Q1 2024 Hewlett Packard Enterprise Co Earnings Call

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Operator: Good afternoon, and welcome to the first quarter fiscal 2024 Hewlett Packard Enterprise earnings conference call. My name is Gary, and I'll be your conference moderator for today's call. At this time, all participants will be in listen-only mode.

Good afternoon, and welcome to the first quarter of fiscal 'twenty 'twenty for Hewlett Packard Enterprise earnings Conference call.

Gary: My name is Gary and I'll be your conference moderator for today's call at this time, all participants will be in listen only mode.

Operator: We will be facilitating a question and answer session towards the end of the conference. Should you need assistance during the call, please signal a conference specialist by pressing the star key followed by zero. As a reminder, this conference is being recorded for replay purposes. I would now like to turn the presentation over to your host for today's call, Ms. Shannon Cross, Senior Vice President and Chief Strategy Officer at Investor Relations. Please proceed. Good afternoon,

Gary: We will be facilitating a question and answer session towards the end of the conference should you need assistance during the call. Please signal our conference specialist by pressing the star key followed by zero.

Gary: As a reminder, this conference is being recorded for replay purposes.

Gary: I would now like to turn the presentation over to your host for today's call Ms. Shannon Cross Senior Vice President and Chief Strategy Officer, and Investor Relations. Please proceed.

Shannon Siemsen Cross: Good afternoon, I'd like to welcome you to our fiscal 'twenty 'twenty four first quarter earnings conference call with Antonio Neri, Hpe's, President and Chief Executive Officer, and Marie Myers, Hpe's, Chief Financial Officer. After 25 years on Wall Street number 20 years, covering H P. I'm very excited to join H P.

Shannon Siemsen Cross: I'd like to welcome you to our Fiscal 2024 First Quarter Earnings Conference Call with Antonio Neri, HPE's President and Chief Executive Officer, and Marie Myers, HPE's Chief Financial Officer. After 25 years on Wall Street and over 20 years covering HP, I'm very excited to join HP as Chief Strategy Officer. I look forward to working with Jeff Kvaal and the rest of the IR team, and I look forward to seeing many of you in the months ahead. Before handing the call to Antonio, let me remind you that this call is being webcast. A replay of the webcast will be available shortly after the call concludes.

Marie Myers: E as Chief strategy Officer, I look forward to working with Jeff Paul and the rest of the IR team and I look forward to seeing many of you in the months ahead.

Speaker Change: Before handing the call to Antonio Let me remind you that this call is being webcast a replay of the webcast will be available. Shortly after the call concludes we have posted the press release and the slide presentation accompanying the release on our H P E Investor Relations webpage elements of the financial information referenced on this call are forward.

Shannon Siemsen Cross: We have posted the press release and the slide presentation accompanying the release on our HPE Investor Relations webpage. Elements of the financial information referenced on this call are forward-looking and are based on our best view of the world and our businesses as we see them today. HPE assumes no obligation and does not intend to update any such forward-looking statements.

Speaker Change: Looking and are based on our best view of the world and our businesses as we see them today H.

Speaker Change: H P assumes no obligation and does not intend to update any such forward looking statements. We also note that the financial information discussed on this call reflects estimates based on information available at this time and could differ materially from the amounts ultimately reported an H P. Each quarterly report on Form 10-Q for the fifth.

Shannon Siemsen Cross: We also note that the financial information discussed on this call reflects estimates based on information available at this time and could differ materially from the amounts ultimately reported in HPE's quarterly report on Form 10-Q for the fiscal quarter ended January 31, 2024. For more detailed information, please see the disclaimers in the earnings materials relating to forward-looking statements that involve risks, uncertainties, and assumptions. Please refer to HPE's filings with the SEC for a discussion of these risks. For financial information we have expressed on a non-GAAP basis, we have provided reconciliations to the comparable GAAP information on our website. Please refer to the tables and slide presentation accompanying today's earnings release on our website for details. Throughout this conference call, all revenue growth rates, unless otherwise noted, are presented on a year-over-year basis and adjusted to exclude the impact of currency.

Speaker Change: Quarter ended January 31st 2024.

Speaker Change: For a more detailed information please see the disclaimers on the earnings materials relating to forward looking statements that involve risks uncertainties and assumptions. Please refer to H P E filings with the SEC for a discussion of these risks for financial information. We are expressed on a non-GAAP basis, we have provided reconciliations to the.

Speaker Change: Both GAAP information on our website.

Please refer to the tables and slide presentation accompanying today's earnings release on our website for details.

Speaker Change: Throughout this conference call all revenue growth rates, unless otherwise noted are presented on a year over year basis, and adjusted to exclude the impact of currency.

Shannon Siemsen Cross: Finally, Antonio and Marie will reference our earnings presentation and their prepared comments. Before handing the call over to Antonio, let me remind you that this call is being webcast. A replay of the webcast will be available shortly after the call concludes. We have posted the press release and the slide presentation accompanying the release on our HPE Investor Relations webpage. With that, I will turn it over to Antonio. Thank you, Shannon.

Speaker Change: Finally, Antonio Marie will reference our earnings presentation in their prepared comments before handing the call to Antonio Let me remind you that this call is being webcast a replay of the webcast will be available. Shortly after the call concludes we have posted the press release and the slide presentation accompanying the release on our H P E Investor Relations.

Speaker Change: Webpage with that let me turn it over to Antonio Thank you, Sean and good afternoon, and thank you for joining us today in the first quarter. There were proud to have outpaced our profitability expectations, while advancing our long term strategy.

Antonio Fabio Neri: Good afternoon, and thank you for joining us today. In the first quarter, we're proud to have outpaced our profitability expectations while advancing our long-term strategy. We also continue to scale our recurring revenue, achieving the second-highest year-over-year growth rate since we started tracking AIR in late 2019. This is a promising indicator for our ongoing portfolio shift to higher-margin revenue. But overall, our Q1 revenue performance did not meet our

Antonio: We also continue to scale our recording revenue achieved in the second I guess year over year growth rate since we started tracking in late 2019.

Antonio: This is a promising indicator for our ongoing portfolio shift to higher margin revenues.

Speaker Change: Overall Q1 revenue performance did not meet our expectations.

Antonio Fabio Neri: During this call, I will address three key points. First, I will touch on our revenue, which was lower than expected, in large part because network and demand softened industry-wide and because the timing of several large GPU acceptances shifted. Additionally, we did not have the GPU supply we wanted, curtailing our revenue upside. Second, I will address how we are streamlining our reporting segments, accelerating our new specialized sales model, managing our spending, and reinforcing execution. Third, and most importantly, I will discuss the progress we are making in executing a long-term strategy which we remain confident in. Let me first address revenue in the quarter. Similar to peers in the market, we saw campus networking product demand weaken, and the decline late in the quarter was greater than expected. This was a large headwind relative to our expectations. Customers are taking longer to digest prior orders than we had anticipated, which partially upsets the benefit of our backlog entering the quarter, and Europe and Asia were areas of relative softness.

Antonio: During this call I will address three key points first our cultural revenue, which was lower than expected in large part because that's one can demand soften industry wide because of the timing of several large GPU acceptance has shifted.

Antonio: Additionally, we did not have the GPU supply we wanted curtailing our revenue upside.

Antonio: Second of all what are the that's how we are streamlining our reporting segments accelerated new specialized cells Marvel monitoring all spending every forcing execution discipline.

Antonio: Third and most importantly, I will discuss the progress we're making in executing our long term strategy, which would remain confident and.

Speaker Change: Let me first address the revenue in the quarter.

Speaker Change: Similar to peers in the market and we saw campus networking problems them on the weekend and the decline late in the quarter was greater than expected.

Speaker Change: He was a larger headwind relative to our expectations.

Speaker Change: Some of them have taken longer to digest, probably orders than we had anticipated, which partially offset the benefit of our backlog entering the quarter.

Speaker Change: In Europe, and Asia, where areas of relative softness.

Antonio Fabio Neri: We expect weakness in the networking market to persist, which is likely to impact revenue through fiscal year 2024. That said, we anticipate some improvement late in fiscal year 2024 as inventory clears, and we ramp into the purchasing season for state and local education customers in the United States. AI server demand remains very strong, evidenced by our growing cumulative order book. However, GPU availability remains tight, and our delivery timing has also been affected by the increasing length of time customers need to set up the data center space, power, and cooling requirements needed to run this system. As a result, overall AI server order conversion was below our expectations.

Speaker Change: We expect weakness and then that's what the market to persist, which is likely to impact revenue through fiscal year 2020 for that.

Speaker Change: Third we anticipate some improvement late in fiscal year, 'twenty 'twenty four as inventory clears and we ramp into the fortunate since season for state and local education customers in the United States.

Speaker Change: Server demand remains very strong evidenced by a growing cumulative order book, However, GPU availability remains tight and our deliberate timing has also been affected by the increasing length of time customers required to set up the data center space power and cooling requirements needed to run the systems.

Speaker Change: As a result overall AI server orders conversion was below our expectations. However, the contribution to a I R is increasing.

Antonio Fabio Neri: However, the AI contribution to AIR is increasing, and we continue to prioritize profitability. I am pleased that we have delivered a non-gap gross margin of 36.2%, which is up 200 basis points year-over-year and about 600 basis points from fiscal year 2018. This performance helped our Q1 non-gap diluted net earnings per share grow to $0.48, which was above the midpoint of our guidance range, despite lower than expected revenue, illustrating the positive impact of our pivot to higher growth, higher margin revenue. We know that the current environment will require continued discipline in how we execute.

Speaker Change: We continue to prioritize profitability I am pleased that we have delivered non-GAAP gross margin of 36, 2%, which is up 200 basis points year over year and about 600 basis points from fiscal year 2018.

Speaker Change: This performance helped our Q1 non-GAAP diluted net earnings per share growth of 48 cents, which was above the midpoint of our guidance range, despite lower than expected revenue.

Speaker Change: Illustrating the positive impact of our pivot to higher growth higher margin revenue.

Speaker Change: We know that the corner in a bottom I would require continued discipline in how we execute.

Antonio Fabio Neri: We are accelerating the new specialized sales motions to maximize opportunities and improve order linearity across our portfolio, and Brutal Cost Management will remain an important competency for us in fiscal year 2024. We also found an opportunity to streamline our reporting segments. We have now combined the compute and HPC and AI segments into a single server segment that integrates general purpose computing, high performance computing, supercomputing, and AI systems. This will enable us to maximize opportunities across the entire AI life cycle, from training to tuning to inferencing, and execute with agility. And, as previously discussed, we have simplified our hybrid cloud strategy by putting all related products, software, and services into one business unit.

Speaker Change: We are accelerating our new specialized cells motions to maximize opportunities and improve order linearity across our portfolio.

Speaker Change: And part of our cost management would remain unimportant competency for us in fiscal year 'twenty to 'twenty four.

