Q1 2025 Hewlett Packard Enterprise Co Earnings Call

March 6, 2025

Please signal a conference specialist by pressing the Starkey followed by zero.

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

Speaker Change: I would now like to turn the presentation over to your host for today's call Paul Glaser head of Investor Relations. Please go ahead Sir.

Paul Glaser: Good afternoon.

Paul Glaser: I am Paul Glaser head of Investor Relations for Hewlett Packard Enterprise I would like to welcome you to our fiscal 2025 first quarter earnings conference call with Antonio Neri, Hpe's, President and Chief Executive Officer, and Marie Myers, Hp's Chief Financial Officer.

Paul Glaser: 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.

Paul Glaser: Elements of the financial information referenced on this call are forward looking and are based on our best view of the world and our business as we see them today.

Paul Glaser: HP 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 quarterly report.

Paul Glaser: On Form 10-Q for the fiscal quarter ended January 31 2025.

Paul Glaser: For more detailed information please see the disclaimers on the earnings materials relating to forward looking statements that involve risks uncertainties and assumptions. Please.

Please refer to Hpe's filings with the SEC for a discussion of these risks.

Paul Glaser: For financial information, we are expressed on a non-GAAP basis, we have provided reconciliations to the comparable GAAP information on our website.

Speaker Change: Good afternoon and welcome to the first quarter fiscal 2025 Hewlett Packard Enterprise earnings conference call

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

Speaker Change: At this time, all participants will be in a 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 signal a conference specialist by pressing the star key, followed by zero. Thank you very much.

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

Speaker Change: As a reminder, this conference has been recorded for replay purposes. I would now like to turn the presentation over to your host for today's call, Paul Glaser, Head of Investor Relations. Please go ahead, sir.

Speaker Change: Finally, Antonio Marie will reference our earnings presentation in their prepared comments with that let me turn it over to Antonio Thank.

Speaker Change: Good afternoon, I am Paul Glaser, Head of Investor Relations for Hewlett Packard Enterprise

Paul Glaser: Thank you Paul good afternoon, everyone.

Paul Glaser: Before I share my comments on our Q1 performance I would like to start by addressing the recent position of the department of Justice to file a lawsuit seeking to block our proposed acquisition of Juniper networks.

Speaker Change: I would like to welcome you to our fiscal 2025 First Quarter earnings conference call with Antonio Neri, HPE's President and Chief Executive Officer, and Marie Myers, HPE's Chief Financial Officer. [inaudible]

Paul Glaser: The Doj's analysis of the market is fundamentally flawed.

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. Thank you very much.

Paul Glaser: We strongly believe this transaction will positively change the dynamics in the networking market by enhancing competition.

Paul Glaser: H B and Juniper remains fully committed to the transaction.

Paul Glaser: Which we expect will deliver at least $450 million in gross annual run rate synergies to shareholders within three years of the deal closing.

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 business as we see them today. HPE assumes no obligation and does not intend to update any such forward looking statements.

Paul Glaser: The court has set a trial date of July 9th.

Paul Glaser: We believe we have a compelling case and expect to be able to close the transaction before the end of fiscal 2025.

Paul Glaser: As you know the U S administration enacted tariffs on imports from Mexico, and Canada with increased status on imports from China, beginning March 4th.

Speaker Change: 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 in January 31st, 2025.

Paul Glaser: In anticipation of this decision we have been evaluating numerous scenarios and mitigation strategies since December to assess the potential net impact.

Paul Glaser: We intend to leverage our global supply chain to mitigate aspects or the expected impact with pricing adjustments also affected.

Speaker Change: For more detailed information, please see the disclaimers on the earnings materials relating to forward-looking statements that involve risks, uncertainties and assumptions. Thank you very much.

Paul Glaser: Pending further announcements from the U S administration, our outlook for the balance of the year reflects our best estimate of the net impact from these thought if policy muddy.

Speaker Change: Please refer to HPE's filings with the SEC for discussion of these risks.

Speaker Change: For financial information, we have expressed on a non-GAAP 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.

Paul Glaser: <unk> will provide more details shortly.

Paul Glaser: Turning to our Q1 performance, we delivered against our commitments for the quarter, including achieving strong double digit year over year revenue growth.

Paul Glaser: However, we could have executed better.

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

Paul Glaser: While our Q1 operating profit outlook anticipated increased pressure on our server operative margins three factors impacted our profitability more than expected.

