Q3 2024 Hewlett Packard Enterprise Co Earnings Call

Good afternoon, and welcome to the third quarter fiscal 2024 Helit 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. We will be facilitating a question and answer session towards the end of the conference.

Gary: should you need assistance during the call, please signal a 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 let's turn the presentation over to your host for today's call, Paul Glazer, Head of Investor Relations. Please proceed.

Gary: Good afternoon. I'm Paul Glazer, head of Investor Relations for Hula Packard Enterprise.

Speaker Change: I would like to welcome you to our fiscal 2024 Third Quarter earnings conference call with Antonio Neri, HP's President and Chief Executive Officer and Marie Myers, HPE's Chief Financial Officer.

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 HPE Investor Relations webpage.

Speaker Change: 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.

Speaker Change: HBE assumes no obligation and does not intend to update any such forward-looking statements.

Antonio Neri: 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 10Q for the fiscal quarter ended July 31, 2024.

Antonio Neri: For 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 HPE's filings with the SEC for discussion of these risks.

Antonio Neri: For a financial information, we have expressed on a non-gap basis. We have provided reconciliation to the comparable gap information on our website.

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

Antonio Neri: 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.

Antonio Neri: Finally, Antonio and Marie will reference our earnings presentation in their prepare remarks.

Antonio Neri: with that. Let me turn it over to Antonio.

Antonio Neri: Thank you Paul and welcome to your new role leading investor relations at HPE and thank you all for joining us today.

Antonio Neri: HPE deliver a strong third quarter performance. We generated impressive revenue growth. We notable acceleration of AI systems revenue conversion, as well as higher operating margin from the prior quarter.

Neri: Neri, when you was 7.7 billion dollars up 10% year over the year and have a high end of our guidance.

Speaker Change: Now gap diluted metters per share rolls 1 cent from a year ago to 50 cents in Q3, 2 cents above the high end of our guidance.

Speaker Change: We generate a free cash flow of more than $660 million and will pay a dividend of 30 cents per share

Speaker Change: Based on our year-to-day performance, we are raising a full-year gap in non-gap-earned special guidance. Marie will provide food and details in her marks.

Speaker Change: Lastly, we also pleased to have received the first payment of $2.1 billion in proceeds from the sale of part of our equity position in its free seat.

Marie Myers: Overall, the demand environment discord has improved, with a sequential and year-over-year or the scrolls, but with some geographic variation.

Speaker Change: The man was strong in North America is a Pacific Japan in India, while Europe and the Middle East lagged. We are aggressively going after the opportunities presented by better market conditions and a world position in a competitive and dynamic environment as we close our fiscal year.

Speaker Change: I am very proud of the progress we have made in delivering on our H2 club vision over the last several years, which is generating this performance momentum.

Speaker Change: We have accelerated innovation across all pillars of our strategy, networking, hydrocloud in AI, delivered through our unified cloud native and AI driven experience as part of our HP Green Lake Cloud Platform.

Speaker Change: Today, almost 37,000 unique customers use our HPGDLA Cloud to manage their hybrid APS state, which drives our annualized revenue-run rate subscription growth.

Speaker Change: In Intelligent Edge, we have invested in building an industry-need in AI-driven networking portfolio. HP Aruba Networking is a recognized market leader in the campus and branch segment.

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. We will be facilitating a question-and-answer session towards the end of the conference. Should you need assistance during the call, please single a conference specialist by pressing the star key followed by zero. As a reminder, this conference will take place in the future. This conference is being recorded for replay purposes.

Speaker Change: The AI marker requires a modern, high-performing network in fabric as a core foundation to deliver a more efficient data center cloud infrastructure as the work transition to accelerated computing.

Speaker Change: We are excited to significantly expand and at work in business with depending on acquisition of Juniper networks.

Speaker Change: The acquisition of this high margin business will accelerate our H2-clad vision with a full network in IP stack, from silicon to infrastructure to the operating system to security to software and services in a cloud native NEI driven approach.

Paul Glazer: I would now like to turn the presentation over to your host for today's call.

Paul Glazer: Paul Glazer, Head of Investor Relations, please proceed. Good afternoon. I'm Paul Glazer, Head of Investor Relations for Hewlett Packard Enterprise.

Speaker Change: We expect our compelling value proposition, will begin to deliver returns to our shareholders in the year post-close.

Paul Glazer: I would like to welcome you to our fiscal 2024 third quarter earnings conference call with Antonio Neri, HP's president and chief executive officer and Marie Myers, HPE's chief financial officer. 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 HPE Investor Relations webpage.

Speaker Change: In Hub Recloud, we redefine the cloud space by delivering an experience that is hybrid by design with HP Green Lake at the core of our strategy.

Speaker Change: We have transition our HP server, MHP storage products to plan native and software to find solutions while adding unique software and services to our HP GreenLake cloud platform.

Speaker Change: Our innovation gives customer choice and flexibility across all world-loop types, while managing their public on-prem, colors and ages in one unified hybrid cloud operations experience.

Paul Glazer: 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. 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 quarter report on form 10Q for the fiscal quarter ended July 31, 2024.

Speaker Change: Our AI business is built on the Cades of large-scale infrastructure expertise, including technologies that, like directly with cooling, they're powering our largest AI systems for large language model builders, service providers, and supercomputer users.

Speaker Change: We have rapidly expanded our AI portfolio, including the introduction of HP Private Cloud AI, specifically engineer for enterprise customers, with the expectation of significant martyred market expansion, as we are still in the early stages of adoption.

Paul Glazer: For 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 HPE's filings with the SEC for discussion of these risks. For financial information, we have expressed on a non-gap basis. We have provided reconciliation to the comparable gap 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. Finally, Antonio and Marie will reference our earnings presentation in their prepared remarks.

Speaker Change: Percewing the strategy has diversified the HP portfolio to parts of the market with higher margins.

Speaker Change: Our differentiation not only makes us highly relevant to customers and partners, but also drives profitable growth for us shareholders.

Speaker Change: I have a few observations about cutary performance in our key segments that I will share and then I will let Marie Fuller review more detailed results.

Marie Fuller: Our server segment again, our Performing Expectations in Q3, thanks to an acceleration in converting AI system orders to revenue.

Marie Fuller: We converted about $1.3 billion in AI systems revenue this quarter at 39% increase from Q2.

Speaker Change: Revenue from our traditional service business also climbed with a double-digit increase in product orders, buffs sequentially and year-over-year, reflecting and improving the market for traditional compute.

Antonio Neri: With that, let me turn it over to Antonio. Thank you, Paul, and welcome to your new role leading investor relations at HPE. And thank you all for joining us today.

Speaker Change: We continue to pursue profitable deals within our target server margin range, underscore instability in our operating profit profile.

Antonio Neri: HPE delivered a strong third quarter performance. We generated impressive revenue growth, with no available acceleration of AI systems revenue conversion, as well as higher operating margin from the prior quarter. Net revenue was $7.7 billion, up 10% year-over-year, and at the high end of our guidance. Nungap, DeLuted Metterns Per Share, Rolls-1 cent from a year ago to 50 cents in Q3, 2 cents above the high end of our guidance. We generate a free cash flow of more than $660 million and we'll pay a dividend of 30 cents per share.

Speaker Change: In AI, our momentum is very clear. Customable demand for HPEI systems rose sequentially, with opportunity to increase in both enterprise and sovereign AI clouds, as customers explore more use cases.

Speaker Change: I system orders client $1.6 billion in the quarter to accumulate a $6.2 billion since Q1223 and increase of approximately $3.5 billion over the last year.

Speaker Change: Customers are exploring new ways to use AI adding to our already robust pipeline and creating even more runway for our broad AI offerings.

Speaker Change: Enterprise Interests in June of the day I is high and while adoption is still in the initial stages, it is accelerating.

Antonio Neri: We'll receive the first payment of $2.1 billion in proceeds from the sale of part of our equity position in H3C. Overall, the demand environment this quarter has improved. We saw sequential and year-over-year orders growth but with some geographic variation. The amount of strong in North America is a Pacific, Japan and India while Europe and the Middle East lagged. We are aggressively going after the opportunities presented by better market conditions and a well-positioned in a competitive and dynamic environment as we close our fiscal year.

Speaker Change: Customers tell us that they see the possibilities and are building the business cases.

Speaker Change: We see use cases across multiple verticals from healthcare to financial services to manufacturing.

Speaker Change: As the use cases mature, they need expertise to help guide the implementation across their enterprise business, not just IT.

Speaker Change: Directly, quick-calling continues to be a key differentiator in the mind-river with large-scale AI customers.

Speaker Change: The expertise in IT required to build and run large direct liqueclical systems creates a significant margin rates of services opportunity for day zero day one and day two operations.

Antonio Neri: I am very proud of the progress we have made in delivering on our H2 Cloud vision over the last several years, which is generating this performance momentum. We have accelerated innovation across all pillars of our strategy. Networking, hybrid cloud and AI deliver through a unified cloud-native and AI driven experience as a part of our HB Green Lake Cloud platform. Today, almost 37,000 unique customers use our HB Green Lake Cloud to manage their hybrid ATS state, which drives our annualized revenue-run rate subscription growth.

Speaker Change: HP has one of the largest water cooling fact manufacturing and services footprint in the world.

Speaker Change: In the sovereign space, just recently, the US Department of Energy National Renewable Energy Laboratory announced that its HPE built Kester of Supercomputer came fully online over the summer.

Speaker Change: Castro will be five times more powerful than NRL's previous supercomputer ego and is 100% directly equipped with code.

Antonio Neri: In Intelligent Edge, we have invested in building an industry-leading AI-driven networking portfolio. HB Urban Networking is a recognized market leader in the campus and branch segment. The AI market requires a modern high-performing networking fabric as a core foundation to deliver a more efficient data center cloud infrastructure as the world transitions to asset-related computing.

Speaker Change: This system will enable research and advancing energy efficiency, sustainable transportation, renewable energy and energy system integration, including by leveraging the latest innovation in AI large language model, modelling and simulation.

Speaker Change: You saw how the HP discovered that HP is deepening our strong partnership with Nvidia.

Antonio Neri: We are excited to significantly expand a networking business with a pending acquisition of Juniper Networks. The acquisition of this high-margin business will accelerate our H2 Cloud vision with a full networking IP stack from Silicon to infrastructure to the operating system to security to software and services in a cloud-native and AI-driven approach. We expect our compelling value proposition will begin to deliver returns to our shareholders in the year post-close.

Speaker Change: In June, we jointly announce NVDAI Computing by HPE, a portfolio code developed AI solutions, and joined goal-to-market integrations that enable enterprises to accelerate adoption of generative AI.

Speaker Change: One of those solutions, the HP Private Cloud AI, which just became general available yesterday, is a trunque solution that makes it easy for enterprises of all sizes, to gain an energy-efficient, fast and flexible option.