Speaker Change: We also found opportunities to streamline our reporting segments, we have not combined the computer and HBC NII segments into a single server segment that integrates general purpose computing high performance computing supercomputing and AI systems.

Speaker Change: This will enable us to maximize the opportunities across the entire lifecycle from training to tune into infancy and execute with agility.

Speaker Change: And as previously discussed we have simplified our hybrid cloud strategy by putting all related products software and services into one business unit.

Antonio Fabio Neri: Our new hybrid cloud segment will further accelerate customer adoption of the HPE GreenLake hybrid cloud platform. Turning to our strategy, while we are experiencing cyclicality in some markets, I am more confident than ever in a long-term strategy that is aligned to key market megatrends. In Edge, over the last several quarters, we have gained share in the campus networking market, and our strategic investments have paid off. Most recently, we have seen strong growth in SASE, an offering bolstered by our acquisition of Silver Peak in 2020 and Access Security in 2023. Our sales pipeline for our private 5G offering is also growing rapidly, following our acquisition of Afternet in 2023. In the hybrid cloud, HPE GreenLake continues to resonate in the marketplace and was the primary driver of the highest Q1 year-over-year rise in AIR over the four-plus years we have been reporting it. Our AIR grew 41% year over year to more than $1.4 billion in Q1.

Speaker Change: Our new hybrid cloud segment will further accelerate customer adoption of the H B Green Lake hybrid cloud platform turning to our strategy. While we are experiencing cyclicality submarkets I am more confident than ever in our long term strategy that is aligned to key market Mega trends.

Speaker Change: An edge over the last several quarters, we have gained share in the council's networking markets and our strategic investments have paid off most recently, we have seen strong growth in CECI and offering bolstered by our acquisition of Super peak in 2020 and extra security in 2023.

Speaker Change: Our sales pipeline for our private five G. Offering is also growing rapidly following our acquisition of summit in 2023.

Speaker Change: Hybrid cloud H B Green Lake continues to resonate in the marketplace. It was the primary driver of the highest Q1 year over year rise in AI are over the four plus years, we have been reporting it.

Speaker Change: Our a I R grew 41% year over year to more than one $4 billion in Q1.

Antonio Fabio Neri: And we continue to expect AIR growth of 35% to 45% as we look ahead. We're also capitalizing on cross-selling opportunities when customers come to us for our AI solutions and realize we can meet their storage needs as well. In AI, we are capturing the explosion in demand for AI systems.

Speaker Change: And we continue to expect a a growth of 35% to 45% as we look ahead.

Speaker Change: We're also capitalizing on cross selling opportunities when customers come to us for our AI solutions and realize we could meet their storage needs as well.

Speaker Change: In AI, we are capturing the explosion in demand for AI systems, our cumulative oscillate a processing unit orders rose to $4 billion in the quarter.

Antonio Fabio Neri: Our cumulative accelerator processing unit orders rose to $4 billion in the quarter, driven by demand across HPE Cray EX and XT solutions, as well as HPE ProLiant Gen11 AI optimized servers. AP orders represent nearly 25% of our total server orders since the first quarter of Fisca 2023. Our pipeline is large and growing across the entire AI life cycle from training to tuning to inference.

Speaker Change: Driven by demand across H, b create UX and XD solutions as well as H B Prolia on June 11th AI optimized servers.

Speaker Change: If you order so represent nearly 25% of our total sort of our orders since the first quarter of fiscal 2023.

Speaker Change: Our pipeline is large and growing across the entire AI lifecycle from training to tune into infancy, we are starting to see a demand pull through for other solutions, including storage.

Antonio Fabio Neri: We are starting to see demand pull through for other solutions, including storage. We expect our server and hybrid cloud segments to grow sequentially through the fiscal year. Server revenue stands to benefit from AI system demand, improving GPU supply, and our continued makeshift to HPE ProLiant Gen11. Hybrid cloud will benefit from continued HPE GreenLake storage demand and the rising productivity of our specialized Salesforce. Our customers continue to validate our value proposition. As one example, we are building a new HPE Cray EX supercomputer for Eni, one of the world's largest energy providers, that will reach more than half an exaflop performance. The system will be one of the most powerful in the world for enterprise use and will accelerate AI-driven scientific discovery to advance efforts in energy.

Speaker Change: We expect our server and hybrid cloud segments to grow sequentially through the fiscal year.

Speaker Change: Server revenue stands to benefit from AI system demand improvement GPU supply and a continued mix shift to H B Fuller engine 11 hybrid cloud will benefit from continued H b getting like a storage demand and the rising productivity of our specialized sales force.

Speaker Change: Our customers continue to validate our value proposition.

Speaker Change: As one example, we are building for any one of the world's largest energy providers, our new HB Cray <unk> supercomputer that will reach more than half an extra floor performance.

Speaker Change: The system will be one of the most powerful in the world for enterprise use it will accelerate AI driven scientific discovery to advanced efforts in energy.

Antonio Fabio Neri: We have also been awarded the deal for Poland's most powerful supercomputing system, located at the Academic Computer Center Cyphernet of the AGH University of Science and Technology. Based on the HPE Cray EX supercomputer and HPE Slingshot Interconnect fabric with NVIDIA Grace Hopper GPUs, the system will be used to support modeling, simulation, and AI-driven scientific research needs, including training and tuning of large-language models.

Speaker Change: We also have been awarded the deal for Poland's most powerful supercomputer system.

Speaker Change: Located at the academic computer center siphon it off the a G H University of science and technology.

Speaker Change: On the HB Cray, <unk> supercomputer and H B slingshot interconnect fabric, whether it be the Grace Hopper Gpus the system will be used to support modeling simulation and AI, driven scientific research needs, including training and tuning of large lock which models.

Antonio Fabio Neri: We're also seeing growth in AI infrastructure. For example, Kohl's Supermarkets, a leading Australian retailer, implemented an HPE ProLiant Gen11 AI inferencing solution in Q1, which helps with video imaging to reduce store stock loss due to theft and incorrect scanning at the checkout. In the quarter, 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 private data to accelerate infrastructure.

Speaker Change: We're also seeing growth in AI infancy. For example, Coles supermarkets are leaving Australia retailer implemented on HB Prolia general of an AI inferencing solution in Q1, which helps with video imaging to reduce star stock loss and theft and incorrect scanning other checkout.

Speaker Change: In the quarter, we expanded our strategical aberration within media targeting the enterprise segment of the market.

Speaker Change: We introduced a pre configured solution for enterprise customers to fine tune, a logical language models with a private data to us on a rate influencing our HB machine learning development and vitamin softer and unique HPE supercomputer and IP are critical parts of the solution alongside Nvidia AI.

Antonio Fabio Neri: Our HPE machine learning development environment software and unique HPE supercomputing IP are critical parts of the solution alongside NVIDIA AI enterprise software. We have built a strong and growing sales pipeline for this new offering. We also continue to build out our HPE GreenLake hybrid cloud platform service. Earlier this quarter, we announced an expanded GreenLake for file storage that is designed for generative AI. This solution is highly differentiated through a high-performance file system solution specifically designed for AI applications.

Enterprise software.

Speaker Change: We have built a strong and growing sales pipeline for this new offering.

Speaker Change: We also continue to build out our H b green like hybrid cloud platform services.

Speaker Change: Earlier this quarter, we announced an expanded H B Lake for file storage that is designed for generative AI.

Speaker Change: This solution is highly differentiated through our high performance file system solution, specifically designed for AI applications.

Antonio Fabio Neri: We believe we are in a better position to take market share in storage by addressing the previously underserved segment of the file market. Innovation like this continues to attract customers to HPE GreenLake platform, which connects 3.8 million network devices and supports more than 31,000 customer organizations, up approximately 8% from last quarter. One new HP GreenLake customer is the U.S. Navy Fleet Numerical Meteorology and Oceanography Center, which produces critical models of weather and ocean conditions for U.S. and coalition forces worldwide.

Speaker Change: We believe in better positioning us to take market share in storage by addressing the previously underserved segment of the <unk> market.

Speaker Change: Interventional like this continue to attract customers to H B agreement platform, which connects $3 8 million network devices and supports more than 31000 customer organizations.

Speaker Change: Up approximately 8% from last quarter, one new HB getting their customer is the U S. Navy fleet numerical made urology in Oceanography centre, which produces critical models of weather and ocean conditions for U S and coalition forces worldwide.

Antonio Fabio Neri: They turn to HP GreenLake to improve the predictability, accuracy, and speed of their modeling while reducing cost. This week I attended Mobile World Congress, where AI and private 5G were the key topics among telcos and service providers alike. With our pending acquisition of Juniper Networks, HP's portfolio will expand to better serve these unique customers from the edge of the network to Core 5G to cloud. Customers were very interested in our integration of Alphanet Private 5G capabilities into our Intelligent Edge portfolio, as well as in our cloud Open RAN and VRAN solution. They were also very eager to explore the massive new market opportunity AI inferencing presents at the edge of the network.

Speaker Change: Turn to H b could elect to improve predictability accuracy and speed of their modeling while reducing cost.

Speaker Change: This week I attended mobile World Congress, where AI and private five G, where the key topics among the telcos and service providers alike, with our pending acquisition of Juniper networks Hps portfolio will expand to better serve this unique customers from the edge of the network to qualified G to cloud.

Speaker Change: Customers were very interested in our integration of auto net private if I G capabilities into our intelligent edge portfolio as well as in our cloud to open Brian and be Rob solutions.

Speaker Change: They were also very eager to explore the massive new market opportunity AI inferencing presents at the edge of the network.

Antonio Fabio Neri: That is one of the reasons why we're so excited about our pending Juniper Networks acquisition. Combining our complementary portfolios, we'll 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.

Speaker Change: That is one of the reasons why we're so excited about our pending juniper networks acquisition.

Speaker Change: Combining our complementary portfolios will supercharge hps edge to cloud strategy accelerating our entire portfolio with AI enabled innovation.

Speaker Change: When a proposal acquisition closes we will create a new networking innovator with a comprehensive portfolio for customers and partners.

Antonio Fabio Neri: The transaction is expected to double the size of our networking business, which will be the core foundation of HPE, covering the anticipated $180 billion market opportunity with our combined IP. From a financial perspective, this transaction is also compelling for our shareholders. In the first year post-close, we expect accretion to non-gap earnings per share and, in the long term, higher non-gap gross and operating margins. We are working to secure regulatory approvals in several jurisdictions.

Speaker Change: Transaction is expected to double the size of our networking business, which will be the core foundation of H B E.

Speaker Change: The anticipated $180 billion market opportunity with our combined IP.

Speaker Change: From a financial perspective. This transaction is also compelling for our shareholders.

Speaker Change: In the first year post close we expect the accretion to non-GAAP earnings per share and in the long term higher non-GAAP gross and operating margins were.

Speaker Change: We are working to secure regulatory approvals in several jurisdictions, we're hopeful that regulators will recognize that this acquisition is centered around driving further innovation for our customers.

