Hewlett Packard Enterprise Co. delivered second-quarter earnings and revenue that topped Wall Street’s forecasts, but lowered the top end of its full-year guidance, citing better visibility into market conditions and more stable demand.

The company reported earnings before certain costs such as stock compensation of 38 cents per share, higher than the Street’s target of 33 cents. Revenue for the period was up 6% from a year earlier, rising to $7.63 billion. That was comfortably ahead of the analyst consensus estimate of $7.45 billion.

Despite the impressive numbers, HPE posted a net loss of $1.5 billion for the three-month period ended April 30, swinging from a profit of $314 million in the same period one year ago. However, that was primarily the result of a $1.36 billion goodwill impairment charge related to a recalculation of discount rates within its hybrid cloud business, officials said.

Revenue from its most critical business of the moment, the server segment, gained 6% from a year earlier, to $4.1 billion.

The unit has been boosted by rising sales of artificial intelligence servers, and revenue from that part of the business came to $1 billion, the company said. Analysts were pleased to hear that, having forecast AI server sales of just $798 million in the quarter. But HPE notably still trails its rival Dell Technologies Inc., which reported $1.8 billion in sales of AI servers in its most recent earnings call.

Analysts are interested in AI because it has fueled a wave of demand for more powerful servers from the likes of HPE, Dell and Super Micro Computer Inc. But these beefed-up offerings actually have lower profit margins, because they’re powered by expensive AI chips from companies such as Nvidia Corp.

Investors will note that the server segment’s operating margin fell to 5.9% in the quarter, down from 11% one year earlier, as AI servers increased their share of sales. Elsewhere within the company, intelligent edge revenue jumped 7% from a year ago, to $1.2 billion, while hybrid cloud revenue rose 13%, to $1.5 billion. Revenue from financial services edged down 1% from last year, to $856 million.

HPE President and Chief Executive Antonio Neri (pictured) said he was happy overall with the company’s “solid performance,” highlighting sequential revenue growth in each product segment.

“In a very dynamic macro environment, we executed our strategy with discipline,” he said. “We remain focused on bringing breakthrough innovation to our customers while increasing profitability and enhancing shareholder value.”

Despite Neri’s optimism, there are some who believe the company has not been able to seize the moment as well as its peers, and as a result, it has come under pressure from the activist investor Elliott Management Corp., which owns a hefty $1.5 billion stake. Elliott made its position in HPE public news in April, but today Neri refused to talk about any conversations he has had with the investment firm, saying they will remain private.

With regard to the current business environment, this appears to have settled compared to three months earlier, said HPE Chief Financial Officer Marie Myers on a conference call with analysts. She explained that though some macroeconomic uncertainties and concerns over trade persist, overall sentiment has improved.

That prompted HPE to lower the top end of its full-year sales outlook. However, it bumped up the floor of its earnings outlook, citing a new tariff exemption.

According to Myers, many of HPE’s products are in compliance with the U.S.-Mexico-Canada Agreement, which means they can be shipped to U.S. customers without additional tariffs. As a result, HPE now forecasts a four-cent hit to its full-year earnings, down from a previous estimate of seven cents. She said the USMCA exemption will also mean the company doesn’t have to fall back on planned mitigations, such as increasing prices or restructuring its supply chains.

For the full-year, HPE is now looking at earnings of $1.78 to $1.90 per share, improving on its previous forecast of $1.70 to $1.90. In addition, it’s calling for revenue growth at a narrower range of 7% to 9%, compared to its earlier guidance of 7% to 11%. The revised guidance is still better-than-expected though, as Wall Street is looking for earnings of $1.80 per share on sales of $32.46 billion, which would represent growth of 7.7% from a year earlier.

Holger Mueller of Constellation Research Inc. agreed with Neri that the company’s performance was “solid” enough during the quarter, and could have even been termed as “good” if not for the higher-than-expected impairment charge that wrecked its profits.

“AI is the main thing that’s keeping HPE growing, and the challenge for Neri and team will be to make those pricey AI servers more profitable, or risk struggling against its rivals,” the analyst said.

DIY Value Investing analyst Chris Lau said he was impressed with HPE’s results, which “demonstrated customer demand strength” across its key server and intelligent edge business segments.

“While shares will not ‘fly’ the way CoreWeave and Applied Digital did recently, these results suggest that HPE stock bottomed in April and might head higher,” Lau told the Wall Street Journal.

Looking to the current quarter, HPE is targeting earnings of 40 to 45 cents per share on sales of $8.2 billion to $8.5 billion. Wall Street is modeling a profit of 41 cents per share on revenue of $8.22 million. Investors liked what they saw, and HPE’s stock gained more than 4% in extended trading, though it’s still down 17% in the year to date.

The company added that its recent cost-cutting program, which was announced in March and will see around 2,500 jobs, or 5% of its workforce laid off, is starting to bear fruit. According to Myers, it’s on track to generate $350 million in savings by fiscal 2027.

HPE is also edging closer to an all-important trial that will determine if it’s allowed to proceed with its proposed $14 billion acquisition of Juniper Networks Inc. Earlier this year, the U.S. Department of Justice filed a lawsuit against HPE in an effort to block that deal, despite its already being approved by European and U.K. regulators. The trial will kick off in the current quarter, and the outcome could well be known before HPE reports its next earnings results in September.

“The reduced full-year guidance is another warning sign for investors, but these concerns will be much less of a worry if the company is finally able to acquire Juniper,” Mueller added. “We should know soon if it’s going to happen or not.”

Photo: SiliconANGLE