5 days ago
Hewlett Packard Enterprise Co (HPE) Q2 2025 Earnings Call Highlights: Strong Revenue Growth ...
Revenue: $7.6 billion, up 7% year over year.
Non-GAAP Diluted Net Earnings Per Share: $0.38, above guidance.
Operating Margin: 8%, down 150 basis points year over year.
Free Cash Flow: Negative $847 million.
Server Revenue: $4.1 billion, up 7% year over year.
Intelligent Edge Revenue: $1.2 billion, up 8% year over year.
Hybrid Cloud Revenue: $1.5 billion, up 15% year over year.
Financial Services Revenue: $856 million, up 1% year over year.
Annualized Revenue Run Rate (ARR): $2.2 billion, up 47% year over year.
Gross Margin: 29.4%, down 370 basis points year over year.
GAAP Diluted Net Loss Per Share: $0.82, due to a non-cash goodwill impairment charge.
AI Systems Revenue: Over $1 billion, up from $900 million last quarter.
Customer Count for GreenLake: Approximately 42,000.
Warning! GuruFocus has detected 5 Warning Sign with HPE.
Release Date: June 03, 2025
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Hewlett Packard Enterprise Co (NYSE:HPE) delivered Q2 revenue of $7.6 billion, up 7% year over year, exceeding the high end of guidance.
The company saw year-over-year revenue growth in every product segment, with strong performance in AI systems, Intelligent Edge, and Hybrid Cloud.
HPE's GreenLake Cloud subscription services showed significant growth, contributing to a 47% increase in annualized revenue run rate.
The company implemented effective measures to address previous operational challenges in the Server segment, leading to improved margin performance.
HPE's commitment to innovation is evident with new product launches, including advanced private cloud solutions and AI partnerships with NVIDIA.
HPE faced a complex macroeconomic and geopolitical landscape, impacting demand and creating uncertainty.
Non-GAAP gross margin was down 370 basis points year over year, affected by an unfavorable mix within the Server segment.
Free cash flow was negative $847 million, although slightly better than expected.
The company recorded a non-cash goodwill impairment charge of approximately $1.4 billion related to its Hybrid Cloud business.
HPE's Financial Services segment saw a 20% year-over-year decrease in financing volumes.
Q: What steps are needed for Server margins to improve from 5% to 10% by year-end, and what are the priorities if the Juniper transaction doesn't close? A: Antonio Neri, CEO, explained that HPE has addressed execution challenges with targeted actions, such as new pricing analytics and inventory management, which are expected to help achieve a 10% operating margin by Q4. Regarding the Juniper transaction, HPE is exploring other options, including capital return and portfolio actions, if the deal doesn't close.
Q: Can you elaborate on the pipeline strength exiting Q2 compared to Q1, and what is driving this? A: Antonio Neri, CEO, noted a strengthening pipeline across the portfolio, particularly in AI, with significant enterprise-driven orders. The Hybrid Cloud segment also showed strong momentum, especially with the Alletra MP portfolio. Networking saw recovery, and GreenLake continued to perform well, contributing to the overall pipeline strength.
Q: Where is HPE seeing the most AI server traction, and how can the margin profile of the Storage business be improved? A: Antonio Neri, CEO, highlighted that AI server traction varies by customer segment, with strong demand in enterprise and sovereign markets. For Storage, Marie Myers, CFO, mentioned that margins are expected to improve towards the end of the year, reaching high single digits by Q4.
Q: How has Blackwell demand impacted AI server recovery, and what steps are being taken to optimize inventory levels? A: Antonio Neri, CEO, stated that Blackwell demand has shifted rapidly, and HPE now requires pre-payment for inventory purchases, reducing exposure to older inventory. This approach helps optimize inventory levels and aligns with customer demand.
Q: How does HPE's AI server strategy compare to competitors, given the differences in order momentum? A: Antonio Neri, CEO, explained that HPE focuses on disciplined participation in all market segments, prioritizing gross margin accretion and working capital. HPE chooses not to participate in certain large opportunities if they don't align with profitability goals, focusing instead on enterprise and sovereign markets.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
This article first appeared on GuruFocus.