Antonio Fabio Neri: We are hopeful that regulators will recognize that these acquisitions are centered around driving further innovation for our customers. We continue to expect that the transaction will close later this calendar year or in early calendar 2025. In summary, Q1 2024 was a mixed quarter for HPE. We achieved strong profitability and drove near record AIR growth, with overall revenue short of expectations, given the softening networking market, GPU build timing, and to some extent GPU availability. We are focused on execution as we navigate the fluctuations in demand we see in certain areas of the market. Marie will take you through our adjusted guidance, which reflects our latest thinking about the year ahead. This quarter is a moment in time and does not at all dampen our confidence in the future ahead of us.

Speaker Change: We continue to expect that the transaction will close later this calendar year or in early calendar 2025.

Speaker Change: In summary, Q1, 'twenty 'twenty four was a mixed quarter for HPE, we achieved strong profitability and drove near record a our growth with overall revenue short of expectations, given the softening networking market GPU build timing and to some extent GPU availability.

Speaker Change: We're focused on execution as we navigate the fluctuations in demand we see in certain areas of the market.

Speaker Change: But it will take you through our adjusted guidance, which reflects our latest thinking about the year ahead.

Speaker Change: This quarter there was a moment in time and doesn't not all dumping our confidence in the future ahead of us.

Antonio Fabio Neri: We are taking the right actions to maximize value for our shareholders. The work we are doing now, combined with our technological edge and a strategy that has never been more relevant, will position us to capitalize on the long-term opportunities in front of us across edge, hybrid cloud, and AI. Before we transition, I'm delighted to welcome Maureen Meyers as our new CFO.

Speaker Change: We have taken the right actions to maximize value for our shareholders.

Speaker Change: The work we are doing now combined with our technological edge and a strategy that has never been more relevant will position us to convert on the long term opportunities in front of us across edge hybrid cloud and AI.

Speaker Change: Before we transition I'm delighted to welcome Marie Myers, as our new CFO, having worked with her at H B before the separation it is a pleasure to partner with her again.

Antonio Fabio Neri: Having worked with her at HP before the separation, it is a pleasure to partner with her again. I admire her passion for and skill at fueling innovation and performance. I am confident that Marie is a great fit for this role and expect her to help drive the next phase of growth and shareholder return for HPE. I will now turn the call over to her for details about our segments and our outlook. Marie?

Marie Myers: I admire her passion for and scale out fueling innovation and performance.

Marie Myers: I am confident that body is a great fit for this role and expect she will help drive the next phase of growth and shareholder return for HPE.

Marie Myers: I will now turn the call over to her for details about our segments and our outlook Marie.

Marie E. Myers: Thank you, Antonio. I'm pleased to be with you today on my first earnings call as HPE's CFO. I've long admired HPE's impressive transformation, and there has never been a more exciting time to be part of this company. We have a growing addressable market, a proven strategy, and a differentiated portfolio that is levered to long-term market trends around networking, hybrid cloud, and AI. I believe we have a significant opportunity ahead of us, and I'm excited to partner with Antonio and the rest of the outstanding HPE team to capitalize on this opportunity and drive value for our shareholders. And, as Antonio mentioned, we have much to be proud of.

Marie Myers: Thank you Antonio I'm pleased to be with you today on my first earnings call as Hpe's CFO I've long admired H p's impressive transformation and there has never been a more exciting time to be part of this company.

We have a growing addressable market, our proven strategy and a differentiated portfolio that is levered to long term market trends around networking hybrid cloud and AI.

Speaker Change: I believe we have a significant opportunity ahead of us I'm excited to partner with Antonio and the rest of the outstanding HPE team to capitalize on this opportunity and drive value for our shareholders.

Speaker Change: And as Antonio mentioned, we have much to be proud of.

Marie E. Myers: Financial highlights in the quarter included record gross margins and expense discipline, which helped lift non-GAAP EPS to the high end of our guidance range. Demand for our traditional server and storage products has stabilized. Demand for our HPE GreenLake offerings was evident in healthy ARR growth, and Demand for AI Systems Remains Robust. However, demand at Intelligent Edge did soften due to customer digestion of strong product shipments in fiscal year 23, which is lasting longer than we initially anticipated and is the primary reason Q1 revenue came in below our expectations. GPU availability and deal timing also contributed. We are taking swift action to address these headwinds by curtailing costs and driving efficiencies across the business. With that in mind, let's take a closer look at the details of the quarter. Revenue fell 14% year over year in constant currency to $6.8 billion.

Speaker Change: Financial highlights in the quarter included record gross margins and expense discipline, which helped lift non-GAAP EPS to the high end of that guidance range.

Speaker Change: <unk> crowd traditional server and storage products has stabilized.

Speaker Change: <unk> for our H P Green Lake offerings was evident in a healthy eight our growth.

Speaker Change: And demand for our AI systems remains robust however.

Speaker Change: However demand in intelligent edge did suffered due to customer digestion of strong product shipments in fiscal year, 'twenty, three which is lasting longer than we initially anticipated and is the primary reason Q1 revenue came in below our expectations.

Speaker Change: GPU availability and deal timing also contributed.

Speaker Change: We are taking swift action to address these headwinds by curtailing costs and driving efficiencies across the business.

Speaker Change: With that let's take a closer look at the details of the quarter.

Speaker Change: Revenue fell 14% year over year in constant currency to $6 $8 billion. Please recall, we had significant backlog consumption in Q1, 'twenty three particularly in traditional servers and storage backlog has now largely normalized across our business with the exception about Apu products.

Marie E. Myers: Please recall, we had significant backlog consumption in Q1-23, particularly in traditional servers and storage; backlog has now largely normalized across our business with the exception of our APU product. We have strong momentum in HPE GreenLake. ARR exceeded $1.4 billion in Q1.

Speaker Change: We have strong momentum in HPE Green Lake a R exceeded $1.4 billion in Q1.

Marie E. Myers: Storage and networking software and services are the fastest growing elements of ARR. Our software and services mix rose 400 basis points year over year to 69. ARR is the best indicator of our model transformation to our as a service offering.

Speaker Change: Storage and networking software and services are the fastest growth elements of a S. R. L.

Speaker Change: Our software and services mix rose 400 basis points year over year to 69%.

Speaker Change: A R is the best indicator of our model transformation to our as a service offerings.

Marie E. Myers: This growth validates what our customers are telling us, that HPE GreenLake is a differentiated value proposition in the market. Our Q1 non-gap gross margin was 36.2%. It rose 200 basis points year over year, driven by a mixed shift to intelligent edge and favorable input cost management. We are pleased that our non-gap gross margin is up 600 basis points from fiscal year 18 to a company record. This illustrates the ongoing pivot to higher growth and higher margin revenue across our portfolio. Given the current networking market dynamics, we are taking this moment to streamline and simplify our operation. We are focused on controlling the things we can control.

Speaker Change: This growth validates what our customers are telling us.

Speaker Change: That HPE Green Lake is a differentiated value proposition in the market. Our Q1 non-GAAP gross margin was 36, 2%. It rose 200 basis points year over year, driven by a mix shift to intelligent edge and favorable input cost management.

Speaker Change: We are pleased that our non-GAAP gross margin is up 600 basis points from fiscal year 18 to a company record.

Speaker Change: This illustrates the ongoing pivot to higher growth higher margin revenue across our portfolio.

Speaker Change: Given the current networking market dynamics, we are taking this movement to streamline and simplify our operations. We are focused on controlling the things we can control.

Marie E. Myers: Prudent cost management and disciplined execution are important regardless of the macro environment and are even more critical at times like these. The benefits of our focus are already evident in our Q1 non-gap operating expenses, which declined 4.7 percent year over year and 9.5 percent sequentially to $1.7 billion. The strong Q1 non-gap gross margins in OPEX Discipline led to Q1 non-gap operating margins of 11.5%, which is down only 30 basis points year over year despite less revenue scale. Favorable timing on some corporate expenses with a tailwind to Q1 operating expenses and will appear in Q2, Gap EPS of $0.29 and non-gap EPS of $0.48 exceeded the midpoint of our guidance range Our diluted share count was approximately $1.3 billion. A non-gap diluted net earnings per share excludes $251 million in costs primarily from stock-based compensation expense, amortization of intangibles, and non-cash loss on investment.

Speaker Change: Prudent cost management and disciplined execution are important regardless of the macro environment and an even more critical at times like these.

Speaker Change: The benefits of our focus are already evident in our Q1, non-GAAP operating expenses, which declined four 7% year over year at nine 5% sequentially to $1.7 billion. This strong Q1, non-GAAP gross margins and Opex discipline led to Q1 non-GAAP operating.

Speaker Change: It's up 11, 5%, which is down only 30 basis points year over year, despite less revenue scale.

Speaker Change: Favorable timing on some corporate expenses was a tailwind to Q1 operating expense and will appear in Q2.

Speaker Change: GAAP EPS of 29 cents and non-GAAP EPS of 48 cents exceeded the midpoint of that guidance range, our diluted share count was approximately $1 3 billion.

Speaker Change: non-GAAP diluted net earnings per share excludes $251 billion in costs, primarily from stock based compensation expense advertise they should've intangibles and noncash loss of investments.

Marie E. Myers: As we manage the business with focus and discipline, we will also invest to capitalize on the sizable opportunities associated with moving through the interrelated inflection points in networking, hybrid cloud, and AI all at the same time. HPE is evolving into a more simple, more agile company that is even better positioned to pursue our growth opportunities and to evolve our mix of products, services, and software and to drive structural higher profitability. Turning to our segment results, in addition to the new segments we discussed at SAM, we also created a new server segment that combines our prior compute and HPC and AI segments under one streamlined segment that offers solutions for our customers' training, tuning, and inferencing AI needs across the AI lifecycle. Server revenues were $3.4 billion in the quarter, which was down 23% year over year.

Speaker Change: As we manage the business with focus and discipline. We will also invest to capitalize on the sizeable opportunities associated with moving through the interrelated inflection points in networking hybrid cloud and AI all at the same time.

Speaker Change: HPE is evolving into a more simple more agile company that is even better positioned to pursue our growth opportunities and to evolve our mix of products services and software and to drive structural higher profitability.

Speaker Change: Turning to our segment results. In addition to the new segments. We discussed at Sam. We also created a new service segment that combines our prior compute and H P C and AI segments under one streamline segment did office solutions for our customers training tuning and fixing AI needs across the AI lifecycle.

Speaker Change: Service revenues were $3 $4 billion in the quarter, which was down 23% year over year. This new segment had a difficult year over year compare as in Q1 'twenty three the business made significant progress against its backlog and benefited from HPE Craig E X revenue for frontier, we are capturing that.