Antonio Neri: In Hybrid Cloud, we redefine the cloud space by delivering an experience that is hybrid by design with HB Green Lake at the core of our strategy. We have transitioned our HB server and HB storage products to cloud-native and software-defined solutions while adding unique software and services to our HB Green Lake Cloud platform. Our innovation gives customer choice and flexibility across all world types while managing their public on-prem, callers and ages in one unified Hybrid Cloud operations experience.

Speaker Change: for Sustainable Development and the Employee Generative AI Applications.

Speaker Change: 3s of option, it's free for our cloud AI, we'll be available in 4 modular configurations.

Speaker Change: This start with small, for small, model, inference in needs on Nvidia L40 and scale up to extra large on Nvidia Grace Hopper 200s.

Speaker Change: for our configuration that allows for multiple use cases running influencing retrieval augmentation generation and large language model fine tuning.

Speaker Change: We are offering customers two important choice points, self-manage or fully managed service with ability to purchase as a service through an operating expenditure model or as a capital expense.

Antonio Neri: Our AI business is built on the cades of large-scale infrastructure expertise, including technologies that, like directly with cooling, that they are powering our largest AI systems for large-language mobile builders, service providers and supercomputing users. We have rapidly expanded our AI portfolio, including the introduction of HP Private Cloud AI, specifically engineer for enterprise customers, with the expectation of significant market expansion, as we are still in the early stages of adoption. Pursuing this strategy has diversified the HP portfolio to parts of the market with higher margins. Our differentiation not only makes us highly relevant to customers and partners, but also drives profitable growth for our shareholders.

Speaker Change: with three clicks and less than 36 to the point, HP, private cloud AI, dramatically simplifies the valves, ideops and phynobs for enterprise customers allowing them to easily establish and neither their environments.

Speaker Change: and observe their infrastructure and applications and life cycle manage all aspect of the private cloud AI system.

Speaker Change: And just last week, we further expanded our in-billion partnership via the NMBNM agent Blueprints to HP Private Cloud AI for multiple generative AI use cases.

Speaker Change: This includes a digital human workflow for customer service, a generative virtual screen workflow for computer-aided drug discovery.

Antonio Neri: I have few observations about Q3 performance in our key segments that I will share, and then I will let Marie full review more detailed results. Our server segment, again, offers expectations in Q3, thanks to an acceleration in converting AI system orders to revenue. We converted about $1.3 billion in AI systems revenue this quarter, a 39% increase from Q2. Revenue from our traditional server business also climbed with a double-digit increase in product orders, both sequentially and year-over-year, reflecting an improvement in the market for traditional compute.

Speaker Change: and a PDF data extraction workflow for enterprise rag that uses vast quantity of business data for more accurate responses.

Speaker Change: Integrated in this catalog of pre-trained customizable AI workflows, into our HP private cloud AI stack, enables customers to easily deploy key AI use cases to accelerate time to value.

Speaker Change: With the series of announcements about HP Private Cloud AI, we are well positioned to serve our enterprise customer needs.

Speaker Change: Since the announcement last then three months ago, we have seen very high customer interest, which are quest for proof of concept demos exceeding our expectations.

Antonio Neri: We continue to pursue profitable deals within our target server, margin range, underscoring stability in our operating profit profile. In AI, our momentum is very clear, customer demand for HPE AI systems rose sequentially, with opportunities increasing in both enterprise and sovereign AI clouds, as customers explore more use cases. AI system orders climbed $1.6 billion in the quarter to a cumulative $6.2 billion since Q1 2023, an increase of approximately $3.5 billion over the last year.

Speaker Change: We are increasing cells resources and enable enough partner ecosystem to meet the high demand for demos.

Speaker Change: We believe HP Private Cloud AI is going to be an important growth driver for a hybrid cloud business and we are finally new品 to ensure our leadership is recognized and protected.

Speaker Change: This innovation and customer interest provisions is hybrid cloud well, as AI is an array for hybrid cloud solutions.

Speaker Change: We are in a positive trajectory with orders, it will begin to realize returns from what I'm going to invest in both our prolet portfolio and our specialized self-motions.

Antonio Neri: Customers are exploring new ways to use AI, adding to our already robust pipeline and creating even more runway for our broad AI offerings. Enterprise interest in generative AI is high, and while adoption is still in the initial stages, it is accelerating. Customers tell us that they see the possibilities in our building the business cases. We see use cases across multiple verticals, from health care to financial services to manufacturing. As the use cases mature, they need expertise to help guide the implementation across their enterprise business, not just IT.

Speaker Change: There is more work to do but we are pleased that a revenue and profitability buff improved quarter of a quarter.

Speaker Change: Customers require new data particles in file and object to store the managed data to train the eye applications.

Speaker Change: We expect that extending our HP Electra storage software to define offerings to these new data protocols, we lead to a higher proportional software and related services in our portfolio.

Speaker Change: We are seeing double digits or this growth in HP Elite Restorage and in HP E Green Lake Hybrid Clouds Sass Offerings.

Antonio Neri: Direct liquid cooling continues to be a key differentiator in the mind driver with large-scale AI customers. The expertise in IT required to build and run large direct liquid cool systems creates a significant margin rate services opportunity for day zero day one and day two operations. HPE has one of the largest weather cooling manufacturing and services footprint in the world.

Speaker Change: In just the last three months, almost 3,000 new customers began using our HP Glingle Cloud, and we added almost 10,000 more customers in the last year.

Speaker Change: We are pleased with the moment we are seeing with customers who are turning to HP Green Lake.

Speaker Change: We're proud to announce a new agreement with the Lloyd, to utilize the HPGLA Cloud to help transform and centralize the Lloyd's IT infrastructure, which includes AI computing.

Antonio Neri: In the sovereign space, just recently, the U.S. Department of Energy National Renewable Energy Laboratory announced that its HPE-built Kestrel Supercomputer came fully online over the summer. Kestrel will be five times more powerful than NRL's previous Supercomputer Eagle and is 100% directly liquid cool. This system will enable research advancing energy efficiency, sustainable transportation, renewable energy, and energy system integration, including by leveraging the latest innovation in AI large language model, modeling, and simulation.

Speaker Change: We continue to introduce new hybrid cloud offerings by adding more profitable software and services which is clearly reflected in our AIR mix now a 71%

Speaker Change: For example, at the end of August, we close our acquisition of morphus data.

Speaker Change: We believe this acquisition solidifies HP's leadership position as the first vendor with a full suite of software capabilities across the hybrid cloud stack.

Speaker Change: We look forward to integrated morphis data multicloud automation and orchestration capabilities into our HPGNLECLAB platform to complement the AI-driven multicloud and multi-vendor observability from HP's Opsnap acquisition and our own organic innovation.

Antonio Neri: You saw at HP Discover. HPE, HPE is deepening our strong partnership with NVIDIA. In June, we jointly announce NVIDIA AI computing by HPE, a portfolio co-developed AI solutions, and joint go-to-market integrations that enable enterprises to accelerate the adoption of generative AI. One of those solutions at HP Private Cloud AI, which just became generally available yesterday, is a true key solution that makes it easy for enterprises of all sizes to gain an energy efficient, fast, and flexible option for sustainably developing and deploying generative AI applications.

Speaker Change: In Intelligent Edge, we believe we are beginning a market recovery as customers finish digesting previous orders post COVID.

Speaker Change: Revenue improved sequentially on gains in services and sassy.

Speaker Change: Momentum is building, and we saw sequential or the synchronous regions with particular strength in North America.

Speaker Change: on the prolapse front or the growth was led by Wavislan Sassy and Data Sentiment Working Products.

Speaker Change: Conversely, compositing products over this have been slower to recover.

Speaker Change: Last month we reinforced HP Aruba Network in Cyber Defense with a new AI Power Network Detection and Response and Campus-based Zero Trust Network Access.

Antonio Neri: To his adoption, HP Private Cloud AI will be available in four modular configurations. This start with small for small model inferencing needs on NVIDIA L40, and scale up to extra large on NVIDIA Grace Hopper 200s, for a configuration that allows for multiple use cases, run in inferencing, retrieval, augmentation, generation, and large language model fine tuning. We are offering customers two important choice points, self-manage or fully managed service with ability to purchase as a service through an operating expenditure model or as a capital expense.

Speaker Change: The solution leverages telemetry from HPRU by networking centers they'd like to train and deploy AI models to monitor and detect unusual activity in vulnerable IoT devices, helping to support mission critical business processes.

Speaker Change: Our security solution are attracted to customers like Novel Hotels, which is leverage in a secure AI power network combining the HP Aruba network in central platform and HP Aruba network in clear paths to implement a zero-trust strategy.

Antonio Neri: With three clicks and less than 30 seconds to deploy, HP Private Cloud AI dramatically simplifies their ops, IT ops, and fin ops for enterprise customers, allowing them to easily establish and meet their environments, monitor and observe their infrastructural applications, and lifecycle manage all aspect of the Private Cloud AI system. And just last week, we further expanded our NVIDIA partnership by adding NVIDIA NIM agent Blueprints to HP Private Cloud AI for multiple generative AI use cases.

Speaker Change: This installation will have provide secure, seamless and hyper personalized guest experiences, including an AI-conzuerds across noble, global footprint, a look at your hotels.

Speaker Change: We're excited for what comes next with our pending Juniper Networks acquisition and the comprehensive networking profile we will create.

Speaker Change: As I have said before, we expect that Juniper will be a created to a margin profile and non-gap EPS in year one.

Speaker Change: The deal recently received regulatory approvals in the European Union.

Antonio Neri: This include a digital human workflow for customer service, a generative virtual screen workflow for computer-aided drug discovery, and a PDF data extraction workflow for enterprise RAC that uses vast quantity of business data for more accurate responses. Integrating this catalog of pre-trained customizable AI workflows into our HP Private Cloud AI stack enables customers to easily deploy key AI use cases to accelerate time to value. With the cities of announcements about the HP Private Cloud AI, we are well positioned to serve our enterprise customer needs.

Speaker Change: UK, India and several other jurisdictions, and we remain on track to close in late calendar year 2024 or early calendar year 2025. Plants are well underway to ensure successful integration post-clos.

Speaker Change: To conclude, I am very pleased with our third quarter performance. Our impressive revenue growth reflects the strength of our portfolio and the growing excitement customers have for a new West Innovations across AI network in a hybrid cloud.

Speaker Change: HBs play an accrucial in helping customers adopt these transformative technology across their business.

Antonio Neri: Since the announcement less than three months ago, we have seen very high customer interest, requests for proof or concept demos exceeding our expectations. We are increasing sales resources and enabling our partner ecosystem to meet the high demands for demos. We believe HP Private Cloud AI is going to be an important growth driver for a hybrid cloud business, and we are filing numerous patents to ensure our leadership is recognized and protected. This innovation and customer interest provisions a hybrid cloud well, as AI is an assignerator for hybrid cloud solutions.

