HPE advances long-term strategy, delivering strong profitability and scaling recurring revenue against market headwinds

Well-positioned to capture explosion of AI demand and continued opportunities in hybrid cloud and edge

Today, HPE reported first quarter financial performance for fiscal year 2024. It was a mixed story for us, with some results to be proud of and some disappointments.

Key takeaways from the quarter’s performance:

• We achieved strong profitability, while advancing our long-term strategy.
• We continued to scale our recurring revenue, achieving the second-highest year-over-year growth rate since we started tracking ARR [1] in late 2019 – which is a promising indicator for our ongoing portfolio shift to higher-margin revenues.
• Overall revenue performance was lower than expected due in large part to networking demand softening industry-wide, and the timing of several large GPU acceptances. We also did not have the GPU supply we would have liked.

In quarters like these, I am reminded of the significant progress we have made in pivoting our portfolio to position us to capture significant opportunities across edge, hybrid cloud, and AI. The transformation we have made across our businesses was critical and well timed, and it has served us well and will continue to ensure we manage through market fluctuations and continue to strengthen our competitive position.

Strategic investments in the edge advancing market position

Over the last several quarters, we have gained share in the campus networking markets, and we are seeing strategic investments in this area pay off. Most recently, we have seen strong growth in SASE, an offering we bolstered with our acquisition of Silver Peak in 2020 and Axis Security in 2023. In Q1, our Intelligent Edge revenue grew 2% in constant currency year-over-year [1] to $1.2 billion, though demand eased.

Customers are taking longer to digest prior orders than we had anticipated, which partially offset the benefit of our networking backlog entering the quarter.  We expect weakness in the networking market to persist, with some improvement in late fiscal 2024, as inventory clears and customers such as U.S. state and local education buyers enter their IT purchasing season.

As we look ahead to the future of this market, we are excited about our pending Juniper Networks acquisition. Combining our complementary portfolios will supercharge HPE’s edge-to-cloud strategy, accelerating our entire portfolio with AI-enabled innovation. When our proposed acquisition closes, we will create a new networking innovator with a comprehensive portfolio for customers and partners.

HPE GreenLake hybrid cloud platform gaining traction

Our HPE GreenLake hybrid cloud platform continues to resonate in the marketplace and was the primary driver of our highest Q1 year-over-year rise in ARR. Our ARR [1] grew 41% in constant currency year-over-year [2] to more than $1.4 billion in Q1, and we continue to expect ARR growth of 35% to 45% as we look ahead.

We are steadily advancing our HPE GreenLake hybrid cloud platform services. Earlier in the quarter, we announced an expanded HPE GreenLake for File Storage offering that is designed for GenAI. This solution, which is highly differentiated through a high-performing file system solution specifically designed for AI applications, better positions us to take market share in storage by addressing the previously underserved segment of the file market.

Our innovation continues to attract customers to the HPE GreenLake platform, which now connects 3.8 million network devices and supports more than 31,000 customer organizations – up approximately 8 percent from last quarter.

Capturing exploding AI demand

In AI, we are capturing the explosion in demand for AI systems. APU orders represent nearly 25 percent of our total server orders since the first quarter of fiscal 2023. Our pipeline is large and growing, and we are starting to see AI pull through demand for other solutions, including storage.

While AI server demand remains very strong, GPU availability is tight, and our delivery timing has also been affected by the increasing length of time customers require to set up the data-center space, power, and cooling requirements needed to run these systems.

In Q1, we expanded our strategic collaboration with NVIDIA targeting the enterprise segment of the market. We introduced a pre-configured solution for enterprise customers to fine-tune AI large language models with their private data to accelerate inferencing. Our HPE Machine Learning Development Environment software and unique HPE supercomputing IP are critical parts of the pre-configured solution, alongside NVIDIA AI Enterprise software.  We have built a strong and growing sales pipeline for this new offering.

The opportunity in front of us

There is no question that Q1 brought some unanticipated challenges, but it also brought reminders of why the markets we’ve chosen to prioritize hold a great deal of promise. Our customers continue to look to HPE to deliver innovation and experiences from edge to cloud, and we will strive to exceed their expectations. We will execute with discipline, manage costs, and continue to invest in differentiated offerings that will set us apart from the competition.

We have incredible opportunities ahead of us this year. We look forward to advancing our winning strategy, which has never been more relevant than it is today. I am confident we can deliver a strong 2024 for our customers, partners, team members and shareholders.

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.

[1] For definition of ARR, please refer to 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.

This article originally appeared on the HPE Newsroom.