Marie E. Myers: This new segment had a difficult year over year comparison, as in Q1'23, the business made significant progress against its backlog and benefited from HPE Cray EX revenue for Frontier. We are capturing the robust growth in AI demand. Cumulative APU orders since Q1'23, which include APU-attached products and services in our HPE Cray EX, XT, and ProLiant systems, rose approximately $500 billion sequentially to now $4 billion.

Speaker Change: Robust growth in AI demand accumulative Apu orders since Q1, 'twenty, three which include Apu attached products and services and a H P E Cray X X D and prolonged systems rose approximately $500 million sequentially to now $4 billion.

Marie E. Myers: Our pipeline is robust, and GPU supply, while still constrained, is improving. Our APU product revenue increased sequentially to well over $400 million. We are now converting our APU orders into revenues, and yet, very strong demand means our APU backlog is over $3 billion. But our pipeline is well above that.

Speaker Change: Our pipeline is robust and GPU supply, while still constrained is improving our apu product revenue increased sequentially to well.

Speaker Change: $400 billion, we are now converting our apu orders into revenues and yet very strong demand means our apu backlog is over 3 billion.

Speaker Change: Our pipeline is well above that.

Marie E. Myers: AI revenue in the quarter included our first revenues from our AI cloud offering and from our HPE GreenLake win with a large hyperscale customer. Our traditional high-performance computing and supercomputing revenue fell seasonally, sequentially following a strong Q4. Revenue from our traditional server business increased sequentially. We expect this trend to continue given a structural mix shift to higher AUP Gen11 and rising input costs. Gen 11 servers nearly doubled sequentially to 30% of the mix in Q1. Including HPE Cray XD takes the mix of next-generation servers to 44%.

Speaker Change: Revenue in the quarter included our first revenues from AI cloud offering and from Al H P. E Green Lake win with a large hyperscale customer our traditional high performance computing supercomputing revenues fell seasonally sequentially. Following a strong Q4 revenue from our traditional survey business increased sequentially.

Speaker Change: We expect this trend to continue given our structural mix shift to higher a U P. Gen 11, and rising input costs. Gen. 11 said, there's nearly doubled sequentially to 30% of the mix in Q1, including H P. E. Cray X D takes the mixed up next generation. So there's 244% we are encouraged that our gen 11 pipeline.

Marie E. Myers: We are encouraged that a Gen 11 pipeline is starting to include AI-infringing activity and enterprise applications. We expect AI inferencing to gather momentum in fiscal year 24. As a reminder, our Gen 11 services come with an attached subscription to our Compute Ops management software, which lifts our margin structure. Our Q1 operating margin was 11.4%. While up sequentially, the margin was down 430 basis points year over year, given declining revenue.

Speaker Change: It's starting to include AI infringing activity and enterprise applications, we expect AI inferencing to gather momentum in fiscal year 'twenty four.

Speaker Change: As a reminder, our Gen 11 services come with an attached subscription to our compute ops management software, which lifts our margin structure. Our Q1 operating margin was 11, 4%.

Speaker Change: While up sequentially the margin was down 430 basis points year over year, given declining revenues.

Marie E. Myers: Intelli Edge revenues were $1.2 billion, or up 2% year over year. However, demand for our campus switching and Wi-Fi products eased materially, particularly in Europe and Asia, and was the largest contributor to our Q1 revenue gap. We continue to see mid-single-digit growth benefits from our existing backlog but expect these to normalize going forward as we are now approaching our typical range. Our total channel inventory is within the normal range overall, inclusive of a pocket in the S&B business.

Speaker Change: Intelligent edge revenues were $1.2 billion or up 2% year over year demand for our campus switching and Wi Fi products eased materially, particularly in Europe, and Asia and was the largest contributor to our Q1 revenue gap, we continue to see mid single digit growth benefits from the existing backlog.

Speaker Change: But expect these to normalize going forward as we are now approaching our typical range.

Our total channel inventory is within the normal range overall inclusive of a pocket in the SNB business. We also continue to make progress in our new tens of data center networking private five G and sassy.

Marie E. Myers: We also continue to make progress in our new TANs of data center networking, Private 5G, and SAS. The Intelligent Edge portfolio of subscription revenue grew well above 50% as we are benefiting from growing attach rates from our strong fiscal year 23 revenue growth. We are pleased with that 29.4% operating margin, which was up 1,000 basis points year over year. The new hybrid cloud segment includes our storage businesses and now the HPE GreenLake portion of our server business. Revenues of $1.2 billion were down 10% year over year.

Speaker Change: The intelligent edge portfolio of subscription revenue grew well above 50% as we are benefiting from growing attach from our strong fiscal year 'twenty three revenue growth.

Speaker Change: We are pleased with at 29.4% operating margin, which was up 1000 basis points year over year.

Speaker Change: The new hybrid cloud segment includes our storage businesses and now the HPE Green Lake portion of the business.

Speaker Change: Revenues of $1.2 billion were down 10% year over year.

Marie E. Myers: Our traditional storage business was down year over year on difficult comparisons given backlog consumption in Q1 2023. However, total Electra subscription revenue grew over 100% year-over-year and is an illustration of our long-term transition to an as-a-service model across our business. We are starting to see AI server demand pull through interest in our file storage portfolio. We are also already seeing some cross-selling benefits of integrating the majority of our HPE GreenLake offering into a single business unit. Our operating margin was 3.8%, which was down 200 basis points year-over-year. Low revenues and a high mix of third-party products impacted margins in the traditional storage business. Our HPE financial services revenue was down 2% year over year, and our financing volume was $1.4 billion.

Speaker Change: Our traditional storage business was down year over year on difficult compares given backlog consumption in Q1 'twenty three.

Speaker Change: Total led to a subscription revenues grew over 100% year over year, and there's an illustration of a long term transition to an as a service model across our businesses. We are starting to see a I said the demand pull through interest in a file storage portfolio. We are also already seeing some cross selling.

Speaker Change: Benefits of integrating the majority of our H P Green Lake offering into a single business unit.

Speaker Change: Operating margin was three 8%, which was down 200 basis points year over year, low revenues and a high mix of third party product impacted margins in the traditional storage business.

Speaker Change: Our HPE financial services revenue was down 2% year over year and financing ballgame with $1 $4 billion.

Marie E. Myers: Our operating margin of 8.5% was up 130 basis points year-over-year. We are successfully passing through interest rate increases, and our asset management margins are returning to normal. Our Q1 loss ratio remains steady at 0.5%. Turning now to cash flow and capital allocation, we generated $64 million in cash flow from operations and consumed $482 million in free cash flow this quarter.

Speaker Change: Margin of eight 5% was up 130 basis points year over year, we are successfully passing through interest rate increases and our asset management margins are returning to normal.

Speaker Change: Q1 loss ratio remained steady at 0.5% turning now to cash flow and capital allocation, we generated $64 million in cash flow from operations and consumed $482 million and free cash flow this quarter.

Marie E. Myers: HPE typically consumes cash in the first half of the year and generates cash in the second half. Our first quarter free cash flow benefited from some prepayments associated with pending HPE GreenLake deals and HPE Cray XD shipments. Our cash conversion cycle was 7 days, which is a reduction of 8 days from Q1-23. Our days payable and days of inventory were both higher given the lower revenue and strong demand for APUs. We returned $172 million in capital to shareholders in Q1, primarily through our dividends.

Speaker Change: H B E typically consumes cash in the first half of the year and generates cash in the second half our first quarter free cash flow benefited from some prepayments associated with pending HPE Green Lake deals at H P E Cray XT shipments.

Speaker Change: Our cash conversion cycle was seven days, which is a reduction of eight days from Q1, 'twenty three odd days payable and days of inventory with both higher given the lower revenue and strong demand for a P use.

Speaker Change: We returned $172 million in capital to shareholders in Q1, primarily through our dividend.

Marie E. Myers: Before I discuss our outlook, let me first recap the key drivers that factor into our expectations for Q2 and the full year. For Servers, we expect improving GPU supply to drive sequential revenue increases through fiscal year 24. Given improving supply and the timing of installations, we expect segment revenue, and therefore corporate revenue, to be heavily weighted to the second half of the year. We expect the blended margin of the new segment to be flattish for the remainder of the fiscal year.

Speaker Change: Before I discuss our outlook, let me first recap the key drivers that factor into expectations for Q2 and the full year.

Speaker Change: Christa.

Speaker Change: We expect improving GPU supply to drive sequential revenue increases through fiscal year, 'twenty, four given improving supply and the timing of installations. We expect segment revenue and therefore corporate revenues to be heavily weighted to the second half of the year.

We expect the blended margin of the new segment to be flattish for the remainder of the fiscal year.

Marie E. Myers: For Intelligent Edge, we expect the market to remain soft throughout the year. Our cost reduction efforts will take time to show their benefits, which will result in margin pressure in Q2. Later in our fiscal year, we expect our normal channel inventory position and seasonal strength in the education market to be a modest revenue tailwind. We expect the full year margin to be in the mid 20 percent range for Hybrid Cloud. We expect sequential increases through the year as our traditional storage business improves and HPE GreenLake momentum continues. We expect meaningful progress through the year. With that context, let me turn to our For Q2, we expect revenues in the range of $6.6 to $7 billion, or up slightly sequentially at the midpoint. We expect GAAP diluted net EPS to be between $0.20 and $0.25, and our non-GAAP diluted net EPS between $0.36 and $0.41. In part, given the higher prepayments in Q1, we expect negative free cash flow in Q2.

Speaker Change: For intelligent edge, we expect the market to remain soft throughout the year, our cost reduction efforts will take time to show the benefits, which will result in margin pressure in Q2.

Speaker Change: Later in our fiscal year, we expect a normal channel inventory position and seasonal strength in the education market to be a modest revenue tailwind.

Speaker Change: We expect our full year margin to be in the mid 20% range.

Speaker Change: So hybrid cloud, we expect sequential increases through the year as our traditional storage business improves at H B E. Green Lake momentum continues we expect meaningful progress through the year with that context, let me turn to our outlook for.

Speaker Change: Q2, we expect revenues in the range of $6 $6 billion to $7 billion were up slightly sequentially at the midpoint we.

Speaker Change: We expect GAAP diluted net EPS to be between 20, and 25 cents and non-GAAP diluted net EPS between 36 cents in 41 states.

Speaker Change: In part given the higher prepayments in Q1, we expect negative free cash flow in Q2.

Marie E. Myers: Let me remind you that we have two drivers of potential lumpiness in our business. One is the timing and customer acceptance of large Cray wins, including Cray XD wins, which should ramp beginning in Q2. The second is the start of certain large HPE GreenLake deals. For some of these large deals, our segments recognize the related hardware on installation. In our consolidated results, we eliminate the segment revenue and recognize it over time.

Speaker Change: Let me remind you that we have two drivers of potential lumpiness in our business. One is the timing and customer acceptances of large cray wins, including Cray, XD wins, which should ramp beginning in Q2.

Speaker Change: The second is the start of certain large H B E Green Lake deals for some of these large deals our segments recognize the related hardware on installation.