Speaker Change: As we innovate, we also continue to stay disciplined in the way we manage our business and structure.

Speaker Change: In Q3, we deliver profitable growth for our shareholders in a competitive and dynamic environment.

Speaker Change: Next month, we look forward to hosting some of you a lot of incredible Wisconsin-Manifaction Facility where we will build many of our industry-leading directly with cool AI systems.

Speaker Change: The work we do, they are plays a key role in driving the transition to direct liquid-cool systems, and the success for they are revenue conversion we saw this quarter. I hope it will take advantage of this opportunity to experience this.

Antonio Neri: We are on a positive trajectory with orders and we are beginning to realize returns from when I'm going investment in both our product portfolio and our specialized self motions. There is more work to do, but we are pleased that our revenue and profitability both improved quarter of a quarter. Customers require new data protocols in file and object to store and manage data to train AI applications. We expect that extending our HPA LITRA storage software defined offerings to these new data protocols, we lead to a higher proportional software and related services in our portfolio.

Speaker Change: Now, I will hand it over to Marie to go through the second results in greater detail. Marie?

Marie: Thank you, Antonio, and good afternoon.

Marie: We are pleased with our performance this quarter and we did what we said we would do.

Marie: We delivered strong, top-line revenues, who revenues sequentially in each segment, prudently managed costs, improved profitability sequentially, and delivered non-gap, diluted that earnings per share that exceeded the high end of our guidance range.

Marie: As Antonio said, we are pleased to have received the $2.1 billion in proceeds from the partial sale of the H3C equity position.

Antonio Neri: We are seeing double digit orders growth in HPA LITRA storage and in HPA GreenLake Hybrid Cloud SAS offerings. In just the last three months, almost 3000 new customers begin using our HP GreenLake Cloud and we added almost 10,000 more customers in the last year. We are pleased with the moment we are seeing with customers who are turning to HP GreenLake.

Antonio Neri: Today's results highlight our ability to deliver admits to a dynamic macro environment.

Speaker Change: Well, some customers remain cautious and prioritise mission-critical projects, we are encouraged by the recovery and enterprise demand we are seeing in North America followed by modest improvement across the other geographies.

Antonio Neri: We are proud to announce a new agreement with the LITRA to utilize the HP GreenLake Cloud to help transform and centralize the LITRA infrastructure, which includes AI computing. We continue to introduce new Hybrid Cloud offerings by adding more profitable software and services, which is clearly reflected in our AIR mix now at 71%.

Speaker Change: We remain excited about a HPE's position across AI, hybrid cloud, and networking.

Speaker Change: HPE is well positioned for the AI opportunity. This quarter, our AI systems backlog increased and we grew AI systems revenues, approximately 40% sequentially.

Antonio Neri: For example, at the end of August, we close our acquisition of Morpheus data. We believe this acquisition solidifies HP's leadership position as the first vendor with a full suite of software capabilities across the Hybrid Cloud stack. We look forward to integrating Morpheus data, multi-cloud automation and orchestration capabilities into our HP GreenLake Cloud platform to complement the AI-driven multi-cloud and multivander observability from HP's up-strap acquisition and our own organic innovation.

Speaker Change: We continue to win deals with both model builders and operands and a well-position to address enterprise AI demand.

Speaker Change: In traditional service, we are seeing signs of a recovery as both demand and revenue increased sequentially.

Speaker Change: In hybrid cloud, we see an improvement in storage led by the strong demand for our HPE Electra MP offering and we continue to drive AR growth.

Speaker Change: We are encouraged by the early and strong customer response to our private cloud AI offering that we announced at discover, which we expect to drive AI adoption in the enterprise.

Antonio Neri: In Intelligent Edge, we believe we are beginning a market recovery as customers finish digesting previous orders post COVID. Revenue improved sequentially on gains in services and sassy. Momentum is building and we saw sequential orders increase in all regions with particular strength in North America. On the products front, orders growth was led by wireless LAN, sassy, and data center networking products. Conversely, compost switching products orders have been slower to recover.

Speaker Change: Lastly, results were solid in networking, improving sequential demand in WLAN, data center networking and switching, along with continued growth and security and services, keeps us optimistic heading into the fourth quarter.

Speaker Change: We continue to make progress towards our strategic goals.

Antonio Neri: Last month, we reinforced HP Aruba Network in cyber defenses with a new AI power network detection and response and campus-based zero-trust network access. The solution leverages telemetry from HP Aruba Network in Centers Data Lake to train and deploy AI models to monitor and detect unusual activity in vulnerable IoT devices helping to support mission-critical business processes. Our security solution are attracted to customers like Noble Hotels, which is leveraging a secure AI power network combining the HP Aruba Network in Central Platform and HP Aruba Network in Clear Pass to implement a zero-trust strategy. This installation will have provide secure, seamless, and hyper-personalized guest experiences, including an AI concierge across Noble's Global footprint or looks at your hotel.

Speaker Change: are recently announced acquisition of morphiest data that expands our hybrid cloud capabilities and our confidence in closing the Juniper Acquisition by the end of calendar year 2024 or early calendar year 2025 are excellent examples.

Speaker Change: Overall, I am pleased with our performance in Q3, and look forward to carrying a momentum to the end of our fiscal year.

Speaker Change: Now, let me go through the details of the quarter.

Speaker Change: Revenue grew 10% year over year, and 7% quarter of a quarter in constant currency to $7.7 billion. Near the high end of our guidance range for the quarter.

Speaker Change: Our as a service momentum continued this quarter. We grew AR 39% in constant currency year over year to more than $1.7 billion led by AI through HP e-green lake and networking and storage subscriptions.

Antonio Neri: We are excited for what comes next with our pending Juniper Networks acquisition and the comprehensive networking profile we will create. As I have said before, we expect that Juniper will be accredited to our margin profile and non-GAAP EPS in year one. The deal recently received regulatory approvals in the European Union, UK, India and several other jurisdictions and would remain on track to close in late calendar year 2024 or early calendar year 2025. Plans are well underway to ensure successful integration post-clothes.

Speaker Change: With Enterprise AI customers, we are noticing a strong appetite for a consumption model, both to alleviate investment pressures, as well as to retain flexibility to grow workloads, though this is still early days.

Speaker Change: We continue to lift HPE Greenlake's value proposition with an increasing mix of higher margins software and services revenue.

Speaker Change: This quarter, we expanded the software and services mix of AR, approximately 300 basis points a year over year to 71% due to the strongest sales of AI services tied to hardware sales and a Rubber Central platform subscriptions.

Antonio Neri: To conclude, I am very pleased with our third quarter performance. Our impressive revenue growth reflects the strength of our portfolio and the growing excitement customers have for our newest innovations across AI network and hybrid cloud. HPE is playing a crucial role in helping customers adopt these transformative technology across their business. As we innovate, we also continue to stay disciplined in the way we manage our business and cost rupture. In Q3, we deliver profited growth for our shareholders in a competitive and dynamic environment.

Speaker Change: A non-gap growth margin was 31.8% which was down 410 basis points year over year driven by a lower mix of intelligent edge revenue and a higher mix of AI server revenue.

Speaker Change: The 130 basis points sequencer decline was driven by the higher AI server revenue mix. We have balanced gross margin pressures by executing on strong cost controls and by maintaining pricing discipline and a competitive AI server market.

Antonio Neri: Next month, we look forward to hosting some of you, our incredible Wisconsin manufacturing facility, where we will build many of our industry leading directly with cool AI systems. The work we do there plays a key role in driving the transition to direct liquid cool systems and the successful AI revenue conversion we saw this quarter. I hope it will take advantage of this opportunity to experiences.

Speaker Change: A non-gap operating expenses decreased approximately 7% year over year and 1% quarter over quarter. Despite a seasonal increase in marketing expenses associated with an annual Discover event.

Speaker Change: This is Joining is CFO. I have taken a rigorous programmatic approach to streamlining our cost structure to drive operating expense improvements. And we expect to see the benefits of these actions in the second half of the year.

Marie Myers: Now, I will hand it over to Mari to go through the segment results in greater detail. Mari? Thank you, Antonio, and good afternoon. We are pleased with our performance this quarter and we did what we said we would do. We delivered strong top-line revenues, who revenues sequentially in each segment, prudently managed costs, improved profitability sequentially, and delivered non-gap, diluted that earnings per share that exceeded the high end of our guidance range.

Speaker Change: This is already evident in our results, as we drove a 15 basis point sequential improvement in our non-gap operating margin, offsetting pressures we saw at the gross margin line. A non-gap operating margin was stable at 10%.

Speaker Change: Profitability Improvements and Better than Expected OINE, drove Gap Deluded Net EPS of 38-Sense Peshare, and our non-Gap Deluded Net EPS of 50-Sense Peshare, both above the high-end of our guidance ranges.

Marie Myers: As Antonio said, we are pleased to have received the $2.1 billion in proceeds from the partial sale of the H3C equity position. Today's results highlight our ability to deliver amidst a dynamic macro environment. While some customers remain cautious and prioritize mission critical projects, we are encouraged by the recovery and enterprise demand. We are seeing in North America followed by modest improvement across the other geographies. We remain excited about a HPE's position across AI, hybrid cloud, and networking.

Speaker Change: and non-gap diluted net EPS excludes $149 million in neck costs, primarily from stock-based compensation expense, amortization of intangibles and acquisition and other related charges.

Speaker Change: Now, let's turn to the segment results.

Speaker Change: Starting with Service.

Speaker Change: Strings in both AI systems and traditional service drove healthy revenue growth and stable operating margins. Server revenues were $4.3 billion in the quarter, up 35% year over year and 11% sequentially.

Marie Myers: HPE is well positioned for the AI opportunity. This quarter, our AI systems backlog increased and we grew AI systems revenues approximately 40% sequentially. We continue to win deals with both model builders and sovereigns and a well-positioned to address enterprise AI demand. In traditional service, we are seeing signs of a recovery as both demand and revenue increased sequentially. In hybrid cloud, we see an improved in storage led by the strong demand for our HPE Electra MP offering, and we continue to drive ARR growth.

Speaker Change: In traditional servers, we saw steady growth in our seeing signs of a recovery. We saw strength in North America, where our installed base is spending more. Though EMEA and APJ customers continue to evaluate spend.

Speaker Change: A general 11 product continues to ramp ahead of expectations and now represents a growing proportion of total server revenue and we have been able to manage and inflationary component environment through dynamic pricing about leveraging strong supplier relationships.

Speaker Change: In AI systems demand remains strong, the large deals continue to be lumpy. AI systems product and services orders rose $1.6 billion sequentially, driving a cumulative order since Q123 to $6.2 billion.

