A confident Hewlett-Packard Enterprise Co. today reported fiscal third-quarter earnings that beat analysts’ expectations on revenue that was in line with Wall Street estimates.

The company raised its guidance on free cash flow and earnings per share for the year, the fourth such increase since last October, citing strength in its as-a-service and networking businesses as well as what it calls its “edge-to-cloud” management strategy.

Quarterly revenue rose 3% from the previous quarter and 1% from a year ago, to $6.9 billion. Analysts had expected slightly higher sales of $6.93 billion. Earnings per share of 47 cents easily beat analysts’ estimates of 42 cents.

HPE executives said the company’s core compute and storage businesses are stable and that it’s even gaining share in the storage market. Meanwhile, growth businesses like its intelligent Edge and GreenLake composable infrastructure offering, which delivers on-premises equipment as a subscription service, showed strong growth. HPE added 200 GreenLake customers in the quarter, bringing the total to more than 1,000.

Intelligent Edge revenues of $867 million were up 23% from the prior year on a currency-adjusted basis with significantly improved operating profit margins. HPE said as-a-service orders jumped 46% without specifying an amount.

Margins expand

As a slow-growth business, HPE typically emphasizes metrics like cash flow and gross margins in its earnings reports, and both showed solid growth. Gross margins of 34.7% were up a little over 0.4% and free cash flow grew more than 330% to $1.46 billion. The figures are the result of what CEO Antonio Neri (pictured) said is a “deliberate shift in our portfolio to higher margins,” particularly in software.

“We have ample liquidity to run operations, invest in growth and return capital to our shareholders,” said Chief Financial Officer Tarek Robbiati, who announced a 12-cent dividend that will be payable to shareholders in October.

HPE’s strategy has been coming into sharper focus in recent months as the company has returned to its roots as a multifaceted system manager. With its recent announcement of Unified DataOps and the Data Services Cloud Console, the company aims to provide what Neri called a “cloud experience everywhere. We’re going to accelerate the strategy because it’s working,” he said.

“The conversation is as simple as this: [customers] want the cloud experience on-prem and at the edge and we are delivering that through GreenLake,” the CEO said.

Gartner Inc. Senior Research Director Jeff Vogel said strong growth in the as-a-service business demonstrates that customers are embracing the on-premises cloud consumption model over traditional capital expense-based sourcing. “There’s no question of the momentum that’s building from these numbers. It appears that HPE is firmly on track to realize Antonio’s FY23 as-a-service growth targets,” he said. HPE has said it will offer its entire portfolio through a range of subscription, pay-per-use and consumption-based plans by 2023.

NSA win

The earnings announcement came a day after HPE announced that it had won a $2 billion, 10-year contract with the National Security Agency for high-performance computing as a service through the GreenLake platform. Neri said the deal was significant because it is about more than just selling infrastructure.

“It’s a true as-a-service model and management where we are operating the whole environment,” he said. “That is very different from it was in the past.”

On a segment basis, High-Performance & Mission-Critical Systems revenue grew an adjusted 9% to $740 million. Compute revenue fell an adjusted 12% to $3.1 billion but grew 4% over the previous quarter. Storage revenue grew 1% to $1.2 billion, led by 30% growth in all-flash arrays.

Executives indicated that buying patterns are stabilizing following the uncertainty of the past year. “I’m particularly bullish about the IT spend cycle,” Neri said. Robbiati said supply chain shortages continue to inhibit growth and will likely continue for at least the next two to three quarters.

The company raised guidance on some financial targets for the full year. Earnings per share are now expected to come in at between $1.88 and $1.96, up from previous guidance of $1.82 to $1.94. Free cash flow guidance was raised to between $1.5 billion and $1.7 billion from a range of $1.2 billion to $1.5 billion.

Investors sent shares down about 0.7% after hours. HPE stock has traded in a narrow range of between $9 and $18 a share for years.

Photo: HPE/livestream