Speaker Change: Our consolidated results, we eliminate the segment revenue and recognize it over time.

Marie E. Myers: Both large deals and higher eliminations are indicators of our confidence in the second half of the fiscal year. For Fiscal Year 24, we are revising our outlook, primarily given the current networking market headwinds. Let me remind you that we are excluding the H3C earnings and gain on sale from our non-GAAP results beginning in fiscal year 24. As a result, we now expect revised ranges for constant currency revenue and non-GAAP operating profit growth of 0 to 2 percent. GAAP diluted net EPS of $1.81 to $1.91 and non-GAAP diluted net EPS of $1.82 to $1.92.

Speaker Change: Both large deals at higher eliminations are indicators of our confidence in the second half of this fiscal year.

Speaker Change: Fiscal year 'twenty four we are revising our outlook, primarily given the current networking market headwinds. Let me remind you that we are excluding the H three seek earnings and gain on sale for that non-GAAP results beginning in fiscal year 'twenty. Four we now expect revised ranges for constant currency revenue and non-GAAP operating profit growth of zero to two.

Speaker Change: Sent GAAP diluted net EPS of $1 at 81 to.

Speaker Change: Two $1.91 and non-GAAP diluted net EPS of $1.82 to $1 92.

Marie E. Myers: The next shift from intelligent edge to server should also weigh on our gross margin. We now expect the full-year non-GAAP gross margin to be slightly down from our prior full-year expectation of 35. We expect the impact of the cost actions we have initiated to materialize in the second half and lead fiscal year 24 OPEX to be flat to down from fiscal 23 OPEX. We expect our operating margin to be flattish year over year. We now expect OI&E to be a $200 to $250 million headwind versus our prior $300 million expectation, given better Q1 free cash flow and more favorable interest rate assumptions. We expect the effect on currency to be immaterial.

Speaker Change: The mix shift from intelligent edge disorder should also weigh on our gross margins.

Speaker Change: We now expect the full year non-GAAP gross margin to be slightly down from our prior full year expectation of 35%.

Speaker Change: We expect the impact of the cost actions, we have initiated to materialize in the second half at least fiscal year 'twenty for opex to be flat to down for the school twenty-three Opex, we expect operating margin to be flattish year over year. We now expect Oh I need to be 200 to 250 million dollar headwind versus our prior 300.

Speaker Change: Dollar expectation, given better Q1 free cash flow and more favorable interest rate assumptions.

Speaker Change: We expect the effect on currency to be immaterial, we expect free cash flow to be at least $1.9 billion in fiscal year 'twenty four we expect significantly stronger free cash flow in the second half of the year led by improvements in inventories is AI surface shipments ramp.

Marie E. Myers: We expect free cash flow to be at least $1.9 billion in fiscal year 24. We expect significantly stronger free cash flow in the second half of the year, led by improvements in inventories as AI service shipments ramp up. We reiterate our commitment to our dividend, which was raised eight percent from fiscal year twenty-three to fiscal year twenty-four; debt repayment to maintain an investment grade credit rating and, in the long term, returning capital to shareholders through share repurchase.

Speaker Change: We reiterate our commitment to our dividend, which was raised 8% from fiscal year 'twenty three took the school year 'twenty for debt repayment to maintain an investment grade credit rating and in the long term returning capital to shareholders through share repurchases.

Marie E. Myers: To conclude, we executed well in Q1 and missed a challenging market backdrop. We are pleased with our margin and EPS results, while understanding that our slower networking product demand and GPU availability and timing impacted our revenue performance. We have taken prompt action to further reduce our costs and continue to manage our expenses prudently while we advance our long-term strategy. AI server demand is strong. Demand has stabilized for our traditional server and storage products, and our HPE GreenLake momentum is robust. We will continue to invest in IT innovation. Networking, Hybrid Cloud, and AI to drive our pivot to higher growth, higher margin revenue. I look forward to engaging with you in the months ahead, as does our new chief strategy officer, Shannon Cross, who has joined us following a distinguished career as a Wall Street analyst and now has oversight of our IR function. We will appreciate your input and questions along the way. And we can get started on that right now.

Speaker Change: To conclude we executed well in Q1 amidst a challenging market backdrop we.

Speaker Change: We are pleased with our margin and EPS results, while understanding a slower networking product demand and GPU availability and timing impacted our revenue performance.

Speaker Change: We have taken prompt action to further reduce our costs and continued at Magicjack expenses prudently, while we advance our long term strategy AI. So the demand is strong demand has stabilized for a traditional server and storage products and a H P. E Green Lake momentum is robust we.

Speaker Change: We will continue to invest in I T inflections networking hybrid cloud and AI to drive I'll pivot to higher growth higher margin revenue.

Speaker Change: I look forward to engaging with you in the months ahead as does our new Chief strategy Officer, Shannon Cross who has joined US following a distinguished career as a wall Street analyst and now has decided about I R. A function.

Speaker Change: We will appreciate your input and questions along the way and we can get started with that right now I'll open it up now for your questions about the quarter.

Operator: I'll open it up now for your questions about the quarter. We will now begin the question and answer session. To ask a question, you may press star, then one on your touchtone phone. If you are using a speakerphone, please pick up your handset before pressing the key.

Speaker Change: We will now begin the question and answer session.

Speaker Change: To ask a question you May Press Star then one on your Touchtone phone.

Speaker Change: If you are using a speakerphone please pick up your handset before pressing the keys.

Operator: To withdraw your question, please press star then 2. We also request that you only ask one question. The first question today is from Meta Marshall with Morgan Stanley. Please go ahead. Great, thanks. Maybe on the GPU delays that you're seeing as far as acceptance, you know, just what are you seeing in terms of, You identified that power and some of these things were conditions for what the delays were, but just what are you seeing in terms of how long those delays are going to take and how long the delays and the acceptances are going to be? Thank you. Well, thank you, Amita. Good afternoon,

Speaker Change: To withdraw your question. Please press Star then two.

Speaker Change: We also request that you only ask one question.

Speaker Change: The first question today is from meta Marshall with Morgan Stanley. Please go ahead.

Meta A. Marshall: Great. Thanks, maybe on the GPU available or GPU delays that youre seeing as far as acceptance.

You know just what are you seeing in terms of.

Meta A. Marshall: You know you identified that power in some of these things were or conditions for what the delays were but just what are you seeing in terms of how long those delays are going to take and how long the delays in the acceptance was not gonna be thinking.

Speaker Change: Well, thank you Amit.

So as I said in my prepared them.

Antonio Fabio Neri: So, as I said in my prepared remarks, we had a couple of deals. One...

Speaker Change: We had a couple of deals that slipped from Q1.

Speaker Change: Just because customers have taken a little bit longer to prepare that.

Antonio Fabio Neri: Power and the Cooling Red, And obviously, those deals will come as... And then on the GPU side, obviously, we continue to experience a tight environment, although we are seeing some. We have already built a lot of GPUs that we have already built, but the customers will take time. The reality is that we need more supply against the backlog that we announced today, which was $3 billion in Q1. So that's what we see today.

Speaker Change: The data center space get into power and the cooling worthy and obviously those deals will come.

Speaker Change: As we complete those installations.

Speaker Change: And then on the GPU side, obviously, we continue to experience a tight environment. Although we are seeing some improvements we have already a lot of gpus that we already built for the customers will take time to assemble systems, but the reality is that we need more supply against the backlog that we announced today, which was $3 billion.

Speaker Change: At the end of the Q1 so that's.

Speaker Change: That's what we see today and as we go forward, we expect that improvement to happen and that's why we have confidence on the conversion of the.

Antonio Fabio Neri: And as we go forward, we expect that improvement to happen. And that's why we're confident in the conversion of the, along with not just availability but also. Great. Thank you very much, Meta.

Speaker Change: The GPU.

Speaker Change: Our revenue as we go along.

Speaker Change: Not just because of the GPU availability, but also the acceptances.

Speaker Change: Great. Thank you very much meter Gary can we have the next question.

Operator: Gary, can we have the next question? And the next question is from Amit Daryanani with Evercore. Please go ahead.

Speaker Change: And the next question is from Amit <unk> with Evercore. Please go ahead.

Operator: Thanks for taking my question. I guess, Antonio, maybe just talk about, if I look at the revenue shortfall in the Jan quarter, how much of that do you think is because your customers are pushing out their delivery schedules and they don't have power versus you just don't have enough GPUs? If you were to think about those two buckets, and then as you think about the full-year guide, perhaps I didn't understand this, but can you just talk about what you are expecting the networking segment Intelligent Edge to do in the 0% to 2% guide right now? Thank you. Hey, Amit. Good afternoon.

Amit: Thanks for taking my question.

Amit: Maybe you can just talk about if I looked at the revenue shortfall in Jan quarter.

Amit: How much of that do you think is because your customers are pushing out their delivery schedules theres been enough. Our worst days you just didn't have enough Gpus do you ever think about those two buckets and then as you think about the full year guide, perhaps I didn't appreciate this but can you just talk about what are you expecting for the networking segment intelligent edge to do in the zero to 2% right now.

Thank you.

Speaker Change: Hey, Alex Good afternoon, nice too nice to hear from you. So I'll take the I'll answer the first part of your question about the revenue. So in the first quarter with respect to what drove the 300 on the revenue it was mostly actually networking.

Marie E. Myers: Nice to hear from you. So I'll answer the first part of your question about revenue. So in the first quarter, with respect to what drove the $300 in revenue, it was mostly networking. We did have one deal that moved out.

Speaker Change: We did have one deal that moved out I think Antonio mentioned that his prepared remarks, and then in terms of just how we're thinking about the second half of the guide we are expecting a very strong second half and that's predominantly driven actually by AI systems revenue, we are expecting networking to be slightly more favorable in the back half that we really see the trough.

Marie E. Myers: I think Antonio mentioned that in his prepared remarks. And then, in terms of just how we're thinking about the second half of the guide, we are expecting a very strong second half, and that's predominantly driven by AI systems revenue. We are expecting networking to be slightly more favorable in the back half, but we really see the trough of networking in Q2. Great. Gary, thank you, Amit.

Speaker Change: All the networking in Q2.

Speaker Change: Yeah.

Speaker Change: Great Gary. Thank you Amit can we have the next question and the next question is from Simon Leopold with Raymond James. Please go ahead.

Operator: Can we have the next question? And the next question is from Simon Leopold with Raymond James. Please go ahead.

Antonio Fabio Neri: Thanks for taking the question. I wanted to see if we could drill down a little bit in terms of understanding what's changed in the Intelligent Edge versus 90 days ago. And there are two elements that are crossing my mind.

Simon Matthew Leopold: Thanks for taking the question I wanted to see if we could drill down a little bit in terms of understanding what's changed in the intelligent edge versus 90 days ago and two two elements are crossing my mind, one is really around the pending juniper deal, whether that's influencing customers to.