Marie Myers: We are encouraged by the early and strong customer response to our private cloud AI offering that we announced at Discover, which we expect to drive AI adoption in the enterprise. Lastly, results were solid in networking. Improving sequential demand in WLAN, data center networking, and switching along with continued growth in security and services keeps us optimistic heading into the fourth quarter. We continue to make progress towards our strategic goals, our recently announced acquisition of Morpheus data that expands our hybrid cloud capabilities and our confidence in closing the Juniper acquisition by the end of calendar year 2024 or early calendar year 2025 are excellent examples.

Speaker Change: We are pleased with our current AI systems backlog, which has increased quarter of a quarter to 3.4 billion.

Speaker Change: Demand remains healthy from the model builders, we are winged deals in this space and following a framework to manage risks and profits.

Speaker Change: Last still, early days, we continue to see positive signs from Enterprise Customers.

Speaker Change: In fact, more than 80% of enterprises are experimenting with GNI initiatives, which supports our view that the number of customers will continue to trend favorably. This quarter, our Enterprise AI pipeline more than doubled sequentially.

Speaker Change: and sovereign AI is an adjacency for HPE, right beside our market leadership in super computing. We continue to see increasing demand from this set of customers who are embracing AI.

Marie Myers: Overall, I am pleased with our performance in Q3 and look forward to carrying a momentum through the end of our fiscal year.

Marie Myers: Now, let me go through the details of the quarter. Revenue grew 10% year over year and 7% quarter over quarter in constant currency to $7.7 billion near the high end of our guidance range for the quarter. Our as a service momentum continued this quarter, we grew ARR 39% in constant currency year over year to more than $1.7 billion led by AI through HPE Green Lake and networking and storage subscriptions. With enterprise AI customers, we are noticing a strong appetite for consumption model both to alleviate investment pressures, as well as to retain flexibility to grow workloads, though this is still early days.

Speaker Change: Within model builders and sovereign AI, customers is a growing desire for liquid cooling. However, adoption relies on data center readiness.

Speaker Change: Review HPE's multi-decade design and manufacturing expertise, intellectual property, patent portfolio and global reach and dedicated services as clear differentiators as the market moves in this direction.

Speaker Change: 2-3 was a gain a strong quarter for AI system revenue conversion. AI system revenues were 1.3 billion in the quarter, up approximately 40% from the prior quarter.

Speaker Change: We are pleased with the stability of operating margins within our server business. Our Q3 server operating margin was 10.8%.

Marie Myers: We continue to lift HPE Green Lake's value proposition with an increasing mix of higher margin software and services revenue. This quarter, we expanded the software and services mix of ARR approximately 300 basis points year over year to 71% due to the strongest sales of AI services tied to hardware sales at a Rubus Central platform subscriptions. Our non-gap gross margin was 31.8%, which was down 410 basis points year over year, driven by a lower mix of intelligent edge revenue and a higher mix of AI server revenue.

Speaker Change: This was up 70 basis points year over year, but down 20 basis points sequentially.

Speaker Change: A.I. systems make up a higher share of a total server revenue compared to one year ago.

Speaker Change: 10% in 23 FY23 versus 30% this quarter. This underscores our discipline to focus on profitability and a competitive AI server market.

Speaker Change: Our operating margin performance was in line with expectations. For the full year, we continue to expect our silver margins to be at the low end of our target range of 11 to 13%.

Marie Myers: The 130 basis points sequential decline was driven by the higher AI server revenue mix. We have balanced gross margin pressures by executing on strong cost controls and by maintaining pricing discipline and a competitive AI server market. Our non-gap operating expenses decreased approximately 7% year over year and 1% quarter over quarter, despite a seasonal increase in marketing expenses associated with an annual discover event. Since joining the CFO, I have taken a rigorous, programmatic approach to streamlining our cost structure to drive operating expense improvements.

Speaker Change: We will remain disciplined and cost and price as we pursue profitable growth.

Speaker Change: Now moving to hybrid cloud.

Speaker Change: Both revenue and profitability improved quarter-over quarter. Segment revenues of 1.3 billion were down 7% year over year, but up 4% sequentially.

Speaker Change: As we have previously discussed, we are managing a sales model transition and product transition within the storage business.

Speaker Change: A product model transition is to a more cloud-native software-defined platform with HP Electra, which offers a unified storage architecture, comprehensive AIOPS, and cross-stack analytics and aligns to customer preferences for a hybrid cloud model.

Marie Myers: Performance, and we expect to see the benefits of these actions in the second half of the year. This is already evident in our results as we drove a 50 basis point sequential improvement and our non-gap operating margin offsetting pressures we saw at the gross margin line. A non-gap operating margin was stable at 10%. Profitability improvements and better than expected OINE drove gap deluded net EPS of $0.38 per share and a non-gap deluded net EPS of $0.50 per share, both above the high end of our guidance ranges. A non-gap deluded net EPS excludes $149 million in net costs, primarily from stock based compensation expense, amortization of intangibles and acquisition and other related charges.

Speaker Change: Translating the storage growth to revenues will take time because of the higher mix of radical software and services which is deferred into future periods.

Speaker Change: We continue to see strings for our Electra MP offering with sequential improvement then by our continued business transformation efforts, particularly in go-to market.

Speaker Change: We're seeing signs of improving demand for block storage and early traction and file and we are closely monitoring the impacts of commodity costs on demand.

Speaker Change: In our private club business, we are having constructive conversations with our customers to evaluate their virtualization strategy. At Discover, we announced efforts to develop our virtualization capabilities, which will be available within our private club business edition solution.

Marie Myers: Now, let's turn to the segment results, starting with servers. Strengths in both AI systems and traditional servers drove healthy revenue growth and stable operating margins. Server revenues were $4.3 billion in the quarter, up 35% year over year and 11% sequentially.

Speaker Change: Lastly, customers are reacting positively to our recently announced private card AI offering and partnership with NVIDIA, which unifies AI skills, data, architecture and solutions into one fully managed platform and accelerates time-developed enterprises looking to begin their AI journeys.

Speaker Change: We are seeing traction in both customer demos and pipeline and as of yesterday, our private card AR offering is globally available to order.

Marie Myers: In traditional servers we saw steady growth in our seeing signs of a recovery. We saw strength in North America where our installer base is spending more, though EMEA and APJ customers continue to evaluate spend. A general urban product continues to ramp ahead of expectations and now represents a growing proportion of total server revenue and we have been able to manage inflationary component environment through dynamic pricing by leveraging strong supplier relationships. In AI systems demand remains strong, though large deals continue to be lumpy.

Speaker Change: A hybrid cloud operating margin was 5.1%, down 30 basis points year over year, but up 430 basis points sequentially, predominantly due to better optics controls.

Speaker Change: Moving to Intelligent Edge, revenues were $1.1 billion down 23% year-of-a-year on-toff compares, but up 3% sequentially.

Speaker Change: Demand was steady quarter over quarter, backlog remains at normal levels, Channel Indinary remains healthy, and we believe that we have moved past the [inaudible]

Marie Myers: AI systems product and services orders rose $1.6 billion sequentially, driving a cumulative order since Q123 to $6.2 billion. We are pleased with our current AI systems backlog, which has increased quarter over quarter to $3.4 billion. Demand remains healthy from the model builders. We are wing deals in this space and following a framework to manage risks and profits. While still early days, we continue to see positive signs from enterprise customers. In fact, more than 80% of enterprises are experimenting with Gen AI initiatives, which supports our view that the number of customers will continue to trend favorably.

Speaker Change: On the order side, we are seeing a recovery that is in line with our industry peers.

Speaker Change: for the second consecutive quarter, we saw order improvements in each of our geographies, led by a strength in North America followed by modest growth in EMEA and APJ. By product, we saw sequential order improvements in data-sand and networking and in campus.

Speaker Change: We grew both services and necessary orders, mid to high single digits year over year as customers remain excited about a Rupert Central platform that is part of our HPE Green Lake offering.

Speaker Change: On the revenue side, we drove year-over-year strings in dataset and networking, Sassy and Services. Those are so declines that our campus and switching due to difficult annual comparison.

Marie Myers: This quarter, our enterprise AI pipeline, more than doubled sequentially. And sovereign AI is an adjacency for HPE right beside our market leadership in supercomputing. We continue to see increasing demand from this set of customers who are embracing AI. Within model builders and sovereign AI, customers is a growing desire for liquid cooling.

Speaker Change: A sequential revenue grew approximately 3% consistent with that expectation that Q2 would be the

Speaker Change: The segment operating margin of 22.4% was down 520 basis points year over year, driven by tough year over year, revenue compares. Offset slightly at a better year of year gross margin rate.

Speaker Change: that our optics was the primary reason for our 60 basis points sequential improvement and operating margin.

Marie Myers: However, adoption relies on data center readiness. We view HPE's multi-decade design and manufacturing expertise, intellectual property, patent portfolio and global reach in dedicated services as clear differentiators as the market moves in this direction. Q3 was again a strong quarter for AI system revenue conversion. AI system revenues were 1.3 billion in the quarter, up approximately 40% from the prior quarter. We are pleased with the stability of operating margins within our server business.

Speaker Change: Our Office plan has put us on a path to achieve operating margins in the mid-20% range by Q4.

Speaker Change: Now turning to financial services.

Speaker Change: A HPE Financial Service revenue, where 879 million up 1% year over year, and financing volumes were $1.5 billion.

Speaker Change: year to date, 800 million of 4.5 billion in financing volume went to AI wins with both cloud and enterprise customers, which illustrates that AI is driving demand across our portfolio.

Marie Myers: Our Q3 server operating margin was 10.8%. This was up 70 basis points year over year, but down 20 basis points sequentially. AI systems make up a higher share of a total server revenue compared to one year ago. 10% in Q3 FY 23 versus 30% this quarter. This underscores our disciplined focus on profitability and a competitive AI server market. Our operating margin performance was in line with expectations. For the full year, we continue to expect our server margins to be at the low end. We will remain disciplined and cost and price as we pursue profitable growth.

Speaker Change: Operating margin of 9% was up 80 basis points year over year and down 30 basis points sequentially. A portfolio remains healthy and we continue to improve the investment grade mix.

Speaker Change: A Q3 loss ratio remains steady at below 0.5% and our return on equity is a solid 17.4%.

Speaker Change: Turning now to cash flow and capital allocation.

Speaker Change: We generated $1.2 billion in cash flow for operations as $669 billion in free cash flow.

Speaker Change: We are on track for 1.9 billion in free cash flow. We remain confident in our ongoing ability to generate strong free cash flow, even as we've used strategic buys given the rising component cost environment.

Speaker Change: A Q3 Cash Conversion Cycle was a positive four days, which is a reduction of 19 days from Q3, 23.

Marie Myers: Now moving to hybrid cloud. Both revenue and profitability improved quarter over quarter, segment revenues of 1.3 billion were down 7% year over year, but up 4% sequentially. As we have previously discussed, we are managing both a sales model transition and product transition within the storage business.

