The News: Hewlett Packard Enterprise (HPE) held a Securities Analyst Meeting in the NYSE to brief institutional stakeholders on the 3-year outlook for the company. Find the full details on the HPE website.
Analyst Take: HPE graciously invited me to an event usually attended in person by institutional observers from the equities landscape, and I had the opportunity to spend time with HPE President and CEO Antonio Neri and his leadership team as well as watch the live broadcast.
The Securities Analyst Meeting served as a prelude to the company’s ambitious financial and strategic outlook for the next 3 years. The presentation by Antonio Neri and Jeremy Cox, senior vice president and interim CFO, delved into the multipronged strategy that aims to significantly enrich shareholder value over the coming years.
Positioning for the Future: From Edge To Cloud
During his scripted remarks, Antonio Neri expressed steadfast confidence in HPE’s trajectory, positioning the company as a dominant force in the edge-to-cloud computing continuum. HPE’s transformation over the past few years has shifted its focus toward higher growth and higher margin markets, aligning the company strategically with overarching trends in edge computing, hybrid cloud, and AI. GreenLake has led the charge.
The significance of this pivot can hardly be overstated. By 2026, the company expects its newly announced trifecta of intelligent edge, high-performance computing (HPC) and AI, and the future hybrid cloud segment to contribute over 50% of its total segment revenue. In monetary terms, HPE projects to expand its total addressable market by $100 billion over a 4-year timeline, led predominantly by gains in the burgeoning AI market.
Exploiting High-Growth Areas: Intelligent Edge
Since 2018, HPE has invested nearly $6 billion into its Aruba Networking business. These strategic financial allocations are already yielding dividends, most conspicuously in the intelligent edge segment. On track to be a $5 billion annual business by the end of fiscal year (FY) 2023, intelligent edge promises to be a revenue powerhouse and the segment with the highest profitability within the HPE portfolio. The emphasis is on penetrating high-growth, margin-rich market segments and thus accelerating shareholder value in a compelling fashion. Edge is rapidly reaching maturity, and HPE is well positioned to capitalize.
The Powerhouse of Hybrid Cloud
A noteworthy declaration from HPE was the consolidation of its storage and compute as-a-service offerings under a new hybrid cloud segment, operative starting November 1, 2023. HPE’s GreenLake, in particular, stands as a testament to the company’s innovative prowess, with software and services constituting nearly 70% of the platform’s annual recurring revenue (ARR) mix. As companies seek agility and scalability, HPE’s cloud-native offerings are well poised to meet these demands while chipping away at the market share of cloud behemoths such as the three big hyperscalers.
Capturing the AI Revolution
HPE’s analytical eye on AI’s transformative potential is evident in its targeted approach to three key areas: supercomputing, AI infrastructure, and AI platform software. HPE aims to carve out a unique value proposition in the sprawling AI landscape by leveraging its intellectual property and trusted expertise. With strategic investments in full-stack AI-native architectures, the company is placing informed bets on a market that is practically bursting at the seams. In the post-match Q&A and the conversations in the room, AI dominated as the assembled analysts clamored for more insight to build their models.
Strengthening the Financial Backbone
The financial outlook through 2026 provided by HPE is both conservative and optimistic. It projects a revenue growth rate of 2% to 4% in constant currency, which will hardly set pulses racing but is also, to my mind, under-calling the edge and AI tailwinds. Additionally, the company’s balanced capital allocation framework ensures a disciplined approach toward balancing shareholder returns and growth investments while preserving an investment-grade credit rating.
HPE is setting a new benchmark with an intended return of 65% to 75% of free cash flow to shareholders over the next 3 years, a significant hike from its historical target of between 50% and 60%. This increase will be appreciated by long-term investors.
For FY 2024, HPE expects to continue its growth momentum with a projected revenue growth of 2% to 4%. On the operational side, Generally Accepted Accounting Principles (GAAP) operating profit growth is expected to be 15% to 21%, while non-GAAP operating profit growth is expected to hover between 3% and 5% year-over-year.
Looking Ahead
In summary, HPE’s Securities Analyst Meeting was more than a routine financial update; it was a vivid blueprint of a company at the intersection of explosive growth in AI and edge, positioning a calculated but transformation strategy aimed at driving shareholder value. In my opinion, by interlocking its strategy with market trends and committing to disciplined financial execution, HPE offers both a vision and a viable pathway for substantial long-term value creation.
Disclosure: The Futurum Group is a research and advisory firm that engages or has engaged in research, analysis, and advisory services with many technology companies, including those mentioned in this article. The author does not hold any equity positions with any company mentioned in this article.
Analysis and opinions expressed herein are specific to the analyst individually and data and other information that might have been provided for validation, not those of The Futurum Group as a whole.
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Author Information
Regarded as a luminary at the intersection of technology and business transformation, Steven Dickens is the Vice President and Practice Leader for Hybrid Cloud, Infrastructure, and Operations at The Futurum Group. With a distinguished track record as a Forbes contributor and a ranking among the Top 10 Analysts by ARInsights, Steven's unique vantage point enables him to chart the nexus between emergent technologies and disruptive innovation, offering unparalleled insights for global enterprises.
Steven's expertise spans a broad spectrum of technologies that drive modern enterprises. Notable among these are open source, hybrid cloud, mission-critical infrastructure, cryptocurrencies, blockchain, and FinTech innovation. His work is foundational in aligning the strategic imperatives of C-suite executives with the practical needs of end users and technology practitioners, serving as a catalyst for optimizing the return on technology investments.
Over the years, Steven has been an integral part of industry behemoths including Broadcom, Hewlett Packard Enterprise (HPE), and IBM. His exceptional ability to pioneer multi-hundred-million-dollar products and to lead global sales teams with revenues in the same echelon has consistently demonstrated his capability for high-impact leadership.
Steven serves as a thought leader in various technology consortiums. He was a founding board member and former Chairperson of the Open Mainframe Project, under the aegis of the Linux Foundation. His role as a Board Advisor continues to shape the advocacy for open source implementations of mainframe technologies.