Antonio Fabio Neri: One is really around the pending Juniper deal, whether that's influencing customers to maybe hold off purchases because of the uncertainties that might be affecting their decision-making as to what happens after you're combined. And the other part is just wondering, you know, if there's inventory that's been sitting in the channel, why didn't you know about it? Or why didn't you see it?

Speaker Change: Maybe hold off purchases because of the uncertainty that might be affecting their decision, making as to what happens after your combined and the other part is just wondering if there is inventory that's been sitting in the channel why didn't you know about it or why do you see it.

Antonio Fabio Neri: And just trying to get an understanding of sort of what you've learned over these last 90 days. Thank you. Thank you, Simon. So first of all, we saw an acceleration of the demand softness at the back of the end of Q1, really in January, whether it's now people coming back, but obviously the reality we saw that as a head to our revenue. 1.

Speaker Change: Just trying to get an understanding of sort of what you've learned over the last 90 days. Thank you.

Speaker Change: Thank you Scott.

Speaker Change: So first of all we saw an acceleration of the demand softness in the back.

At the end of Q1 really in January.

Speaker Change: Whether it's people coming back, but obviously the reality, we saw that as a headwind to our revenue in Q1.

Antonio Fabio Neri: I have to say, we do not have a channel inventory problem. Actually, we are in a great position, particularly with enterprise customers and enterprise products. We do not have that.

Speaker Change: I have to say, we do not have a channel inventory problem.

Speaker Change: Actually we got a great position, particularly for enterprise customers and enterprise products, we do not have that issue.

Antonio Fabio Neri: Transcribed by https://otter.ai, to install it and eventually, you know, go through the next cycle. And that's why we said with Marie, we're going to start... Slight improvement on the back half, with Q2 being the trough. And part of the back off also is

Speaker Change: At this point in time, we do see is customers taking longer with a problem, we already shipped to them too.

Speaker Change: To install it and eventually go through the next cycle and that's why we said with money, we're going to start seeing a slight improvement on the back half with Q2 being the trough.

And part of the back half also is the traditional buying season in the United States with state local education. The pipeline is very good.

Antonio Fabio Neri: Additional, you know, buying season in the United States, with state and local education; the pipeline is very good. We have not lost one single deal that I can point to, neither because of the slowdown in customer deferred, nor because of the announcement of the... And maybe Simon, just to add to Antonio's comments, the only place where we saw a slightly elevated pocket of infantry was in S&B, which is a pretty small part of our base. Yep. Thank you, Simon.

Speaker Change: We have not lost one single deal that I can point to neither because of the slowdown or customers. They put a note because of the announcement of the acquisition with juniper.

Speaker Change: And maybe Simon just to add to Antonio's comments, the only place where we saw a slightly elevated pocketed inventory was an SMB, which is a pretty small part of our business.

Speaker Change: Thank you Simon Gary can we have the next question.

Operator: Gary, can we have the next question? And the next question is from Tony Sakonofi about Bernstein. Please go ahead.

Speaker Change: And the next question is from Toni <unk> with Bernstein. Please go ahead.

Marie E. Myers: Yes, thank you. Sorry, I have one clarification and a question. Marie, on the that the backlogs brought down contributed, I think, mid-single digits..... to be intelligent, or something more broad than that.

Toni: Yes. Thank you.

Speaker Change: One clarification and a question Murray.

Speaker Change: Yes.

Toni: The backlogs drop down it could be there.

Toni: Did I think mid single digits.

Toni: Okay.

Toni: But to the intelligence.

Toni: Or something more broad than that so can you just comment or clarify exactly what the backlog contribution was.

Marie E. Myers: So can you just comment or clarify exactly what the backlog contribution was? And I suppose there's none going forward. And then, on my question, I sound pretty excited about sequential growth over the course of the year, both in servers and storage. Maybe you can just elaborate on why you see that. Do you see sequential growth in traditional servers, non-accelerated? Then and what. Thank you. Hi Tony.

Speaker Change: And I suppose theres, none going forward and then just on my right.

Speaker Change: Uh huh.

Speaker Change: And I'm pretty excited about sequential growth over the course of the year both in servers and storage. Maybe you can just elaborate on why you see that is servers.

Speaker Change: The sequential growth in traditional servers non accelerated.

Speaker Change: The what.

Speaker Change: Thank you.

Speaker Change: Hi, Tony Yes. Good afternoon, so maybe I'll take the first part of the question then I'll turn to Antonio for the second part so look in terms of the backlog Yeah. We will don't disclose the backlog on an edge, but I think what we've said is that we've seen our backlog sort of revert back to normalized levels with the exception, obviously of our Apu or AI system.

Marie E. Myers: Yes, good afternoon. So, maybe I'll take the first part of the question and then I'll turn to Antonio for the second part. So, look, in terms of the backlog, you know, we really don't disclose the backlog on Edge, but I think what we've said is that we've seen our backlog sort of revert back to normalized levels, with the exception, obviously, of our APU or AI systems. So, that's how we're thinking about the backlog. I think in terms of just some context and commentary, you know, you've seen in the industry that the market has definitely softened. And, you know, I think, as Antonio said earlier, we saw that late in the quarter.

Antonio: So that's how we're thinking about the backlog I think in terms of just some context and commentary.

Antonio: You've seen in the industry that the market has definitely softened and I think as Antonio said earlier, we saw that late in the quarter. So that's how we characterized the networking demand and I wouldn't say that we do expect the trough in Q2 and to be slightly more favorable in the back half. So that's how we're thinking about the networking.

Marie E. Myers: So, that's how we characterized networking demand, and I would say that we do expect the trough in Q2 and then to be slightly more favorable in the back half. So, that's how we're thinking about the networking market playing out for the year. And then I'll turn to Antonio to talk about service.

Antonio: Market playing out for the year and they all tend to Antonio I'll come on service Yeah. Tony. Thank you for the question. So on the server side, obviously, we see signs of stabilization now has been now a couple of quarters with sequential order improvement, but the reality is that as we said in our opening remarks, we continue to see the mix shift in that.

Antonio Fabio Neri: Yeah, Tony, thank you for the question. So, on the server and storage side, obviously, we see signs of stabilization. That has now been a couple of quarters with sequential order improvement. But the reality is that, as we said in our opening remarks, we continue to see the makeshift from traditional servers, as you call them, to Gen 11. By the end of the year, we should be approximately 60% of the way there. Obviously, those servers come with different sets of structural configurations and pricing. University at Bitcoin Rating.

Tony: Additional servers as you call. It two gen 11 by the end of the year, which should be approximately 60% of the way. They are obviously those are service call in with a different set of structural configurations and pricing, which obviously is higher at the same time, we're gonna see costs.

Antonio Fabio Neri: And that's an important indicator because, ultimately, that also drives our attach rate of our operational services, which in the quarter was very, very good. So that's why we are confident in that sequential improvement from here on. And then on the store side, obviously, AI is going to be a pull-through demand for us. We introduced a new offer now specifically for file.

Tony: We believe that's going to be the case, and then 40 no. We have to eventually pass those as well, but the number of units has been very stable or slightly improving and that's an important indicator because ultimately that also drives our attach rates of our operational services, which in the quarter was very very good.

Tony: So that's why we are confident in a sequential improvement from here on and then on the solar side, obviously is gonna be a pull through demand for US. We introduced and you also know specifically for file I remember that H B L. It Oh continues to grow from here on and unfortunately, the other H B L. As our revenue is also in the <unk>.

Antonio Fabio Neri: And remember that HP Elettra will continue to grow from here on. And a portion of that HP Elettra revenue is also in the AIR because remember that software now is completely disaggregated from the solution itself, which means you have the CapEx portion of the revenue recognized in the quarter. ,,,,,,,,,, storage, and obviously AI have now also contributed to the AIR. Thank you, Tony.

Tony: Because remember the sorcerer nowadays completely disaggregate that from the the solution itself, which means you have the capex portion of the revenue recognized in quarter and the subscription part of the software almost size over the periods of the contract. So that's why <unk> is.

Tony: As grub is because of the subscription and that's working which was up significantly the storage and obviously you. All you know also contributed to that.

Operator: Gary, can we have the next question? The next question is from Aaron Rakers with Wells Fargo. Please go ahead.

Tony: Well.

Tony: Thank you Tony Gerry can we have the next question. The next question is from Aaron Rakers with Wells Fargo. Please go ahead.

Antonio Fabio Neri: Yeah, thanks for taking the question. I wanted to ask about the server market, maybe two parts. I guess, you know, when we look at some of your peers, it seems to be that the lead times have improved on some of the GPUs, particularly the H100. But I'd be curious about, can you talk a little bit about what you've seen on lead times there?

Aaron Christopher Rakers: Yes, thanks for taking the question I wanted to ask you about the server market, maybe two parts I guess.

Aaron Christopher Rakers: When we look at some of your peers I mean, it seems to be that the lead times have improved and some of the Gpus, particularly H 100.

Aaron Christopher Rakers: I'd be curious of kind of like can you talk a little bit about what you've seen on lead times there.

Antonio Fabio Neri: You know, in terms of your ability to deliver on some of this backlog, how has that changed over the course of this last quarter? And then any thoughts on traditional server recovery? How do we think about the pace of that embedded in your expectations looking through this year? Yeah, sure.

Aaron Christopher Rakers: Of your ability to deliver on some of this backlog how that's changed over the course of this last quarter and then any thoughts on traditional server recovery, how how does how do we think about the pace of that.

Aaron Christopher Rakers: Embedded in your expectations looking are looking through this year.

Speaker Change: Yeah sure I think I'll cover the latter part of the question.

Antonio Fabio Neri: I think I covered a lot of the part of the question with Tony's question about sequential improvement in the traditional server, which, obviously, you know, is still very CPU-centric. On a combined server, right now, 25% of the total volume is APUs, and obviously, GPUs are the biggest portion of it. So we expect sequential improvement driven by recovery in demand and units. And then obviously, the shift to Gen 11, which is, which is important in this transition. On the GPU lead times, they have come down, but they're still elevated; we're talking about 20 plus weeks, at least for lead times.

Speaker Change: Tony's question about sequential improvement in the traditional server, which obviously are you know its still very CPU centric.

Speaker Change: On a combined server right now 25% of the total volume is apu's, which obviously you're abusing the biggest portion of it. So we expect that sequential improvement driven by recovery in demand in units and then obviously the shift to a gen 11, which is a which is important in this transition all the GPU lead times.

Speaker Change: They have come down, but it's still elevated we're talking about 20 plus weeks at least lead times and so and then it's going to be a combination of multiple type of Gpus right because there's still demand for the prior generation to H 100, obviously the majority of that amount today is on the H one.

Antonio Fabio Neri: And so and then it's going to be a combination of multiple types of GPUs, right, because there is still demand for the prior generation of H 100. Obviously, the majority of the demand today is for H 100. And going forward, we're going to have the Grace Hopper H 200 and others, right, including MI 300x and, and the like.