Speaker Change: Our days of imagery and days of paywalls will both hire and AI systems orders that help pace revenue conversion and on our strategic processes for our server business.

Speaker Change: We continue to believe working capital to be neutral to free cash flow as we expect declined in imagery led by strong AI system revenue conversion to balanced declines in accounts payable as we exit the year.

Marie Myers: Our product model transition is to a more cloud native software defined platform with HPE Electra, which offers a unified storage architecture, comprehensive AI ops and cross stack analytics and aligns to customer preferences for a hybrid cloud model. Translating the storage growth to revenues will take time because of the higher mix of radical software and services, which is deferred into future periods. We continue to see strength for our Electra MP offering with sequential improvement then by our continued business transformation efforts, particularly in go to market.

Speaker Change: We are pleased to have received the $2.1 billion in proceeds from the partial sale of the H3C equity position.

Speaker Change: We remain committed to our balanced capital allocation framework and a focused on managing a balance sheet and maintaining our dividend.

Speaker Change: We returned $221 million in capital to shareholders in Q3 and $607 million a year to date.

Speaker Change: Now, let's turn to guidance.

Speaker Change: As Antonio mentioned, we are making steady progress on securing the necessary rigging through approvals required for up-pending Juniper acquisition and look forward to closing by the end of calendar year 24 or early calendar year 25.

Marie Myers: We are seeing signs of improving demand for block storage and early traction and file and we are closely monitoring the impacts of commodity costs on demand. In our private cloud business, we are having constructive conversations with our customers to evaluate their virtualization strategy. At Discover, we announced efforts to develop our virtualization capabilities, which will be available within our private cloud business addition solution. Lastly, customers are reacting positively to our recently announced private cloud AI offering and partnership within video, which unifies AI skills, data, architecture and solutions into one fully managed platform and accelerates time to value for enterprises looking to begin their AI journeys.

Speaker Change: For the fourth quarter, we expect revenues in the range of 8.1 billion to 8.4 billion dollars.

Speaker Change: Gap diluted net EPS to be between 76 cents and 81 cents, and are no Gap diluted net EPS to be between 52 cents and 57 cents.

Speaker Change: For revenue, we expect to see sequential growth similar to the last couple of quarters with revenue to remain indexed towards server.

Marie Myers: We are seeing traction in both customer demos and pipeline and as of yesterday, our private cloud AI offering is globally available to order. A hybrid cloud operating margin was 5.1% down 30 basis points year over year, but up 430 basis points sequentially predominantly due to better optics controls.

Speaker Change: We continue to manage the business at the operating income level and therefore expect a sequential decline in operating expenses in order to deliver out EPS targets.

Speaker Change: On a segment basis, we expect the following.

Speaker Change: For Server, we expect to convert AI systems to revenue at a strong pace.

Speaker Change: As mentioned, the market remains competitive and large deals remain lumpy. We continue to be time to market for GPUs and are looking forward to shipping H200 chips for the AIST Supercomputer in Q4.

Marie Myers: Moving to intelligent edge, revenues were 1.1 billion dollars down 23% year over year on tough compares, but up 3% sequentially. Demand was steady, quarter over quarter, Packard remains at normal levels, Channel Inventory remains healthy, and we believe that we have moved past the trough. On the order side, we are seeing a recovery that is in line with our industry peers. For the second consecutive quarter, we saw auto improvements in each of our geographies, led by strength in North America, followed by modest growth at EMEA and APJ.

Speaker Change: We also expect a continued demand in traditional service driven by general of an adoption and higher units.

Speaker Change: We are maintaining our expectation of achieving the low end of our 11 to 13% operating margin range for the full year.

Speaker Change: For hybrid cloud, we expect a slight revenue increase to close the year, though expect pressures from rising commodity costs, particularly at SSDs, our growth should continue as a storage business accelerates and shifts to subscription under HP eGreeMake.

Marie Myers: By product, we saw sequential auto improvements in data center networking and in campus. We grew both services and Sassay orders, mid to high single digits, year-over-year, as customers remain excited about a RUBA Central platform that is part of our HPE GreenLake offering. On the revenue side, we drove year-over-year strength in data center networking, Sassay and services, those saw declines in our campus and switching due to difficult annual compares. As sequential revenue grew approximately 3%, consistent with our expectation that Q2 would be the trough.

Speaker Change: and we expect operating margins to continue to transferably to the mid-single digit range.

Speaker Change: For the intelligent edge business, we anticipate a slight sequential revenue increase for the fourth quarter on the recovery in campus and WLAN as well as strengths in data set and networking.

Speaker Change: benefits from our cost reduction efforts, materialized in our third quarter results, and we expect a similar trend in the fourth quarter, supporting our outlook for a full year operating margin in the mid-20% range.

Marie Myers: The segment operating margin of 22.4% was down 520 basis points year-over-year, driven by tough year-to-year revenue compares, offset slightly, but a better year-over-year gross margin rate. Our OPEX was the primary reason for our 60 basis points sequential improvement in operating margin. Our OPEX plan has put us on a path to achieve operating margins in the mid 20% range by Q4.

Speaker Change: For the full year, we are tracking towards the high end of our revenue guidance of 1-3% growth in constant currency.

Speaker Change: We expect to develop grows margin pressures from a higher mix of AI systems, we've continued operating discipline and expect to come in at the low end of an operating profit growth guidance of 0 to 2%.

Speaker Change: We now expect OINE to be a 50-100 million dollar headwind versus our prior expectation of a 150 million dollar headwind.

Marie Myers: Now turning to financial services. Our HPE Financial Services revenue were 879 million up 1% year-over-year and financing volumes were 1.5 billion dollars. Year-to-date, 800 million of 4.5 billion in financing volume went to AI wins with both cloud and enterprise customers which illustrates that AI is driving demand across our portfolio.

Speaker Change: We have tightened a non-gap diluted net EPS expectations for the full year to $1.92 to $1.97.

Speaker Change: For GAPEPS, we are now seeing increased costs related to the GDP transaction with an expectations now at $1.68 to $1.73.

Marie Myers: Operating margin of 9% was up 80 basis points year-over-year and down 30 basis points sequentially. Our portfolio remains healthy and we continue to improve the investment grade mix. Our Q3 loss ratio remains steady at below 0.5%, and our return on equity is a solid 17.4%.

Speaker Change: Lastly, we remain committed in the long-term to our balanced capital allocation framework, our dividend and to our investment grade rating.

Neri: In the Neri term, we expect to continue to share with purchases at a pace in line with Q3 as we've currently managed our balance sheet ahead of the Jennifer transaction closing.

Marie Myers: Turning now to cash flow and capital allocation. We generated 1.2 billion dollars and cash flow from operations and $669 million and free cash flow. We are on track for 1.9 billion and free cash flow. We remain confident in our ongoing ability to generate strong free cash flow even as we pursue strategic buys given the rising component cost environment. Our Q3 cash conversion cycle was a positive 4 days, which is a reduction of 19 days from Q3 23.

Speaker Change: to summarize our Q3 results with strong and demonstrated good sequential revenue growth. With that, I'll turn it over for Q&A.

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

Speaker Change: To ask a question, you may press star then one on your touch-tone phone.

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

Speaker Change: To a draw your question, please press star then too.

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

Marie Myers: Our days of imagery and days of payables were both higher on AI systems orders that outpaced revenue conversion and on our strategic processes for our server business. We continue to believe working capital to be neutral to free cash flow as we expect declines and imagery led by strong AI system revenue conversion to balance declines and accounts payable as we exit the year.

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

Meta Marshall: Great, thanks, and congrats on the results. Maybe just on the server margins, given the AI revenue contribution, the little bit higher than expected, can you just break down, is this from...

Speaker Change: and a better pro-liant margins, better proprietary gray margins, just better pricing discipline, just a little bit more insight into the margins strength we saw there. Thank you.

Marie Myers: We are pleased to have received the 2.1 billion dollars in proceeds from the partial fail of the H3C equity position. We remain committed to our balanced capital allocation framework and are focused on managing our balance sheet and maintaining our dividend. We returned $221 million in capital to shareholders in Q3 and $607 million a year to date.

Speaker Change: Yes, sure. Good afternoon, Peter, and thanks for your question on civil margins.

Speaker Change: First of all, as I said in my prepared remarks, we did in fact ship about 1.3 billion of AI servers in the quarters. So that constituted around about 30% of server revenue, and despite that our margins were at 10.8 and to your point, what was it driven by. So first of all, we're well on track on the ship to general 11. And in itself, general 11 has richer configurations and therefore comes with a higher margin profile. Also, I think we've been pretty successful at passing through those commodity costs.

Marie Myers: Now, let's turn to guidance. As Antonio mentioned, we are making steady progress on securing the necessary regulatory approvals required for our pending Juniper acquisition and look forward to closing by the end of calendar year 24 or early calendar year 25. For the fourth quarter, we expect revenues in the range of $8.1 billion to $8.4 billion.

Speaker Change: and despite the fact that we're in a pretty competitive boat CPU and GPU environment. And then lastly I'd say you would have seen that our optics were down sequentially and you know, you're seeing the impact frankly of that optics discipline show up in the margins as well, meter.

Marie Myers: Gap diluted net EPS to be between 76 cents and 81 cents and our non-gap diluted net EPS to be between 52 cents and 57 cents. For revenue, we expect to see sequential growth similar to the last couple of quarters with revenue to remain indexed towards server. We continue to manage the business at the operating income level and therefore expect a sequential decline in operating expenses in order to deliver our EPS targets.

Speaker Change: Okay. Thank you, Mita. Next question, please. The next question, if some some at Chattergy with JP Morgan, please go ahead.

JP Morgan: Hi, thanks for taking my question, and I apologize that it bounces from background noise and I think I might be able. I guess we're getting the most questions today on the cross margin and Marie and I know you outlined the fact of there in terms of the AI so we're mixed, but hoping you can fresh that a little bit more, in terms of was there anything outside of the AI so we're mixed that impacted cross margins of the company level in the quarter itself.

Marie Myers: On a segment basis, we expect the following. For server, we expect to convert AI systems to revenue at a strong pace. As mentioned, the market remains competitive and large deals remain lumpy. We continue to be time-to-market for GPUs and are looking forward to shipping H200 chips for the AIST supercomputer in Q4. We also expect a continued demand in traditional servers driven by Channel 11 adoption and higher units. We are maintaining our expectation of achieving the low end of our 11 to 13% operating margin range for the full year.

Speaker Change: and as we think about operating discipline going into the next quarter or should be detecting for the migration, the gross margins and more operating discipline to help maintain that operating margin also.

Speaker Change: and if I can just add on the AI order activation that you're seeing, you mentioned lumpy deals with customers.

