The Six Five team discusses HPE Q3FY24 Earnings
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Transcript:
Daniel Newman: So, HPE, Pat, look, you and I will sometimes talk about kind of these OEM businesses being single digit, not double-digit growth this quarter. Very excited for HPE. They saw 10% growth. I made a joke. I said they grew faster than one of the largest CRM SaaS companies on the planet this last quarter. How fun is that. Margin integrity in place. Antonio was very optimistic about not just AI, but actually seeing growth in their traditional server business. Who’s done that? I mean, nobody’s had good numbers in servers.
And he really talked a lot about discipline and rigor in the way they’re running the business right now. We’re seeing sort of this chasing of these mega AI deals. Big margin erosion, high revenue growth rates, exciting AI. I think HPE is kind of taking the other, I was a little critical of the all-in on NVIDIA thing, not because NVIDIA is not great, but because I worry about the hedging that that’s going to create risk and maybe you could differentiate, but look, it seems to be working that 1.7 billion number, the margin looked good on it. He sort of said they’re not taking deals that they’re not doing well on. So, they’re being a bit discriminant in kind of how they’re doing that business. At the same time, reliance performing.
And Pat, the other number I really liked is GreenLake. 3000 new customers, and I want to do a little compounding for you here. They got into close to 40,000 customers at the growth rate. They’re doing 10% per quarter compounded by the end of the 2025, ’26, their run rates have 100,000 customers running on GreenLake. Now as a company that we kind of call a big iron old hardware company, that sure looks like a software model to me. A hundred thousand subscription customers driving billions of dollars in revenue. That’s really positive. Pat, look, I don’t always get excited about these businesses, but I came away from the conversation with Antonio for the first time I told them this, this must be probably the cleanest, one of the best looking quarters I’ve seen from HPE in a really long time. I’m optimistic about it. They seem to be playing their cards right. They’re not chasing the bigger, the companies that kind of can go that way, they’re playing their game, they’re running their race, they’re sticking with GreenLake. There’s probably some flaws in it, Pat, but I want to give credit where credit’s due. And it was a good quarter.
Patrick Moorhead: Yeah, and my tweet was like, “Double digit baby.” It just makes a difference.
Daniel Newman: Feels good.
Patrick Moorhead: At 10% plus you should be considered a growth company for sure. I was really enthused by the split between AI and non AI. Servers were 4.3 billion, up 35%, and operating margin increased from 10.1 to 10.8%. And that was AI and non-AI spooked about AI profitability because gross margin was down 420 bits. Edge and hybrid cloud revenue and operating margin was down year over year. And cash flow and FCF were down as well. But there were a lot of highlights that pushed out the low light there. And I was equally-
Daniel Newman: The margin erosion, Pat, was not nearly what others have faced in the same-
Patrick Moorhead: No, it wasn’t. And that was the Dell moment the previous quarter where people got spooked on margins. They looked at the flow through to profitability and I think they had a very similar reaction. 37,000 GreenLake customers. I mean it’s impressive. And yeah, I know there’s a lot in GreenLake, but that’s GreenLake. It’s subscription service. I love that. One comment that Antonio made with me, he said that HPE infrastructure was in hyperscalers. That was a new one for me. I followed up on who. “Hey, are we sure this isn’t tier two CSPs here, but hyperscalers?” They were like, “It’s hyperscalers.” We’ll see. I think that’s very provocative. We heard that from Pure Storage as well. And I’m guessing it’s meta there.
So, who knows? 35% improvement in ARR and that’s attributable to GreenLake. And I’ll close this out by talking about the future opportunities here. Private AI just went GA. I cannot wait to talk to customers. I’d love to do an economic study across them as well. Interview some of their customers and what are the benefits that they’re seeing. I got the demo of private AI and it is freaking impressive. It’s really good. I’m a hands-on guy. I’m not as hands-on as Keith or Matt, but I was super impressed by that. Morpheus data, build out that, how do they monetize that. And Juniper is on tap close end of ’24, start of ’25. As we’ve seen in the era of AI networking is as important as ever. There’s one 800-pound gorilla in the western world for core switches, and it’s called Cisco. Will Juniper help out in that? They’re heavy-dialed into the SP market, but wonder what they can do in the future.
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.