Speaker Change: Going forward, we're going to have the the Grace Hopper, H 200, and others right, including the M 300, IDEXX and and alike and the difference for US is that because we have a unique networking interconnect fabric, we can support all of them.

Antonio Fabio Neri: And the difference for us is that, because we have a unique networking interconnect fabric, we can support all of them. So that's an important differentiation that I think everyone needs to remember, because while a lot of the volume today is NVIDIA, and then on supercomputing, which is also an AI business, by the way, we support all three of them. And so that gives us the optionality to convert the orders that we have into future orders that we see in the pipeline with a little bit more flexibility. Thank you, Aaron.

Speaker Change: So that's an important differentiation that I think everyone in these sort of mind, because while a lot of the volume today is Nvidia and then on the supercomputer, which is also an AI business by the way are we.

Speaker Change: We support all three of them and so that's what I was to give us the optionality to convert the the orders that we have in future orders as we've seen the pipeline.

Speaker Change: With a little bit more flexibility obviously.

Wamsi Mohan: Thank you Erin Gary can we have the next question. The next question is from Onesie <unk> Mohan with Bank of America. Please go ahead.

Operator: Gary, can we have the next question? The next question is from Wamsi Mohan with Bank of America. Please go ahead.

Antonio Fabio Neri: Yes, thank you so much. You said some of your demand for AI systems is coming in via GreenLake. Can you help us understand the linkage between your view of AI revenue and ARR growth? Yeah, Wamsi, I can start, and then Marie, feel free to add.

Wamsi Mohan: Yes. Thank you so much.

Wamsi Mohan: It's a little of your demand in E systems is coming in via Green Lake can you help us understand the linkage between your view, yeah revenue and earnings growth.

Speaker Change: Yeah, I won't say I can start that everybody feels funny to watch.

Antonio Fabio Neri: I mean, a fact of the matter is that when you look at that $4 billion cumulative orders, a significant portion is going to go through HPE GreenLake. If you recall, last year, I announced that a hyperscaler placed an order with us, and that order is going through the GreenLake platform. And so that's why you see a breakdown over time of the AI GPU orders going through the AIR, which is fine. You know, ultimately, they give us the ability to attach other services, which is important to remember here. Because remember, when it goes to HPE GreenLake, in many cases, we actually run those systems for the customer, not just shipping the system to the customer.

Wamsi Mohan: I mean I talk to them all of that is that when you look at the $4 billion cumulative orders a significant portion of them is going to go through the H b.

Wamsi Mohan: If you recall last year, I announced that a hyperscale or place an order with us and not all of them is going through.

Wamsi Mohan: And so that's why you see a breakdown over time.

Wamsi Mohan: The G. P orders go into where they are which is fine and ultimately they'll give us the ability to touch all the services, which is important to remember here because I remember when it goes to the H b could be like in many cases, we actually are running those systems for the customer is not just shipped into assistant to the customer.

Antonio Fabio Neri: We're actually putting in a location where our data center's footprint is, with our cooling and power. And then we attach our services, which are the runtime plus other things we do. And why it's important also for the growth in AIR because that drives margin expansion and accretion over time.

Actually put them in a location where he is out of data centers center footprint with our cooling and power and then we attach our services, which are the wrong time, plus all the things, we do and why it's important and also the girlfriend because that drives margin expansion on an accretion overtime. So that's what's going on.

Antonio Fabio Neri: So that's what's going on in addition to the fact that, obviously, now we have crossed 31,000 customers on the HPE GreenLake platform. To put it in context, Wednesday, that's almost 3,000 customers in one quarter. I mean, 8% up quarter over quarter, that's 3,000 customers. And everything we do from the software perspective, an AI-optimized server, the software to connect the server actually runs on GreenLake.

Wamsi Mohan: In addition to the fact that obviously now we crossed 31000 customers on H B platform.

Wamsi Mohan: And in context Onesie, that's almost 3000 customer in one quarter, I mean, 8% up quarter over quarter, that's 3000 customers and everything we do from the software perspective acknowledged.

Okay.

Wamsi Mohan: After my server.

Wamsi Mohan: The software to connect the server actually runs degree like obviously, a little softer Ross to the Green Lake along with Aruba sorcerer, including Aruba Central is subscription.

Marie E. Myers: A lot of the Aruba software, including Aruba Central, is subscription, and now you have AI as well. And maybe, Wamsi, I'll just put a couple of numbers around the APU or the AI system orders that we saw, too. So we ended the quarter, actually, with $3 billion in backlog. So we really nearly tripled, actually, year on year.

Speaker Change: Oh, yes, well.

Speaker Change: And maybe one Z I'll just put a couple of numbers around the Apu of the AI system orders that we saw two so we ended the quarter actually with 3 billion in backlog. So we really nearly tripled actually year on year and in terms of just the link back to a we shipped around 400 million in revenues, but we had incremental revenue actually that went into it.

Marie E. Myers: And in terms of just the link back to AAR, we shipped around $400 million in revenue. But we had incremental revenue, actually, that went into AAR. And that sort of underscores the growth that we saw in AAR and expect to see going forward as well, Wamsi. Gary, can we have the next question? The next question is from Samik Chatterjee with J.P. Morgan. Please go ahead.

Oh, that's sort of underscores the growth that we saw in a R and expect to see going forward as well onesie.

Speaker Change: Thank you Z Gary can we have the next question. The next question is from stomach Chatterji with J P. Morgan. Please go ahead.

Antonio Fabio Neri: Hi, thanks for taking my question. I guess, Antonio, you referenced the increasing demand for AI that you see greater as affecting workloads on the enterprise side. Can you maybe talk a bit in terms of how these deployments are looking different from what you've been doing on the AI training side and maybe with some hyperscalers and, given the lead times, is this demand going to materialize in relation to revenue more in fiscal 25 or is that just a fair estimate given the lead times? Thank you. Yeah, no, thank you.

Samik Chatterjee: Hi, Thanks for taking my question I guess I'm, telling you you referenced the increasing demand on that you'll see greater too in fencing workloads on the enterprise side.

Samik Chatterjee: Can you maybe talk.

Samik Chatterjee: In terms of how these deployments.

Samik Chatterjee: And different to what you've been doing on the AI training side and maybe with some hyper scalar then given the lead times.

Samik Chatterjee: There is demand going to materialize in relation to revenue more in fiscal 'twenty five or is that just a fair estimate about given the lead times. Thank you.

Speaker Change: Yeah no. Thank you that's excellent question, obviously I spoke about the lifecycle training Q&A influencing obviously the training side has been more focus on the hyperscale as a tier two tier three types of providers or companies that are funded well wells to build these large language model.

Antonio Fabio Neri: That's an excellent question. Obviously, I spoke about the AI lifecycle of training, tuning, and inference. Obviously, the training side has been more focused on the hyperscalers or tier two, tier three type of providers or, you know, companies that are funded well to build these large language models. But when you look at enterprises, most of the enterprises are going to take a model and fine-tune it to give a context to the model with their data. And that it can happen in multiple locations, right?

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Speaker Change: But when you look at the enterprise most of the enterprises are going to take a marlow and fine tune it to give a context to the model with those data and that it can happen in multiple locations right. It can help in that.

Antonio Fabio Neri: It can happen in data centers or potentially in a colo. Or in some cases, you know, in the public cloud, but we see more focus on where they can control the data in a secure environment. And then on the inferencing side, you know, it can happen in a data center or in a public cloud once they are all trained, but also at the edge. In fact, we showcase a lot of inferencing cases at the edge at Mobile World Congress, at the edge of the network. Think about use cases like the call supermarket, right? So there is a lot of data about the video footage captured in the stores. That video footage needs to be analyzed right there at that given moment with zero latency in order to deliver the outcome.

Speaker Change: The delta centers or are they potentially niccolo.

Speaker Change: Some cases, you know in the public cloud, but we see more a focus on where they can control the data in a secure environment and then the influence inside.

Speaker Change: You know it can help them in a data center or in a public cloud once they are all trained but also at the edge in fact, we showcase a lull of the influence in our cases at the edge in mobile World Congress at the edge on that network think about use cases like the Coles supermarket right. So there is a lot of data to the video footage.

Speaker Change: To capture in the stores that that that'd be the switches needs to be incidence right. They are I'll give it a moment with zero latency in order to deliver the outcome and then all of US wanting manufacturer and the like and in fact, one of the use cases. We saw also for instance is a large bank that now I'm doing some fine tune.

Antonio Fabio Neri: And there are others, one in manufacturing and the like. And, in fact, one of the use cases we saw for inference is a large bank that is now doing some fine-tuning and inferencing to do risk management and other things. So I would say we are kind of getting into it.

Speaker Change: And in and influencing our to do risk management and other things. So we I will say, we are kind of getting into it I will say that the growth will happen in the second half and twenty-five definitely the lead times will play a role, but I'm very encouraged about the momentum we see and the opportunity you have also with the combination.

Antonio Fabio Neri: You know, I would say growth will happen in the second half of 2025. Definitely, the lead times will play a role, but I'm very encouraged about the momentum we see and the opportunity we have also with the combination of Juniper because most of this inferencing requires network connectivity to deliver it. And that, to me, is one of the reasons why we went ahead with that. Thank you, Samik. Gary, can we have the next question? The next question is from Tim Long with Barclays. Please go ahead.

Speaker Change: Juniper because most of these infancy requires the network connectivity to deliberate and that to me is one of the thesis why we went ahead with that acquisition.

Speaker Change: Thank you stomach Gary can we have the next question the.

Speaker Change: The next question is from Tim long with Barclays. Please go ahead.

Antonio Fabio Neri: Thank you. Just on the another one on the AI server side, can you talk a little bit about how you guys are thinking about profitability for these businesses as we get more accelerated compute in your servers? And if you can also kind of break that down between maybe the Cray business and the standard compute, is there going to be, you know, more of a margin gap in those two businesses when looking at, you know, more traditional going to accelerated. Thank you. Sure, I can start.

Timothy Patrick Long: Thank you.

Timothy Patrick Long: Just on the another one on the server side can you talk a little bit about.

Timothy Patrick Long: How you guys are thinking about profitability for.

Timothy Patrick Long: These businesses is as we get more accelerated compute in in your servers and if you can also kind of break that down between maybe the crane business.

Timothy Patrick Long: This is and the.

Timothy Patrick Long: The standard compute is there going to be more of a margin gap in those two businesses. When looking at you know more traditional going to accelerated thank you.

Speaker Change: Sure I can start.

Antonio Fabio Neri: I will say, listen, I think if you look at our server segment that we just published, we deliver very strong performance. I mean, we are in the target range we committed a while back of 11 to 13 percent. And that the fact of bringing them together gives us the flexibility opportunity to maximize the blended margin here as we go forward. To give you an example, when you sell an EX system, generally, it's a liquid-cooled system that tends to gravitate to the supercomputing side or large AI clusters of thousands of GPUs. An EX system can support today up to 80,000 GPUs in one system. And that's because of our interconnect fabric HP slingshot.

