UPDATED 19:11 EST / NOVEMBER 28 2023


HPE’s earnings edge past Wall Street’s estimates, driven by upsurge in AI

Information technology hardware giant Hewlett Packard Enterprise Co. beat estimates for quarterly profit as it posted its fourth-quarter financial results today, but ongoing economic uncertainty meant it could offer only a subdued forecast going forward.

The results in the quarter were driven by the growing strength of its high-performance computing and artificial intelligence business, which is now gaining traction with customers looking to train large language models. The company has also worked to reduce its business expenditures.

Also announcing its latest financial results today was the data center infrastructure company NetApp Inc., which rivals some aspects of HPE’s business. That company managed to deliver better-than-expected results in both earnings and revenue, sending its stock shooting up after-hours.

Mixed results for HPE

For the quarter, HPE delivered a profit before certain costs such as stock compensation of 52 cents per share, at the high end of its own guidance range and above Wall Street’s forecast of 50 cents. Revenue fell 7% from a year ago, to $7.35 billion, at the midpoint of its own guidance range. It was just shy of the Street’s consensus estimate of $7.36 billion.

The company reported a net profit for the quarter of $642 million, improving from the net loss of $304 million it delivered a year earlier. Annualized run rate, which is a measure of future revenue, jumped 39%, to $1.3 billion.

HPE’s increased profitability stemmed from its successful implementation of cost-cutting measures, and its expenses fell almost 17%, to $6.84 billion. Unfortunately, the company’s business continues to battle sticky inflation and higher interest rates, which have forced many of its customers to cut back on IT spending.

There are multiple moving parts to the company, and analysts are having a hard time when it comes to gauging expectations in some parts of the business. The HPC and AI segment, which includes the company’s growing supercomputing business, generated revenue of $1.18 billion in the quarter, up 37% from a year earlier and well ahead of the $951 million analyst estimate.

HPE Chief Executive Antonio Neri (pictured) told Barron’s in an interview that the business is likely to continue growing. It received orders worth about $3.6 billion in the 2023 fiscal year, with $600 million of that coming in the last 10 days. He added that almost none of them have been fulfilled, which means the revenue will only show up in future quarters.

The intelligent edge segment, which is made up of the Aruba networking and related business, delivered sales of $1.36 billion, up 41% from a year earlier but below the consensus estimate of $1.44 billion. That was a noticeable deceleration in growth, with the business having increased its revenue by more than 50% in the previous two quarters.

Compute revenue, which is derived from sales of servers to data center operators, fell 31% from a year earlier to $2.6 billion, below the estimate of $2.76 billion. However, Neri pointed out that revenue there was down just 1% sequentially and that unit shipments actually increased during the period. The last major business is the storage unit, which delivered sales of $1.1 billion, down 13% from a year earlier and just below the Street’s estimate.

HPE also posted its full-fiscal year 2023 results, with revenue up 2% from a year earlier, to $29.1 billion.

For the first quarter of fiscal 2024, HPE said it’s expecting sales of between $6.9 billion and $7.3 billion, the midpoint of that range just below Wall Street’s call for $7.2 billion. In terms of profit, the company is expecting earnings of 42 to 50 cents per share, with the midpoint just above the forecast of 44 cents.

For fiscal 2024 as a whole, HPE reiterated its earlier call for top-line revenue growth of between 2% and 4%, with profits of between $1.82 and $2.02 per share.

Shares of HPE remained more or less flat in the wake of the report. In the year to date, the stock is down about 3%.

NetApp beats the Street

As for NetApp, its stock rose more than 11% in extended trading after it posted encouraging results that came in ahead of Wall Street’s forecasts.

NetApp reported a net profit for the second quarter of $233 million, down from the $750 million profit it delivered a year earlier. However, its earnings before certain costs came to $1.58 per share, comfortably beating the Street’s target of $1.40. Revenue also came in above expectations, at $1.56 billion, compared to the Street’s call for just $1.53 billion.

The company, led by its CEO George Kurian (pictured, adjacent) made its name as a pioneer of high-end enterprise storage arrays but has since reinvented itself as a hybrid cloud data services and data management company. The majority of its revenue is now derived from the cloud, thanks to its close relationships with public cloud infrastructure providers such as Amazon Web Services, Google Cloud and Microsoft Azure.

Analyst Steve McDowell of NAND Research Inc. said NetApp had a mixed quarter overall because its top-line revenue was off year-over-year. However, it landed within the middle of its guidance range, making investors happy.

“The NetApp team has always been good at managing the bottom line, and that continued this quarter,” McDowell said. “The big financial win was NetApp’s stronger-than-expected gross margin, which was up substantially and beat its own guidance.”

Investors will be especially happy with the performance of NetApp’s nascent public cloud business, the analyst said, as this grew by 8% in the quarter. He pointed out while most of its storage rivals have public cloud offerings too, NetApp has benefited from making its own a strategic priority. “Its cloud focus is paying off with solid and consistent growth that competitors aren’t seeing,” McDowell said. “Public cloud now makes up about 10% of NetApp’s revenue. That’s significant and I expect we’ll see this continue to grow.”

For the current quarter, NetApp is looking at earnings of between $1.64 and $1.74 per share, some way ahead of Wall Street’s call for earnings of $1.53. In terms of revenue, the company is targeting a rather broad range of between $1.51 billion and $1.67 billion, the midpoint of which is above Wall Street’s target of $1.56 billion.

Photo: SiliconANGLE

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