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HPE Earnings

HPE Earnings

The Six Five team discusses HPE Earnings.

If you are interested in watching the full episode you can check it out here.

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Transcript:

Patrick Moorhead: HPE, it was pretty mixed. And in fact, I appreciate the company acknowledging that. But some very bright spots on earnings per share where they beat, they had record gross margin percent and some really great progress on ARR. There were some hiccups here. Challenged quarter on quarter comparisons, that was one. They were blowing it out on the edge for so many quarters, right? 50% growth, 40% growth. And that’s tough.

And we saw with Cisco slowing, well, actually let me turn that back. Cisco had booming edge network and HP talked about slowing campus network demand. I don’t know if it’s share shift, I don’t know exactly what’s going on here, but I need to do the double click on there. And we heard from Dell limited GPU supply availability.

Anyways, this doesn’t change my long-term prognosis on the company. This timing of large AI system acceptances is a challenging thing. Essentially what that means is either they can’t get it to work or they can’t get it to work correctly. I think this is the second or third quarter that this has come up. HPE has some of the, well it has the top performance, high performance computer system, but it has a bunch of them in the top five. A lot of good but pretty mixed as well and very muted response from the street.

Daniel Newman: Yeah, look, the new normal for this quarter has been revenue deceleration with good bottom line management. And that’s what solid leadership teams are doing right now. They’re working against the backdrop of a still complex macro. Let’s be very clear. It also works against the backdrop that guidance has been adjusted. When we miss right now, we’re not missing against what were higher expectations that came from a few years past.

The last year or especially most of early ’22 or sorry, early ’23 and late ’22, was the beginning of what I’d say an adjusted guidance period. It’s funny, I saw something on Twitter and it was Brian Sozzi from Bloomberg. No, I think he’s from Yahoo Finance.

Patrick Moorhead: Yahoo Finance, yeah.

Daniel Newman: And he put this out there and shared, it’s interesting. He said there’s Mag 7 stocks, and then, there were the other 493 doing something about the S&P 500. So he looked at earnings growth at the end of Q4. And so it was Alphabet up 51%, Amazon up 304%, Apple up 13%, Meta up 197%, Microsoft up 26%, NVIDIA up 489%, Tesla is actually down. The magnificent seven on average at 56% earnings growth, the entire index had an 8% growth. And if you took the seven out of the index, it didn’t grow. They were negative.

Why I’m saying that is that’s the 493 companies doing something else. So they actually did good on earnings overall by being able to beat, but the lack of earnings growth is actually the standard now. That’s why you’re seeing only a very small number of companies pop. This is not a widespread rally. This is a very narrow rally. You’ve got Supermicro, you’ve got NVIDIA, you’ve got Microsoft, there’s like 10 companies. It feels like they go up and everything else is just floating.

Here’s what I liked about the earnings. I’m just going to be a broken record. Every quarter, I say, look, the ARR order book and GreenLake business to me is everything. Three years ago, four years ago now, and I talked to Antonio on earnings day, CEO Antonio Neri, and he pointed out too. You’re shifting the business. You’re moving from more big iron to more subscription. That’s always going to be a top line offset. And you’re trying to get very, very quickly to strong ARR numbers.

They had their fastest or second fastest growth of ARR since 2019. They saw their order book growing substantially. They’re still obviously spending and investing and returning to shareholders. And they also added 3,000 customers on the quarter over quarter to GreenLake. So that density of customers for GreenLake is really, really important. So some good things in it. Look, when we get to Dell at the end, you are going to see about why the difference can be in the margins. And it depends just a little bit on what you say on your earnings call, and how much you’re specifically able to articulate your AI story right now and the value it’s creating.

And the companies that are getting really prescriptive here are getting a big result. HPE has a big influence on networking, a big influence on compute in private cloud with AI. But I’m not sure the market’s fully appreciating the AI play. And beyond the slower revenue, because I don’t think Dell was actually up on a year-over-year basis revenue. They just beat.

Patrick Moorhead: That’s right.

Daniel Newman: We’ll get back to that. But they were very prescriptive on the AI part and people were able to back that in out of the order book.

Author Information

Daniel is the CEO of The Futurum Group. Living his life at the intersection of people and technology, Daniel works with the world’s largest technology brands exploring Digital Transformation and how it is influencing the enterprise.

From the leading edge of AI to global technology policy, Daniel makes the connections between business, people and tech that are required for companies to benefit most from their technology investments. Daniel is a top 5 globally ranked industry analyst and his ideas are regularly cited or shared in television appearances by CNBC, Bloomberg, Wall Street Journal and hundreds of other sites around the world.

A 7x Best-Selling Author including his most recent book “Human/Machine.” Daniel is also a Forbes and MarketWatch (Dow Jones) contributor.

An MBA and Former Graduate Adjunct Faculty, Daniel is an Austin Texas transplant after 40 years in Chicago. His speaking takes him around the world each year as he shares his vision of the role technology will play in our future.

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