Shares of Hewlett Packard Enterprise Co. and its onetime sister company HP Inc. were trending lower in extended trading today after the companies offered guidance for the fourth quarter that came up short of analyst’s expectations.

Both companies are struggling amid soft enterprise spending and lower demand for the servers, storage gear, personal computers and printers they depend on.

In the case of HPE, its third-quarter results came in above Wall Street’s expectations. It posted a net profit of $464 million with revenue rising 1% from a year earlier, to $7 billion, just ahead of the $6.99 billion analyst estimate. Earnings before certain costs such as stock compensation came to 49 cents per share, above Wall Street’s guidance of 47 cents.

Investors were disappointed with HPE’s fourth-quarter forecast, though. The company is forecasting revenue of between $7.2 billion and $7.5 billion, the midpoint of which fell below the Street’s target of $7.49 billion.

Investors were dismayed because HPE’s rival in the networking market, Arista Networks Inc., recently forecast robust revenue growth after delivering better-than-expected results. Arista said it was helped by rising demand arising from the growth of artificial intelligence. HPE’s main rival in the server market, Dell Technologies Inc., is also aiming to ride the wave of excitement generated by AI, recently launching a generative AI collaboration with Nvidia Corp., like seemingly every other enterprise company.

For its part, HPE has invested a lot of money to ensure its products play nice with AI workloads at a time when companies are looking to scale up their data centers to support chatbots and other types of AI services.

HPE did at least raise its full-year earnings guidance to $2.11 to $2.15 per share, above its previous forecast of $2.06 to $2.14 per share, but that failed to prevent its stock falling just over a percentage point in the extended trading session.

HPE’s main compute business, which includes revenue from its server sales, fell 13% from a year earlier to $2.6 billion, below market estimates. Storage sales dropped 5% to $1.1 billion, just ahead of the Street’s target.

As a result, HPE’s growth came from its Intelligent Edge business unit, where revenue increased 50% to $1.4 billion. The segment is central to HPE’s strategy of moving away from traditional hardware, selling products that enable companies to gather and process data where it is created, instead of sending it to an external data center.

HPE Chief Executive Antonio Neri (pictured) hailed the “standout performances” of the Intelligent Edge business and its GreenLake offering, a portfolio of hardware and software products that enterprises can buy on a pay-as-you-go basis, instead of purchasing everything upfront.

“Demand improved sequentially across all key business segments, with particular strength in our HPC & AI segment as customers discover HPE’s unique capabilities to power unprecedented levels of performance for AI at scale,” Neri said. “Our strategic shift toward edge, hybrid cloud and AI delivered through our HPE GreenLake platform is working.”

Holger Mueller of Constellation Research Inc. said HPE’s performance would have been disastrous if not for Greenlake and the Intelligent Edge. “It’s good for HPE to find a second big growth stream to support Greenlake, but some investors may be wondering if this growth is cannibalizing its traditional server-based revenue stream,” Mueller stated. “The future will tell if this growth is organic or not. It will also tell us if HPE is able to invigorate its high performance computing portfolio with the opportunities it spoke of in AI a few weeks ago.”

HPE is following a narrative that has been set by other enterprise information technology vendors, said Charles King of Pund-IT Inc., namely basking in the praise of its recent strong performance but being careful not to show too much optimism about the short-term future. Overall though, he said the company deserves kudos for the solid performance of its compute and Intelligent Edge businesses.

“That Intelligent Edge success, eclipsing storage revenues for the first time, offers a point for consideration,” King explained. “Enterprise storage has become, in comedic terms, the Rodney Dangerfield of IT: It gets no respect. Yet data storage is, in many ways analogous to the differential in a vehicle drive train. Though no one pays it much attention, without the differential the car or truck goes nowhere.”

King added that HPE is meeting the needs of its enterprise customers and said he wouldn’t be surprised if the company delivers to expectations in the quarters to come.

In June, HPE held its annual user conference HPE Discover, where it outlined its strategy for AI, centered on a new offering called HPE GreenLake for Large Language Models. It’s billed as an alternative to training AI models on Nvidia’s graphics processing units. Enterprises will be able to use HPE’s Cray XD supercomputers, which offers an AI-native architecture for single, large-scale training and simulation workloads.

During the event, Neri stopped by theCUBE, SiliconANGLE’s mobile livestreaming studio, where he talked about how HPE’s strengths in high-performance computing give it a natural competitive advantage in AI:

HP sinks on muted PC prices

The picture is looking even worse for HPE’s sibling HP Inc., which missed the Street’s expectations on third-quarter revenue and also posted weak guidance. The company’s stock fell more than 6% in the after-hours session.

The PC and printer maker reported sales of $13.2 billion, down 10% from a year earlier and just below Wall Street’s consensus estimate of $13.4 billion. Earnings before certain costs came to 76 cents per share, above the 65-cent-per-share analyst target.

HP’s personal systems business that accounts for PC sales delivered revenue of $8.9 billion, down 11% and just above the Street’s consensus of $8.7 billion. However, the printing group saw revenue fall 7%, to $4.3 billion, below the forecast of $4.7 billion.

HP CEO Enrique Lores told Barron’s that the company’s performance was improving despite operating in a tough market, with sequential growth in earnings per share, operating profit and free cash flow. However, he conceded that “PC prices are not improving as quickly as we expected.”

For the fourth quarter, HP is looking at earnings per share of 85 to 97 cents, the midpoint falling short of Wall Street’s target of 96 cents. HP also reduced its full-year forecast, and is now targeting earnings of $3.23 to $3.35 per share, down from its earlier range of $3.30 to $3.50 per share. The Street is targeting full-year earnings of $3.37 per share.

Photo: SiliconANGLE