Speaker Change: is that impacting your thinking on gross margins for the aggregate company as we look forward as well as some software which verticals those orders are coming from. Thank you.

Marie Myers: For hybrid cloud, we expect a slight revenue increase to close the year, though expect pressures from rising commodity costs, particularly at SSDs. AIR growth should continue as our storage business accelerates and shifts to subscription under HPE green make and we expect operating margins to continue to trend favorably to the mid single digit range. For the intelligent edge business, we anticipate a slight sequential revenue increase for the fourth quarter on the recovery and campus and WLAN as well as strengths in data center networking benefits from our cost reduction efforts materialized in our third quarter results and we expect a similar trend in the fourth quarter supporting our outlook for a full year operating margin in the mid 20% range.

Speaker Change: Hey, so again, how good afternoon. So I think I've got most of your questions. I'll hit it up in terms of gross margins and what we've seen. So first of all, you know, I would say just if you step back and think about gross margins at a high level. From a year on year perspective, just remind everybody that, you know, obviously the contribution from our networking revenue is low. It's obviously that's impacted gross margins from a year on year basis. Now when you look sequentially, as I mentioned and prepared remarks, you know, the AI mix of servers.

Speaker Change: and we converted it a much faster pace than obviously, you know, that's...

Speaker Change: and really driven margin gross margin in the quarter. Now, would add to your point, we've been offsetting it with prudency on optics. You've seen that, we're going to continue to do that. I think I mentioned that in my guide comments.

Marie Myers: For the full year, we are tracking towards the high end of our revenue guidance of 1 to 3% growth in constant currency. We expect to balance gross margin pressures from a higher mix of AI systems, we've continued operating discipline and expect to come at the low end of our operating profit growth guidance of 0 to 2%. We now expect OINE to be a 50 to 100 million dollar headwind versus our prior expectation of a 150 million dollar headwind.

Speaker Change: and then also, you know, we continue to have a mindset about being very disciplined and cost-in-priced, as we pursue profitable growths. I think we talked about the fact we're selective on deals.

Speaker Change: and you see that, frankly, if you look at the quality of our receivables, you'll see it at our receivables. Now, a couple of things to sort of bear in mind as we go forward.

Speaker Change: As we see at a prize AI game momentum, that's good to have a more favorable impact on Gross margin, so we do expect.

Speaker Change: that we'll see improving profitability as the market moves in that direction. And then finally, some are just sort of bear in mind that we're getting closer to the closer to the photographer. We expect to see that the end of calendar 24, but getting up 25. You know, in itself, that transaction is going to have a significant impact.

Marie Myers: We have tightened a non-gap deluded net EPS expectations for the full year to $1.92 to $1.97. For Gap EPS, we are now seeing increased costs related to the GDP transaction, with our expectations now at $1.68 to $1.73.

Speaker Change: of both gross and operating margins. And we expect that more than 50% of the company's operating profit will come from networking. So that's how it's sort of leave it with you in terms of thinking about margins. And as we said, you know, we'll continue to focus on managing objects and being being prudent on deals.

Marie Myers: Lastly, we remain committed in the long-term to our balanced capital allocation framework, our dividend and to our investment grade rating. In the near term, we expect to continue sharing purchases at a pace in line with Q3 as we currently manage our balance sheet ahead of the Jennifer transaction closing.

Eric: Thank you so much. Eric, next question, please. The next question is from Ahmed Daryonani with Evercore. Please go ahead.

Marie Myers: To summarize, our Q3 results were strong and demonstrated good sequential revenue growth.

Eric: I'm at your line as open on our and perhaps as muted on yours.

Unknown Executive: With that, I'll turn it over for Q&A. We will now begin the question and answer session.

Eric: Roo!

Ahmed Daryonani: Sorry, that got off to me and thanks for seeing my question.

Ahmed Daryonani: I hope you talked a bit more about the free castle number that was down a fair bit, you know, a year. Maybe you just talked about, you know, what is round that down taking free castle? There's a way to think about, you know, the headwind you've seen from the A.I. Rams, versus the strategic privat. Just talk about what those buckets are. And then related to free castle, I think, you know, the last way it was.

Unknown Executive: To ask a question, you may press star than one on your touch-tone phone. If you are using a speaker phone, please pick up your handset before pressing the keys. To a drier question, please press star than two. We also request that you only ask one question.

Speaker Change: at least 1.9 billion for the full year. I think this time it's 1.9 billion so seems like a better for downtake, maybe I'm over thinking it but could you talk about how do you think about that October quarter-free castle number as well. Thank you.

Meet A Marshall: The first question is from Meet a Marshall with Morgan Stanley. Please go ahead. Great, thanks and congrats on the results. Maybe just on the server margins, given the AI revenue contribution, they were a little bit higher than expected. Could you just break down, is this from better pro-liant margins, better proprietary cray margins, just better pricing discipline, just a little bit more insight into the margins. Great, we saw there. Thank you. Yes, sure.

Speaker Change: Yeah, sure, no worries, I'm in it. And so, yeah, I think you probably are just in terms of where Ratton Cashflow, let me hit Q3 and then I'll go into Q4. So from a Q3 perspective, it's really driven by a couple of things. Firstly, the timing of working capital and also just some of the normal seasonality that we see. And then as we get into Q4, we do expect to see some of the benefits of working capital. So we'll see a reversal in CCC and that will have to get a three cashflow. And then obviously, we're going to see that stronger conversion of AI revenue. You know, I think I mentioned in my prepared remarks that we're going to see a sequential improvement in the shipment of AI revenue. So you can see that will also have an impact on our free cashflow. So for the full year, I'm going to add...

Marie Myers: Good afternoon, Meet a Marshall. Thanks for your question on server margins. First of all, as I said in my prepared remarks, we did in fact ship about 1.3 billion of AI servers in the quarters. So that constituted around about 30% of server revenue. And despite that, our margins were at 10.8. And to your point, what was it driven by? So first of all, we're well on track on the ship to Gen 11.

Speaker Change: and just say we are still on track for 1.9 billion, it's just as you could imagine, we're in Q3 now, we're getting into Q4, we sort of tightened up the expectations given where we're at in the year. So still on track for 1.9, Albert.

Marie Myers: And in itself, Gen 11 has richer configurations and therefore comes with a higher margin profile. Also, I think we've been pretty successful at passing through those commodity costs. And despite the fact that we're in a pretty competitive both CPU and GPU environment. And then lastly, I'd say, you would have seen that our OPEX was down sequentially. And you're seeing the impact, frankly, of that OPEX discipline show up in the margins as well, Meet A. Thank you, Meet A.

Unknown Executive: Next question, please.

Speaker Change: Good. Thank you, Amit. Next question, please. The next question is from Tony Sako Nagi with Bernstein. Please go ahead.

Speaker Change: Yes, thank you. You did mention repeatedly the lumpiness of AI server deals and I'm wondering if there was any unusually large deals into three or whether you're anticipating your AI bookings to be significantly different in Q4.

Summit Chatterjee: The next question is from Summit Chatterjee with JP Morgan. Please go ahead. Hi, thanks for taking my question. And I apologize that it bounces us from background, why I think that might be a quote. I guess we're getting the most questions today on the gross margin.

Speaker Change: and then just on the free cash flow, Marie, you know, Neri comes going to be about two, five to two, six. Free cash flows going to be about 1.9 billion. It's about 75% realization. I think since HPE split off, free cash flow realizations actually didn't even lower them that.

Marie Myers: And Maria, I know you outlined the factors there in terms of the AI server makes, but hoping to refresh that a little bit more in terms of was there anything outside of the AI server makes that impacted gross margins of the company level in the quarter itself. And as we think about sort of your operating discipline going into the next quarter, should be expecting sort of further moderation in the gross margins and more operating discipline to help maintain that operating margin outflow.

Speaker Change: How do we think about that going forward? I presume to catch the legalization will be less than one for next year and maybe even the following year because of Juniper integration charges. Where's the pathway to where we can see pre-catchel the net income being positive?

Marie Myers: And if I can just add on the AI order explanation that you're seeing, you mentioned lumpy deals with customers, is that impacting your thinking on gross margins for the aggregate company as we look forward as well, in terms of where which verticals those orders are coming from. Thanks.

Speaker Change: I'm going to take the first part. The quick answer is no. They have not been very, very large deals or lumpy deals. It's been more spread and more uniform across.

Speaker Change: the Service Provider Space and on the enterprise side, because obviously we talk about this, the percentage of bookings related to the $1.6 billion was in as a mix was in the mid-teens.

Marie Myers: Hey, Sam, again, a good afternoon. So I think I've got most of your questions. I'll hit it up in terms of gross margins and what we've seen. So first of all, you know, I would say just if you step back and think about gross margins at a high level from a year on year perspective, just remind everybody that, you know, obviously the contribution from our networking revenue is lower. Obviously that's impacted gross margins from a year on year basis.

Speaker Change: So, very consistent with the prior score, however, obviously the dollar is a much larger, right? Because now of this quarter we book $1.6 billion. So, I actually argue this is a good thing, and we don't expect...

Marie Myers: Now when you look sequentially, as I mentioned and prepared remarks, you know, the AI mix of service and servers, you know, we converted it much faster pace. And obviously, you know, that's really driven margin, gross margin in the quarter. Now would add to your point, we've been offsetting it with prudency on optics. You've seen that. We're going to continue to do that. I think I mentioned that in my guide comments. And then also, you know, we continue to have a mindset about being very disciplined on cost and prices.

Speaker Change: Significant superlars deals are called in Q4 based on what we have visibility in the pipeline, but more a continuation of what we saw in Q3.

Marie: and Marie, you want to talk about this for a couple of years? Yeah, no, just Tony, I mean, I think in terms of your comments and free cash flow from an FY24 perspective, I mean, in terms of bridging net earnings to free cash flow, it's the normal puts and takes for the year. So working capital.

Speaker Change: CapEx, et cetera, and sort of employee benefits. So there is no specific charges in there in terms of our working capital, sort of our net earnings to the year to free cash flow. In terms of 25...

Marie Myers: We pursue profitable groups. I think we talked about the fact we're selective on deals. And you see that frankly, if you look at the quality of our receivables, you'll see it at our receivables. Now, a couple of things to sort of bear in mind as we go forward, as we see at a price, AI gain momentum, that's going to have a more favorable impact on gross margins. So we do expect that we'll see improving profitability as the market moves in that direction.

Speaker Change: and what we said, Tony, I think, in the transaction stays the same and look honestly, we'll be guiding 25 when we do our next earnings call. So I'll provide more color around free cash flow for 25 as we get into the next call.