Speaker Change: Finally, Antonio Marie will reference our earnings presentation in their prepared comments. Thank you very much.

Paul Glaser: Near the end of the quarter, we sold that are traditional server pricing did not adequately account for the evolution of our inventory.

Speaker Change: With that, let me turn it over to Antonio. Thank you Paul, good afternoon everyone. Before I share my comments on our Q1 performance, I would like to start by addressing the recentization of the Department of Justice to file a lawsuit seeking to block a proposed acquisition of Juniper Networks. Thank you very much for your time. Thank you very much.

Paul Glaser: Which resulted in incremental server margin pressure.

Paul Glaser: Hi, good discounts due to aggressive pricing competition in the market compounded this issue.

Paul Glaser: And finally, our server margins were further pressured by the higher than normal inventory caused by the rapid transition of demand to next generation Gpus and related components.

The DOJ's analysis of the market is fundamentally flawed.

Speaker Change: We strongly believe this transaction will positively change the dynamics in the networking market by enhancing competition.

Paul Glaser: We have already implemented aggressive actions to address these issues.

Paul Glaser: We're already seeing the positive effects of doing so.

Speaker Change: HPE and Juniper remain fully committed to the transaction, which we expect will deliver at least $450 million in gross annual round rate synergies to shareholders within three years of the deal closing.

Paul Glaser: However, we do expect to see continued pressure over the next one to two quarters before we realize the full benefit of these measures include the net effect of higher revenue conversion.

The court has set a trial date of July 9th.

Looking ahead, we see additional opportunities to take incremental corporate cost actions to further strengthen our financial profile.

Speaker Change: We believe we have a compelling case, and expect to be able to close the transaction before the end of fiscal 2025.

Paul Glaser: We plan to reduce our employee base, 5% over the next 12 to 18 months through the reduction of approximately 2500 positions and expected attrition.

Speaker Change: As you know, the US administration enacted tariffs on imports from Mexico and Canada, with increased tariffs on imports from China beginning March 4th.

Paul Glaser: Doing so will better align our cost structure to our business mix, our long term strategy.

Speaker Change: In the anticipation of this decision, we have been evaluating numerous scenarios and mitigation strategies since December to assess the potential net impact. Thank you very much.

Paul Glaser: These are not easy decisions to make as they directly affect the lives of our team members.

Speaker Change: We intend to leverage our global supply chain to mitigate aspects of the expected impact with pricing adjustments also expected. Thank you very much.

Paul Glaser: We will treat all those transitions with the highest level of care and compassion.

Paul Glaser: I'll touch on a few highlights from the quarter everybody will go through each segment in greater financial detail.

Speaker Change: Pendent for the announcement from the U.S. administration are outlook for the balance of the year, reflects our best estimate of the net impact from this tariff policy. Marie will provide more details shortly. Thank you very much.

Paul Glaser: At the company level, we delivered revenue and diluted net earnings per share consistent with our outlook.

Paul Glaser: Q1 revenue growth of 17% our near record was in line with our mid teens growth expectations.

Marie Myers: Turning to our Q1 performance, we delivered against our commitments for the quarter, including achieving strong, double digit year-over-year revenue growth.

Paul Glaser: This was the fourth consecutive quarter of improved year over year topline growth.

However, we could have executed better.

Paul Glaser: Driven by our server business, which grew revenue, 30% year over year, and hybrid cloud, which was up 11% year over year.

Marie Myers: While a Q1 operating profit outlook anticipated increased pressure on our server, operating margins, three factors impacted our profitability more than expected. Thank you very much.

Paul Glaser: non-GAAP operating profit dollars in the quarter were flat year over year that resulted in non-GAAP diluted net earnings per share of <unk> 49 sense consistent with our Q1 outlook range.

Marie Myers: Near the end of the quarter, we saw that our traditional server pricing did not add the quality account for the evolution of our inventory, which resulted in incremental server margin pressure. Higher discounts due to aggressive pricing competition in the market compounded this issue.

Paul Glaser: We are pleased by the performance of intelligent edge, which recorded a 2% quarter over quarter revenue growth the third consecutive quarter of sequential revenue growth for the segment.

Marie Myers: And finally, our server margins were further pressure by the higher than normal AI inventory caused by the rapid transition of demand to next generation GPUs and related components.

Paul Glaser: With the market continuing its positive path to recovery, we delivered double digit year over year orders growth across all key geographies and key products.

Marie Myers: We have already implemented aggressive actions to address diseases and are already seeing the positive effects of doing so.

