Innovation, strategy, and execution drive exceptional profitability in Q2

MAY 30, 2023 • BLOG POST • ANTONIO NERI, PRESIDENT & CEO

IN THIS ARTICLE

  • HPE reported strong Q2 earnings with higher revenue, increased contributions from recurring revenue, and expanded overall profitability
  • Results show effectiveness of strategy to pivot portfolio to higher-growth, higher-margin areas and operational discipline
  • Seeing significant demand for HPE’s differentiated AI offerings

Growth of Intelligent Edge, demand for AI offering and hybrid cloud innovation fuel performance

Today, HPE reported second quarter financial performance, and I am delighted that we continue to deliver strong results. In a market that continues to be dynamic, we delivered exceptional profitability. This demonstrates that our strategy to pivot our portfolio to higher-growth, higher margins areas is working, and we are operating with strong discipline. Here are a few highlights from the quarter:

 

  • HPE grew revenue 9%(1) year-over-year to $7.0 billion.

  • We achieved exceptional profitability in this fiscal quarter, generating our highest non-GAAP gross margin(2) ever and a non-GAAP operating margin(2) of 11.5%.

  • Non-GAAP diluted net earnings per share(2) rose 18% year-over-year to 52 cents.

  • We raised GAAP and non-GAAP diluted net EPS guidance for the full fiscal year, reflecting continued confidence in our strategy and operational discipline.

 

Positioned in relevant markets to meet our customers’ needs

The strategic diversification of our portfolio is a clear strength in winning the business of customers who are taking a data-first approach to modernize their IT estates. The relevance of our strategy at the edge, in hybrid cloud, and in AI – delivered through our HPE GreenLake edge-to-cloud platform – is enabling us to navigate the dynamic macroeconomic environment.

Our HPE GreenLake hybrid cloud platform continues to power the growth of our software, infrastructure, and services, capturing more than $10 billion in total contract value for the first time. HPE GreenLake also drove our annualized revenue run-rate (ARR)(3) to $1.1 billion – with an increasing portion of ARR coming from margin-rich software and services.

We continue to innovate on the HPE GreenLake platform. To complement our organic innovation, earlier this month we completed our acquisition of OpsRamp, whose hybrid digital operations management solutions have enhanced our HPE GreenLake platform by providing visibility, observability and control across multi-vendor and multi-cloud IT environments. With the integration of OpsRamp technology into HPE GreenLake in Q3, we entered a $39 billion IT Operations Management market(4).

HPE GreenLake is a performance driver across our portfolio, and we are seeing its value across our business segments. In nearly all of our key segments during the second quarter, we produced year-over-year revenue growth.

Continued performance at the edge

Intelligent Edge had a stand-out quarter. HPE Aruba Networking has exceeded our revenue and margin expectations, in part because customers are adding more cloud software services to recently delivered infrastructure, which will add to recurring revenue in future quarters. This is the second consecutive quarter of more than $1 billion in revenue in this segment, and the eleventh consecutive quarter of year-over-year revenue growth.

We continue to drive innovation and expand our addressable market at the edge. Through our acquisition of cloud-security provider Axis Security, we have expanded our SASE – Secure Access Service Edge – offering, and with the soon-to-close purchase of Athonet, we are doubling down on private 5G. The combination of Axis Security, Athonet, and our world-class HPE Aruba intelligent edge capabilities gives HPE one of the most comprehensive, connected edge portfolios in the market. We expect this business to continue to grow in the quarters ahead.

Customer demand for AI solutions

In our HPC & AI business, we saw a significant sequential increase in orders this quarter, with a noteworthy uptick across customer segments – from Fortune 500 companies to digital-native start-ups looking for optimized solutions for their large-scale-model development, training and inferencing. Customers are attracted to HPE’s market-leading supercomputing capabilities, differentiated interconnect IP, AI-specific software and services expertise.

This is a significant, profitable growth opportunity for HPE and our shareholders, in a space where HPE has unique differentiation – evident in the momentum in our business. Since the start of the second quarter, we have won multiple large contracts totaling more than $800 million from cloud providers and enterprise customers that will develop, train and run AI models.

In the quarter, we recognized a portion of the total revenue for our second exascale system – called Aurora – for the Argonne National Laboratory. Argonne will develop a series of generative AI models to run on the HPE Cray EX supercomputer.

In just a few weeks, we will host our annual HPE Discover customer and partner event in Las Vegas, where we will announce breakthrough innovations we anticipate will accelerate the demand for our portfolio, including our AI solutions.

Innovation drives shareholder and customer value

We are executing our strategy and delivering strong results, including year-over-year revenue, margin growth, and expanded earnings. I am proud of our 60,000 team members whose commitment to bold thinking and innovation is helping our customers achieve their goals.

While the macro environment may introduce more uncertainty in the short term, I am confident that our winning strategy, diverse portfolio, and continued innovation position us well to deliver value for our customers and shareholders.

1 Adjusted to eliminate the effects of currency. A description of HPE’s use of non-GAAP financial information is provided in the earnings presentation at https://Investors.hpe.com.

2
Reconciliation of specific adjustments to GAAP results for the current and prior periods and description of HPE’s use of non-GAAP financial information are included in the earnings presentation at https://Investors.hpe.com.

3
For definition of as-a-Service orders and ARR, please refer to the earnings presentation at https://Investors.hpe.com.

4
 Shailendra Upadhyay, Laurie Wurster (February 2023), Gartner Forecast Analysis: IT Operations Management Software, Worldwide


This blog contains forward-looking statements subject to risks; results could differ materially. For more cautionary language regarding forward-looking statements, refer to the earnings presentation at 
investors.hpe.com.

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