Marie Myers: And then finally, some of just to sort of, you know, bear in mind that we're getting closer to the close of juniper. We expect to see that the end of calendar 24 beginning of 25, you know, in itself, that transaction is going to have a significant impact. On both gross and operating margins. And we expect that more than 50% of the company's operating profit will come from networking. So that's how it's sort of leave it with you in terms of thinking about margins. And as we said, you know, we'll continue to focus on managing off X and being very prudent on deals. Thank you, Framick.

Speaker Change: All right, thank you Tony.

Speaker Change: Next question, please. The next question is from Mike Eng with Goldman Sachs. Please go ahead.

Mike Eng: Hey, good afternoon. Thank you for the question. I just had a question about the mix of products and services for the AI systems orders and revenues that were you guys disclosed on slide 12.

Mike Eng: I'm excited to struck by two things. The first, the growing share of services is the percentage of AI system orders. Should we expect that to continue over time and more to some of the key services you're selling with AI systems.

Amit Daryanani: Very next question, please. The next question is from Amit Darionani with Evercore. Please go ahead. [inaudible] So I think that last year was at least 1.9 billion to the full year. I think this time it's 1.9 billion. So it seems like a better for down thick.

Speaker Change: and then second, you know, the very little services revenue that's being recognized to date. You know, as you recognize that services revenue in AI systems.

Speaker Change: should that improve the margins for, you know, sur margins and AI system margins and you know how much can that improve margins by thank you.

Speaker Change: Yeah, thanks Mike. Yeah, we're lessen, we are very pleased with the services attachment momentum on the AI systems portion of our business.

Speaker Change: which I believe will continue to grow as we grow the enterprise segment of the market because that segment of the market comes with more reached services.

Marie Myers: Maybe I'm over thinking it, but could you just talk about how do you think about that October quarter free cash flow number as well? Thank you. Yeah, sure, no worries, Amit. And so yeah, I think you probably are just in terms of where rat and cash flow.

Speaker Change: Day zero day one, and day two services, like we call it. And, you know, yesterday was the first day, became available at H.P. Provaclaw, the I. And there has quite a bit of services component with it.

Marie Myers: Let me hit Q3 and then I'll go into Q4. So from a Q3 perspective, it's really driven by a couple of things. Firstly, the time. It's planning of working capital and you know, also just some of the normal seasonality that we see. And then as we get into Q4, you know, we do expect to see some of the benefits of working capital. So we'll see a reversal in CCC. And that will benefit free cash flow.

Speaker Change: and so, but right now, you know, as we started disclosing last quarter, the services component of that, which is sort of one of the slides, as Marie was providing her marks.

Speaker Change: Much of that is pretty much all the first so unless you know we are doing an installation

Speaker Change: and that gets recognized immediately. Most of that is the maintenance.

Marie Myers: And then obviously, you know, we're going to see that stronger conversion of AI revenue. I think I mentioned in my prepared remarks that we're going to see a sequential improvement in the shipment of AI revenue. So you can see that will also have an impact on our free cash flow. So for the full year, I'm going to say that I just say we are still on track for 1.9 billion. It's just as you could imagine, we're in Q3 now, we're getting into Q4. We sort of tightened up the expectations given where we're at in the year. So still on track for 1.9. I know that. Very good.

Speaker Change: that gets recognized over the length of the contract, and therefore over time.

Unknown Executive: Thank you, Amit.

Speaker Change: We expect that will be contributed positive to our gross margins.

Speaker Change: in the segment that we recognize that revenue, which others are there, the server segment will be market. So yes, but I'm positive on both.

Christian: Grossmargin, a Christian as we recognize the revenue and more services as we start selling the HP Private Cloud in enterprise space.

Speaker Change: Thank you Mike, next question please. The next question is from Simon Leopold with Raymond James. Please go ahead.

Tony Sakunagi: Next question, please. The next question is from Tony Sakunagi with Bernstein. Please go ahead. Yes, thank you. You did mention repeatedly the lumpiness of AI server deals, and I'm wondering if there was any unusually large deals in Q3, or whether you're anticipating your AI bookings to be significantly different in Q4. And then just on the free cash flow, Marie, you know, net income is going to be about two five to two six free cash flow is going to be about 1.9 billion. It's about 75% realization. I think since HPE split off free cash flow realizations actually didn't even lower than that. How do we think about that going forward?

Simon Leopold: Thank you very much. I wanted to see Antonio, if you could talk a little bit about the trends with traditional servers, given we hear these arguments that AI accelerated platforms would cannibalize traditional servers, but you're seeing good growth and good water patterns.

Simon Leopold: How did we think about the risks that maybe that cannibalization eventually happens or how are you really thinking about traditional versus AI? Thank you.

Antonio Neri: Yeah, thank you so much. We have seen no signs of cannibalization into the traditional server market. And remember, I always find to bring, you know, a segment point of view, right? So the segment point of view in the AI space, you have three segments, you have the service providers, model builders.

Antonio Neri: I presume to a cash flow realization will be less than one for next year and maybe even the following year because of Juniper integration charges or where's the pathway to where we can see free cash flow to net income being positive. Thank you, Tony. I'm going to take the first part. The quick answer is no. They have now been very, very large deals or lumpy deals. It's been more spread and more uniform across the service provider space.

Antonio Neri: which obviously include the hyperscalers.

Antonio Neri: and they are, you know, we have no sold traditional service in a long time. Once we made the decision in 2017 to no participate in the market.

Antonio Neri: and then you have the sovereign space which is now going up in terms of interest but the cell cycles are longer.

Antonio Neri: And on the enterprise side because obviously we talk about this the percentage of bookings related to the 1.6 billion dollars was in as a mix was in the meetings. So very consistent with the prior prior quarter. However, obviously the dollars are much larger right because now this quarter we book 1.6 billion dollars. So I actually argue this is a good thing and we don't expect significant super large deals are called in in Q4.

Antonio Neri: because of the government engagement and the procurement, but they are, you know, generally speaking, there is no traditional service per se. It's a combination of architectures and GPUs and CPUs in a unique form factor.

Antonio Neri: and then last but not least, we have the enterprise and the enterprise while he's growing has been very much focused on the AI applications.

Antonio Neri: and you know, for customers to move a traditional world load called Legacy World Load.

Marie Myers: Based on what we have visibility in the pipeline, but more a continuation of what we saw in Q3 and money you want to talk about the free cash flow. Yeah, no, just Tony. I mean, I think in terms of your comments on free cash flow from an FY 24 perspective, I mean in terms of bridging net earnings to free cash flow, it's the normal puts and takes for the year. So working capital, capex, et cetera, and sort of comp, you know, employee benefits.

Antonio Neri: and the like to a accelerated compute. You know, the questions why you will do that, when a, you need to use the other salarizer compute to either find you in the model or to do infancy. In second form, a PCO perspective.

Antonio Neri: that is no clear view that that will be cost less. And so that's why, you know, when I think about warlords and customer segments, we don't see social conoblinization from the AI deployments into the traditional warlords.

Marie Myers: So there is, you know, no specific charges in there in terms of our working capital sort of net earnings for the year to free cash flow. In terms of 25, you know, what we said Tony, I think in the transaction stays the same and look honestly, we'll be guiding 25 when we do our next earnings call. So, you know, I'll provide more color around free cash flow for 25 as we get into the next call. All right. Thank you, Tony.

Simon Leopold: Thank you Simon.

Speaker Change: Next question, please? The next question is from Womsey, Mohan with Bank of America, Maryland. Please go ahead.

Womsey, Mohan: and I thank you so much. Antonio is wondering if you could just share some color.

Speaker Change: on what the AI backlog composition is.

Mike Aing: Next question, please. The next question is from Mike Aing with Goldman Sachs. Please go ahead. Hey, good afternoon. Thank you for the question. I just had a question about the mix of products and services for the AI systems orders and revenues that were you guys disclosed on slide 12. I was struck by two things. First, the growing share of services as a percentage of AI system orders, should we expect that to continue over time, and more to some of the key services you're selling with AI systems.

Speaker Change: Cross, maybe.

Womsey, Mohan: you know, your portfolio where you're seeing more strength versus not and within the enterprise demand commentary that you're calling out can you share some color on what kind of projects are being evaluated and know you called up some verticals like healthcare and financial services

Mike Aing: And then second, you know, the very little services revenue that's being recognized to date, you know, as you recognize that services revenue and AI systems, should that improve the margins for, you know, server margins and AI system margins. And, you know, how much can that improve margins by? Thank you.

Speaker Change: Curious, if you could provide some color on that as well. Thank you so much.

Speaker Change: So first of all, the pipeline we have in front of us is a multiple, so the core of the backlog, which is a positive use, because that tells you the momentable continue in the next few quarters.

Speaker Change: Second is that the backlog composition, as I said, you know, in the meetings is the enterprise space and the rest is the traditional service providers space.

Speaker Change: on the surface provided space is basically compute capacity.

Antonio Neri: Yeah, thanks, Mike. Yeah, we are, listen, we are very pleased with the services attached momentum on the AI systems portion of our business, which I believe will continue to grow as we grow the enterprise segment of the market, because that segment of the market comes with more rich services, they zero day one and they two services like we call it. And, you know, yesterday was the first day became available out of HP Private Cloud AI, and that has quite a bit of services component with it.

Speaker Change: to trade models, all to do hosting for their mother in large colours.

Speaker Change: and then on the enterprise space is really focused on the use cases where they see.

Speaker Change: Clear line of sight for the return of that investment, and there are several use cases by segment that, you know, customers and biberticals, that they are driving, obviously many of them are very obvious.

Speaker Change: and now we are seeing a little bit more sophistication in some of those in use cases and the maturity of.

Speaker Change: and that's why our private cloud AI offering is targeting those at type of customers because all the return with an entire stack.

Antonio Neri: And so, but right now, you know, as we started disclosing last quarter, the services component of that, which is so one of the slides, as Marie was providing her remarks, much of that is pretty much all the first. So, unless you know, we are doing a installation and that gets recognized immediately. Most of that is the maintenance that gets recognized over the length of the contract. And therefore, over time, we expect that will be contributing positive to our gross margins in the segment that we recognize that revenue, which obviously is the service segment of the market. So yes, but I'm positive on both gross margin, a Christian, as we recognize the revenue and more services, as we start selling the HP Private Cloud in the enterprise space. Thank you, Mike.

Speaker Change: from what I call the workflows of the top specifically designed for the verticals, down into the training models all the way down to the infrastructure, they are size for that type of deployment.

Unknown Executive: Next question, please.

Speaker Change: and then on the sobering AI, obviously we see now a significant interest we are working across multiple videos on several opportunities.

Speaker Change: Hello of them, you know, are basically to open AI clouds for, you know, sovereign reasons or privates and compliance reasons on data.

Speaker Change: and I love them. I actually want to look a little bit like super computers in many ways because many of those systems are designed to do both AI, lots of language models.

Speaker Change: and that's very obvious of some of the problems we have done in the European Union and they want we're going to do now for the UK and all the ones that are basically for traditional supercomputing. So the infrastructure in the end is the same. All of these systems are very much liquid-cooled systems.