Paul Glaser: <unk> campus switching.

Paul Glaser: During the quarter HP Aruba networking attract a new large enterprise logos underscoring the confidence our customers in a strategy product portfolio and roadmap.

Marie Myers: However, we do expect to see continued pressure over the next one to two quarters before we realize the full benefit of these measures include an aspect of higher AI revenue conversion. [inaudible]

Paul Glaser: Hybrid cloud grew 11% year over year, although down sequentially following an exceptional Q4.

Marie Myers: Looking ahead, we see additional opportunities to take incremental corporate cost actions to further strengthen our financial profile. Thank you very much.

Paul Glaser: The graph shows our storage and granular cloud product strategies are working.

Paul Glaser: Demand for our letter of storage MP was up triple digits year over year, and now represents greater than 50% of our IP block product orders.

Marie Myers: We plan to reduce our employee base 5% over the next 12 to 18 months through the reduction of approximately 2,500 positions and expected attrition.

Paul Glaser: Green Lake remains a key differentiator, enabling H b to capture new enterprise hybrid cloud and AI workloads and data.

Marie Myers: Doing so will better align our cost structure to our business mix and long-term strategy.

Marie Myers: These are not easy decisions to make, as they directly affect life over team members.

Paul Glaser: We finished Q1 with more than 41000 enterprises using HP relay cloud.

Marie Myers: We will treat all those transitions with the highest level of care and compassion.

Paul Glaser: And AI ops.

Paul Glaser: Surpassed $2 billion for the first time up 46% year over year.

Marie Myers: I will touch on a few highlights from the quarter and Marie will go through each segment in greater financial detail.

Paul Glaser: In AI, we continue to see strong demand from other builders and service providers.

Marie Myers: At the company level, we deliver revenue and a little maintenance per share consisting with our outlook.

Paul Glaser: Looked $1.6 million in new AI system orders in the quarter, bringing our cumulative AI system orders to $8 $3 billion.

Marie Myers: Q1 revenue growth of 17% and near record was in line with our mid-teens growth expectations.

Paul Glaser: The Blackwell GPU generation of products represented approximately 70% of our new order intake in Q1.

Marie Myers: This was the fourth consecutive quarter of improved year-over-year top-line growth, driven by our server business, which grew revenue 30% year-over-year and hybrid cloud, which was up 11% year-over-year.

Paul Glaser: We exited the quarter with $3 $1 billion in AI assistance backlog up 29% quarter over quarter, and our pipeline remains multiples of our backlog.

Marie Myers: Nungap Operating Profidolors in the Quarter were flat year over year. That resulted in Nungap diluted metronispershare of 49 cents, consistent with our Q1 Outlook range.

Paul Glaser: On the revenue front, we delivered $900 million in AI systems revenue in Q1.

Paul Glaser: As we have said before they are systems business tends to be lumpy as large deals take time to convert.

Marie Myers: We are pleased by the performance and intelligence edge, which recorded 2% quarter over quarter revenue growth, the third consecutive quarter of sequential revenue growth for the segment. We are pleased by the performance and intelligence edge.

Paul Glaser: We expect significantly higher AD revenue conversion in the second half of 2025, driven by the transition to black with Gpus.

Paul Glaser: We're proud to have achieved a new milestone three weeks ago, when we announced the shipment of our first Nvidia GBP 200 systems.

Marie Myers: With a market continuing its positive path to recovery, we deliver double digit year-over-year orders growth across all key geographies and key products including campus switching.

Paul Glaser: In the enterprise Air market, we saw an accelerated adoption of a variety of AI models, including Agentic AI approaches and specific market verticals and workflows.

Marie Myers: During the quarter, H.P. Arubanet working, attracting new large enterprise logos, underscoring the confidence our customers in our strategy, pro portfolio, and roadmap.

Paul Glaser: In Q1, our enterprise orders increased 40% year over year, driven by higher conversion from the proof of concept phase.

Marie Myers: Hybrid Cloud grew 11% year over year, although down sequentially, following an exceptional Q4. [inaudible]

Paul Glaser: An example is kidney eye, who in partnership with HPE designed and implemented a platform, which will be used both internally and externally to develop to train and tune Japanese generative AI models for domain specific use cases.

Marie Myers: The growth shows our storage and greener cloud product strategies are working.

Marie Myers: Demand for our alletra storage MP was a triple digit year over year and now represents greater than 50 percent of our IP block product orders. [inaudible]

Paul Glaser: Our enterprise AI pipeline continued to grow with customers continues to validate the use cases on our private cloud AI solution powered by Green like cloud.