Listen I think if you look at our server segment that we just published a we delivered very strong performance I mean, we are in the public a range we've committed a while back of 11th of sort of 10% and the fact that brings together give us the flexibility opportunity to maximize the blended margin here.

Speaker Change: We'd go forward.

Speaker Change: When to give a reference when you sell an E X system generally is a liquid cool system.

Speaker Change: That tends to gravitate to the supercomputer inside or large AI clusters of thousands of Gpus, but any X system support today up to 80000 Gpus in one system and that's because of our interconnect fabric H B slingshot in fact, some of those are system have 80000.

Antonio Fabio Neri: In fact, some of those systems have 80,000 GPUs and maybe 40,000 CPUs in one coherent system. But then you have other customers that may need 2,000 or 4,000 GPUs. And depending on which location they pick, they need liquid cooling; we deploy those. Now, generally speaking, the XD platform, the Cray XD platform, is the one that has the density and is more air-cooled oriented and ability to mix many different configurations.

Speaker Change: Gpus that maybe 40000 Cpus in one cohesive system, but then you have all the all of the customers that many 2000 or 4000, Gpus and depending on which location that they need liquid cooling we deployed those it now generally speaking the X V plow form Stifel.

One is the one that has the density and is more air cool oriented and the ability to mix much different configurations, and that's where the vast majority until the actual needs today and AI and rely on Gen 11 actually has more to use for influencing or there's some ideas of a fine tuning as well. So we have the flexibility to me.

Antonio Fabio Neri: And that's where the vast majority of the action is today in AI, and ProLiant Gen11 is actually more used for inferencing or in some areas of fine-tuning as well. So we have the flexibility to meet all those demands without a unique IP. And on top of that, we actually have our machine learning development environment. In fact, there are customers that come to us just for the MLDE environment. Later on, we pull out the server. Now, on AUPs, I will tell you that when you sell an XD, depending on the conversion, it can be 20 times.

Speaker Change: All those are the months without a unique IP and on top of that we actually lay our machine learning and development environment. In fact, they are customers that come to us just for the MLD E M. Vitamin lays it all be pools of server.

Speaker Change: On <unk> I will tell you that when you sell them you know X X. The peninsula, what is it going be twin P times.

Antonio Fabio Neri: The value of a traditional server with CPUs and an EX can be up to 35. And so, as we go forward, the ability to optimize margin through the configs and attach the services, whether it is, you know, our data center services plus the software and the operational services, allows us to really drive the best outcome for our shareholders. Thank you, Tim.

Speaker Change: Well you over traditional server with Cpus and any extra can be up to 35 times and so as we go forward the ability to optimize margin through the config and attach the services, whether as you know our data center services plus the software and the operational services allows us to really drive the best outcome for our shareholders.

Speaker Change: Yeah.

Speaker Change: Thank you Tim Carrie we'll take one final question and that final question will come from Lou Missy OCR from DIY capital markets. Please go ahead.

Operator: Gary, we'll take one final question, and that final question will come from Lou Misiocia from Diyawa Capital Markets. Please go ahead.

Antonio Fabio Neri: Hey, thank you for taking my call. Antonio, I guess the question I have is, since you're talking a lot about data centers, I'm wondering what's going to happen is, as the vast majority of x86 applications are going to start to shift over to really be accelerated with GPUs due to the concern of more loss coming to end. And what I'm asking is not really inference, and it's not training.

Speaker Change: Hey, Thank you for taking my call.

Speaker Change: Antonio I guess the question I have is since you're talking a lot about data centers.

Speaker Change: I'm wondering what's going to happen is as are the vast majority of X 86 applications can you start to shift over to really be.

Speaker Change: Accelerated with <unk> Gpus due to the concern of Moores was coming to end and what I'm asking is not really inference and its not training. These are just normal applications sort of like the same way architectures shifted from IBM.

Antonio Fabio Neri: These are just normal applications, sort of like the way architecture has shifted from, you know, IBM mainframes or PA risk years and years ago to x86, eventually to that and the cloud. Do you think that that's going to ship over to running on GPUs? Well, thank you for the question. I think we need to understand that there are two worlds that will coexist.

Speaker Change: IBM mainframes.

Speaker Change: Riskier some years ago to X 86, eventually to that and cloud.

Speaker Change: Do you think that that's going to ship over to learning on Gpus.

Speaker Change: Well. Thank you for the question I think we need to understand there are two worlds that will coexist. There is the cloud native world think about the cloud native World, where you have thousands of thousands of applications running on thousands of thousands of servers and the share everything that architectural will exist for a long long time, because it's cost efficient.

Antonio Fabio Neri: There is the cloud-native world. Think about the cloud-native world where you have thousands and thousands of applications running on thousands and thousands of servers, and they share everything. That architecture will exist for a long, long time because it's cost-efficient. And the realization is that those applications and workloads were designed for that type of environment, from the traditional monolithic approach to a more cloud-centric approach. And then you have these AI applications where you may have one application, only one, running on thousands and thousands of servers which have accelerated compute power. And it's a little bit far-fetched to say everything is going to move there. I argue that you will have inferencing solutions, that a CPU will be just fine. Think about your phone. Your phone will have at some point the ability to manage a large language model, let's say 20 or 30 billion parameters, or the PC, maybe in the 80 to 100 billion parameters.

Speaker Change: And the reorganization is that those applications of workloads will design for that type of environment.

Speaker Change: Traditional monolithic approach to more a cloud.

Speaker Change: Cloud centric approach and then you have these AI applications, where you may have one application only one running on thousands of thousands of servers, which have also donated to compute.

Speaker Change: And he's a little bit farfetched to say everything is going to move there.

Speaker Change: Argue that you will have inferencing solutions that our CPU will be just fine you know think about your phone right. The fall we'll have a some point the ability to manage a lost language model, let's say 20, or 30 billion parameters or the P. C. Maybe you know are in the 80 to 100 below parameters.

Antonio Fabio Neri: But when you go up higher than that, obviously, you need potentially a server at the edge, and an eight-way GPU will be the right way to go. So I argue there will be a mix in the transition here for a long period of time. Not everything will go to a GPU. It also depends on how these large language models and other applications get constructed.

Speaker Change: But when you go up higher than that obviously, you need potentially assortment at the edge and then eight.

Speaker Change: What I've called eight wage if you will be the right way to go. So I argue there will be a mix and the transition here for a long period of time not everything will go to a GPU and also defense. How these large language models and all the applications get constructed now you ask US you made another interesting point, which I wanted to make sure of the AR.

Antonio Fabio Neri: Now, you made another interesting point, which I want to make sure all of you remember. We, as a company, have two public instances of AI. Power with Renewable Energies, where we're supporting some of these customers, including a hyperscaler, and going forward, Enterprise Customers, because they don't have the space and the cooling and the understanding how to run this system of scale. That's a unique differentiation Hewlett Packard Enterprise has in addition to build systems and ship them.

All of you will remember we as a company have to now public instances of AI.

Speaker Change: Power with renewable energies, where we are supporting some of these customers, including a hyper scaler.

Speaker Change: And going forward what enterprise customers.

Speaker Change: They don't have the space and the cooling and they understand how to run this system of scale. That's unique differentiation Hewlett Packard enterprise have innovation to build systems and ship them and I think that's an opportunity for us because that will drive stickiness twice weekly like platform, which obviously will drive.

Antonio Fabio Neri: And I think that's an opportunity for us because that will drive stickiness to our HP GreenLake platform, which obviously will drive recurring revenues but better attach to software and services down the road. And Juniper will play a huge role in that environment. Thank you, Lou. Let me now turn it back to Antonio for his concluding remarks. Well, thank you, Shannon, and thank you, everyone. I know you have been covering multiple costs today. I know it's late on the East Coast, but I will leave you with a few comments. Number one, we have the right strategy and the right team at the right time. You know, this quarter was obviously a little bit mixed because of revenue, but remember, a lot of revenue also went through the AIR, so we need to understand that implication going forward.

Speaker Change: Drive recruiters revenues, but better attach of software and services down the road and Juniper will play a huge role in that environment.

Speaker Change: Thank you.

Speaker Change: Let me now turn it back to Antonio for concluding remarks.

Antonio: Well, thank you Shannon and thank you everyone. I know you have been covering multiple cost today I know, it's late on the east coast, but I will leave you with few comments number one we have the right strategy the right team at the right time.

Antonio: This quarter, obviously was a little bit mixed because of the revenue, but remember the lower revenue also went through the AI ops. So we need to understand that implication going forward I'm very confident about the future and the moves we have made and continue to make including the Juniper acquisition will allows us to participate in this.

Antonio Fabio Neri: I'm very confident about the future, and the moves we have made and continue to make, including the acquisition of Juniper, will allow us to participate in this inflection point with unique IP. You know, everybody obviously is focused on this AI momentum and the server side, but you need more than servers. AI will drive the need for more ports, that means you need more networking bandwidth, that's for sure.

Antonio: This inflection point with unique I P. You know everybody all of his focus about this momentum and the server side, but do you need more of them than servers.

I will drive the need for more ports that means you need more of a networking bandwidth. That's for sure also let's not forget that we need to do this responsibly one of the things I'm really proud about our company is the commitment to social responsibility doing all of this address in the sustainability and the ethical challenges and the responsibility around AI.

Antonio Fabio Neri: Also, let's not forget, we need to do this responsibly. One of the things I'm really proud of our company is its commitment to social responsibility. Doing all of this, addressing the sustainability and the ethical challenges and the responsibility around AI, but listen, just we came out two weeks ago where HP was ranked number one in the just capital ranking. That's something that we are proud of, and I know Shek Ho the value, all of that. We have to take some actions here. We are really focused on strong execution and discipline, something we have shown for six years plus. And that's why I'm confident in the guidance we provided with Marie. And as we get into 25, obviously, with the pending acquisition, I feel HP will be in a stronger position as we get through 2024.

Antonio: Well listen just we came out two weeks ago with HPE was ranked number one in that just capital ranking that's something that we're proud of it and I know shareholder value all of that we have to take some actions here, we're really focused on a strong execution and disciplined somebody we have shown now for six years, plus and that's why I'm confidence and adjust.

Antonio: The guidance, we provided with our money and as we get into 'twenty fives, obviously with the pending acquisition I feel HB will be in a stronger position as we go through 2020 four so thank you for your time I hope to connect with you soon.

Antonio Fabio Neri: So, thank you for your time. I hope to connect with you. Ladies and gentlemen, this concludes our call for today. Thank you. You may now disconnect, www.microsoft.com

Speaker Change: Ladies and gentlemen, this concludes our call for today. Thank you you may now disconnect.

Speaker Change: Yeah.

Speaker Change: [music].

Speaker Change: Yes.

Speaker Change: [music].