Simon Leopold: The next question is from Simon Leopold with Raymond James, please go ahead. Thank you very much. I wanted to see Antonio, if you could talk a little bit about the trends with traditional servers given we hear these arguments that AI accelerated platforms would cannibalize traditional servers, but you're seeing good growth and good water patterns. How can we think about the risk that maybe that cannibalization eventually happens or how are you really thinking about traditional versus AI?

Simon Leopold: Thank you. Yeah, thank you, Simon. We have seen no signs of cannibalization into the traditional server market. And remember, I always trying to bring, you know, a segment point of view, right? So the segment point of view in the AI space, you have three segments, you have the service providers, model builders, which obviously include the hyperscalers. And they are, you know, we have no sold traditional service, the servers in a long time, once we made the decision in 2017 to no participate in the market.

Speaker Change: and so that's an opportunity for us, but on the enterprise side.

Speaker Change: I think, you know, you can see now expansion from traditional Bob's

Speaker Change: and customer service.

Speaker Change: Inter-order areas in finance, manufacturing, marketing, where they can see the clear return on that investment and we're helping them even a front.

Speaker Change: through a panorical system to define those use cases, because it goes beyond just a poor nighty, but they're really to realize that this is value.

Omzi: Thank you, Omzi. Last question, please. And the final question is from Ananda Baruah with Luke Capital. Please go ahead.

Ananda Baruah: Hey guys, yeah, good afternoon. Really appreciate you taking the question. Maybe Antonio actually just got telling from there.

Ananda Baruah: Mike, I'd love any more insight you can give a contact around.

Ananda Baruah: like what's the HPE sort of sweet spot right now for business you wouldn't get AI like what type of type of a type of deployment or workload and then have you see that changing or have you see that evolving over the next few years as well and that's it for me. Thank you guys.

Simon Leopold: And then you have the sovereign space, which is now going up in terms of interest, but the cell cycles are longer, because of the government engagements and the procurement, but they are, you know, generally speaking, there is no traditional service per se is a combination of architectures and GPUs and CPUs in a unique form factor. And then last but not least, we have the enterprise and enterprise while it's growing has been very much focused on the AI applications and, you know, for customers to move a traditional world load call legacy world load and the like to a compute, you know, the question is why you will do that when a you need to use that as a computer to either fine tune the model or to do infancy.

Ananda Baruah: Paul, I think, you know.

Paul Glazer: Right now, one of the key sweet spot is week. We don't have to build and deploy and run these large systems. You know, that requires a unique expertise.

Speaker Change: That's why you see the services portion.

Reinhardt: Reinhardt to those assistants.

Speaker Change: and all of them at the University of the Expertise Block in the Manufacturing Space, and again, we're going to host our AI Day in one of what I believe is the largest footprint of the world, where you can see how this gets done. And then on the surface of the side, you should not underestimate the services expertise needed to run.

Simon Leopold: And second, from a PC or perspective, there is no clear view that that will be cost less. And so that's why, you know, when I think about world loads and customer segments, we don't see signs of cannibalization from the AI deployments into the traditional world load. Thank you, Simon.

Speaker Change: but for enterprise where you know is the next big thing is in my view is all about the simplicity.

Unknown Executive: Gary, next question please.

Speaker Change: and several of the patents we are actually filing and get in dog are actually in areas like ease of use, automation, all the security.

Speaker Change: This is all spaces where we are actually building all those capabilities in our offer And remember all of these gets built inside HP Green Lake as we deploy this optimized infrastructure and configurations

Wamsi Mohan: The next question is from Wamsi Mohan with Bank of America, Enterprise demand commentary that you're calling out.

Speaker Change: and that's why, for me, Green Lake is an important component of our AI strategy, because,

Speaker Change: We manage all of the deployment on-prem, SPU, and enterprise customers specifically through HP Green Lake. And that's an oscillator in a way to upsell Crosselle, both of my big customers.

Antonio Neri: Can you share some color on what kind of projects are being evaluated? I know you called out some verticals like healthcare and financial services. Curious if you could provide some color on that as well. Thank you so much.

Speaker Change: Confidence and control of the data, which is the fundamental value when it comes down to AI.

Speaker Change: and then next year, once we close the Juniper transaction, we're going to add another key component, which is the network it needs.

Antonio Neri: Yeah, so first of all, the pipeline we have in front of us is a multiple of the current backlog, which is a positive use. Because that tells you the momentum will continue in the next few quarters. Second is that the backlog composition, as I said, you know, in the meetings is the enterprise space and the rest is the traditional service provider space. On the service provider space is basically compute capacity to train models all to do hosting for their mother in large colors.

Speaker Change: and it's very important to recognize that AI is in.

Speaker Change: Hybrid World Loat, the core foundation of that across hybrid is the network and HP will have unique IP and capabilities in that space in addition to the traditional server storage.

Speaker Change: which is now certified for AI and then they can make software and services attached to it. And that's how I want to think about it. Independent business are all created to AI, but then when we get to a solution, HP will have the full stack solution to offer to our enterprise customers.

Antonio Neri: And then on the enterprise space is really focused on the use cases where they see clear line of sight for the return on that investment. And there are several use cases by segment that, you know, customers and by verticals that they are driving. Obviously many of them are very obvious. You know, and now we have seen a little bit more sophistication in some of those use cases and the maturity of. And that's why our private cloud AI offering is targeting those type of customers because all the recalls with an entire stack from the, what I call the workflows of the top specifically designed for the verticals down into the training models all the way down to the infrastructure. They are, you know, size for that type of deployment.

Speaker Change: Thank you very much, Antonio Neri. Yeah, no, thank you very much for the time. Again, I will say, you know, we deliver a strong quarter. We drop very strong revenue growth. We said, well, we...

Speaker Change #100: with it. We did move aside.

Speaker Change #101: and honestly I'm very confident about the next quarter and what comes next after the Juniper Acquisition. I'm super pleased that we also go close the first branch of our agency with option. Obviously that took a lower work in the environment that's complex.

Speaker Change #101: and I should think about our ability to deliver profitable gross these days. I mean, I understand the questions or our margins, but when I think about margins,

Speaker Change #102: On the server side, we are consistently driving a stable around 11% or so operative margins. We think about that way, more than cross margin, because ultimately it's all about cash.

Antonio Neri: And then on the sovereign AI, obviously, we see now a significant interest. We are working across multiple deals on several opportunities, allow them, you know, are basically to open AI clouds for, you know, sovereign reasons for private and compliance reasons on data. And allow them actually want to look a little bit like supercomputers in many ways because many of those assistants are designed to do both AI, large language models. And that's very obvious of some of the problems we have done in the European Union.

Speaker Change #102: and then ultimately on the networking and hybrid cloud is about both cross-marsing because of our content is more software and services, well, we'll deliver on the bottom line. So I think our strategy all coming together, but it's very competitive dynamic there and we have to execute every day with discipline, which is what we did again this quarter.

Speaker Change #103: and again we raise guidance for the four year on the EPSI, the house. So thank you very much for your time and I look forward to hosting some of you at our facility in Wisconsin on October 10th.

Antonio Neri: And the one we're going to do now for the UK. And the other ones are basically for traditional super computing. So the infrastructure in the end is the same. All of these systems are very much liquid cool systems. And so that's an opportunity for us. But on the enterprise side, I think you know, you can see now expansion from traditional bots and customer service into all the areas in finance, manufacturing, marketing.

Speaker Change #104: Good. Thank you everyone for joining today.

Speaker Change #105: Ladies and gentlemen, this concludes our call for today. Thank you.

Antonio Neri: I mean, where they can see the clear return on that investment. And we're helping them even a front to a partner ecosystem to define those use cases because it goes beyond just the poor 90. But they're really to realize the business. Thank you, Wamsi.

Antonio Neri: Last question, please. And the final question is from Ananda Baruah with Luke Capital. Please go ahead. Hey guys, yeah, good afternoon. Really appreciate you taking the question. Maybe Antonio actually just put types of deployments or workloads. And then how do you see that changing or how do you see that evolving over the next few years as well? And that's it for me. Thanks guys. Well, I think, you know, right now one of the key Swiss parties week, we know how to build and deploy and run these large systems.

Antonio Neri: You know, that requires a unique expertise. That's why you see the services portion being attached to those systems and ultimately you need expertise both in the manufacturing space. And again, we're going to host our AI day in one of what I believe is the largest food principle world where you can see how this gets done. And then on the services side, if you not underestimate the services expertise needed to run. But for enterprise, where, you know, is the next big thing is, in my view, is the is all about the simplicity.

Antonio Neri: And several of the patterns we are actually filing and and and and and getting dark are actually, you know, in areas like ease of use automation, obviously security. These are all spaces where we are actually building all those those capabilities in our offer. And remember, all of these gets built inside HP green lake as we deploy these optimized infrastructure and configurations. And that's why for me, green lake is an important component of our AI strategy because ultimately we manage a lot of the deployment on prem to enterprise customers specifically through HP green lake.

Antonio Neri: And that's enough to the rate or in a way to upsell, cross sell, build, maybe customers confidence and control of the data, which is the fundamental value when it comes down to AI. And then next year, once we close the juniper transaction, we're going to add another key component, which is the network piece. And it's very important we recognize that AI is a hybrid world load. The core foundation of that across hybrid is the network and HP will have unique IP and capabilities in that space in addition to the traditional server storage, which is now certified for AI and then the green lake software and services attached to it.

Antonio Neri: And that's how I want to think about it, independent business are all created to AI, but then when we get to a solution, HP will have the full stack solution to offer to our enterprise customers. Thank you very much. Well, thank you very much for the time. Again, I will say, you know, we deliver a strong quarter. We drove very strong revenue growth. We said, well, we did what we say. And honestly, I'm very confident about the next quarter and what comes next after the juniper acquisition.

Antonio Neri: I'm super pleased that we also go close the first branch of our agency with option. Obviously, that took a lot of work in an environment that's complex. And I should think about our ability to deliver profitable growth is there. I mean, I understand the questions around margins, but when I think about margins on the server side, we are consistently driving a stable around 11% or so operating margins. We think about that way more than gross margin because ultimately it's all about cash.

Antonio Neri: And then ultimately on the network in a hybrid cloud is about both gross margin because of our content is more software and services. Well, we delivered on the bottom line. So I think our strategy all coming together, but it's very competitive dynamic there and we have to execute every day with discipline, which is what we did again, this quarter. And again, we raise guidance for the full year on the EPS side of the health. So thank you very much for your time.

Antonio Neri: And I look forward to hosting some of you at our facility in Wisconsin on October.

Unknown Executive: Thank you for joining us today.

Unknown Executive: Ladies and gentlemen, this concludes our call for today. Thank you.