Marie Myers: Green Lake remains a key differentiator, enabling HP to capture new enterprise hybrid cloud, NEI workloads and data.

Paul Glaser: We see broad an increase interest from sovereign customers globally sovereign customers of deploying both AI assistance for the development of sovereign generative AI largest language models and supercomputing systems for simulation and modeling using AI.

Marie Myers: We finish QR with more than 41,000 enterprises using HP Grille Cloud.

Marie Myers: An AIR surpassed $2 billion for the first time, up 46% year over year.

Marie Myers: In AI, we continue to see strong demand from model builders and service providers.

Paul Glaser: Recently, the Leibniz supercomputer centre or the Bavarian Academy of Sciences, Humanities selected HPE to build a new supercomputer called Blue Lion.

Marie Myers: We booked $1.6 billion in new AI system orders in the quarter, bringing our cumulative AI system orders to $8.3 billion.

Paul Glaser: It features the H b innovations, including our industry first 100% financed their liquid cooling infrastructure without slingshot networking fabric.

Marie Myers: The Blackwell GPU generation of products represented approximately 70% of a new ordering taking to one . . . .

Marie Myers: We exited the quarter with $3.1 billion in AI systems backlog, up 29% quarter of the quarter and our pipeline remains multiples of our backlog. Thank you very much.

Paul Glaser: Lastly, HPE and Accenture are collaborating on a new agent take AI solution for procurement power by Accenture AI refinery with our private cloud offering.

Paul Glaser: This new solution will be deployed across hps category and sourcing strategies spend management strategic relationship analysis and contract obligation management.

Marie Myers: On the revenue front, we delivered $900 million in AI Systems Revenue Q1. [inaudible]

Paul Glaser: Shifting to the innovation front I am proud of our new and differentiated products and services, we continue to bring to market to fuel the success of our customers and growth of our business.

Paul Glaser: For example in intelligent edge, we announce new vertical solutions for retailers to accelerate security first AI driven networks.

Paul Glaser: These solutions provide the intelligent edge processing for Iot data in real time, and put them in security operational efficiencies and customer experiences for retailers.

Speaker Change: You have our cloud last November we introduced a new KVM based H E B essentials software offerings.

Speaker Change: Hybrid cloud orchestration and on premises infrastructure virtualization are tremendous growth opportunities for H b.

Speaker Change: Our new essentials enables customers to deploy a more cost effective virtualization solution there'd be aware with full hybrid cloud orchestration.

Speaker Change: Since its launch we have had hundreds of customers and trials demonstrating strong market interest and excitement.

Marie Myers: We see broad an increase interest from sylvan and customers globally silver and customers are deploying both AI assistance for the development of sovereign generative AI largest language models and supercomputing systems for simulation and modeling using AI.

Speaker Change: We are in the process of integrating our VM essentials into our private cloud offerings.

Speaker Change: We also continue to offer it as a standalone software on H B, a multi vendor infrastructure.

Marie Myers: Recently, the Leibniz supercomputer centre or the Bavarian Academy of Sciences, Humanities selected HPE to build a new supercomputer called Blue Lion.

Speaker Change: In storage, we are very pleased with our triple digits year over year orders growth in our Allegra MP portfolio.

Speaker Change: This validates our strategy to provide customers a disaggregated data infrastructure with subscription based hybrid cloud native services.

Marie Myers: It features H b innovations, including our industry first 100% finalist or liquid cooling infrastructure without slingshot networking fabric.

Speaker Change: I'll, let Ralph M. P. Now offers work and fast objects supporting a variety of data workloads, including AI.

Marie Myers: Lastly, H B and Accenture are collaborating on a new agentic AI solution for procurement power by Accenture AI refinery without private cloud AI offering.

Speaker Change: This reduces customers' need for multiple infrastructural purchases and management.

Speaker Change: And finally in our server business two weeks ago, we launched a new pro lie on Gen. <unk> server platform without a next generation of Ilo quantum resistant security in place indirect liquid cooled and support.

Marie Myers: This new solution will be deployed across the hps category and sourcing strategies spend management strategic relationship analysis and contract obligations management.

Marie Myers: Shifting to the innovation front I am proud of our new and differentiate their products and services, we continue to bring to market to fuel the success of our customers and growth of our business.

Speaker Change: These latest generation offers the most sustainable and secure cost per computer in quarter performance.

