that.
• Full-year non-GAAP operating margin expected above 9% at midpoint.
• Q3 revenue expected between $8.2 - $8.5 billion, with server, intelligent edge, and hybrid cloud having specific growth and margin expectations.

Risks

• Dynamic macro and trade policy environment with uneven demand.
• Tariffs, AI diffusion policy, and broad macroeconomic concerns causing uncertainty.
• Potential impact of goodwill impairment due to macroeconomic uncertainty in hybrid cloud business.

Q: Talk about server margins to go from 5% to 10% plus by year-end and activist engagement if Juniper doesn't close A: Addressed server execution challenges with pricing analytics, discount scrutiny, and inventory management. Confident in returning to 10% operating margins in Q4. On activist engagement, board engages with shareholders, and Juniper deal is fastest path to value, but other options exist if deal doesn't happen Q: Pipeline strength and what's driving it A: Pipeline strengthened across portfolio. AI has strong momentum with $3.2 billion backlog, hybrid cloud has strong storage growth and private cloud interest, networking market recovered. Europe and other regions showing solid momentum Q: AI server traction and storage margin improvement A: AI server traction varies by customer segment, with large service providers, sovereign, and enterprise having different consumption patterns. Storage margin improvement expected through Elektra's strong performance and IP product path Q: Blackwell demand and inventory optimization A: Demand shifted to Blackwell, with prepayment and decreased older inventory exposure. Adequate inventory levels preserved Q: General purpose servers and server margin outlook A: No slowdown seen in North America. Server operating margins expected to improve sequentially, with Q4 aiming for 10% margin Q: AI server competitive landscape A: Focused in all market segments with discipline for gross margin accretion and working capital. Participate where path to margin and cash flow exists, and some larger opportunities walked away from