Speaker Change: One Gen 12th server can replace up to 26th Gen nine servers and up to 14 Gen 10 servers. This reduces power consumption by at least 65%.

Marie Myers: For example in intelligent edge, we announce new vertical solutions for retailers to accelerate security first AI driven networks.

Speaker Change: In closing in Q1, we saw continued strong demand across the portfolio driven by our new impressive innovations and customers' continued enthusiasm for our offerings.

Marie Myers: These solutions provide the intelligent edge processing for Iot data in real time, and put them in security operational inefficiencies and customer experiences for retailers.

Speaker Change: However, we could have executed better, particularly in our server segment.

Marie Myers: The hybrid cloud last November we introduced a new KVM based H P E B M essential software offerings.

Speaker Change: H B has a proven execution track record and we're committed to doing what is needed.

Marie Myers: Cloud orchestration and on premises infrastructure approach organizations are tremendous growth opportunities for H b.

Speaker Change: We have already taken steps to improve our execution performance and we expect our efforts will contribute to improvements in the back half of fiscal year 2025.

Marie Myers: Our new essentials enables customer to deploy a more close to affect the virtualization solution that Vmware with full hybrid cloud orchestration.

Speaker Change: We have made great strides at H b in accelerating our strategy and aligning our product portfolio to market inflection points and customer needs.

Marie Myers: Since its launch we have had hundreds of customers and trials demonstrating strong market interest and excitement.

Speaker Change: We will continue to make bold moves to enhance our portfolio and attract new customers in ways that ancillary value for our shareholders.

Marie Myers: We are in the process of integrating our VM essentials into our private cloud offerings.

Speaker Change: Now, let me turn the call over to Molly who will provide more details on the quarter Murray.

Marie Myers: Also continue to offer it as a standalone software on H B E a multi vendor infrastructure.

Molly: Thank you Antonio and good afternoon, everyone.

Marie Myers: In storage, we are very pleased with our triple digits year over year orders growth in our I'll, let the MP portfolio.

Molly: During the first quarter of fiscal 2025, we saw increased demand for service storage and networking products.

Marie Myers: This validates our strategy to provide customers a disaggregate the data infrastructure with subscription based hybrid cloud native services.

Molly: <unk> grew 17% compared to last year, marking the fourth straight quarter of accelerated revenue growth.

Marie Myers: A literal MP now offers block and fast objects supporting a variety of data workloads, including AI.

Molly: We met our outlook achieving double digit growth in server and hybrid cloud.

Molly: Intelligent edge also performed better than we expected and is set to grow further in this quarter.

Marie Myers: This reduces customers' need for multiple infrastructural purchases and management.

Marie Myers: And finally in our server business two weeks ago, we launched a new prolonging Gen 12 server platform without a next generation of Ilo quantum resistant security in place indirect liquid cooled in support.

Molly: We reported non-GAAP diluted net earnings per share up 49 cents aligning with that outlook, showing strong profitability and hybrid cloud and intelligent edge.

Molly: However, we faced some challenges in this segment, which we are addressing here's a closer look at the details of the quarter.

Marie Myers: These latest generation offers the most sustainable insecure cost per computer in quarter performance.

Marie Myers: One Gen 12th server can replace up to 26th Gen nine servers and up to 14 Gen 10 servers. This reduces power consumption by at least 65%.

Molly: Our first quarter revenue was $7 $9 billion up 17% year over year, but down 7% quarter over quarter, reflecting typical seasonality and lower AI systems running.

Marie Myers: In closing in Q1, we saw continued strong demand across the portfolio driven by our new impressive innovations and customers' continued enthusiasm for our offerings.

Molly: Annual recurring revenue was $2 $1 billion up 46% year over year, given by AI and intelligent edge.

Molly: non-GAAP gross margin was 29, 4% down 680 basis points year over year, and 150 basis points quarter over quarter.

Speaker Change: However, we could have executed better, particularly in our server segment.

Speaker Change: H B has a proven execution track record and we're committed to doing what is needed.

Molly: On a year over year basis gross margin was impacted by a higher mix of service revenue and lower contribution from intelligent edge.

Speaker Change: We have already taken steps to improve our execution performance and we expect our efforts will complete but to improvements in the back half of fiscal year 2025.

Molly: And we face challenges in setup that pressured margin both year over year and sequentially.

Speaker Change: We have made great strides at H b in accelerating our strategy and align our product portfolio to market inflection points and customer needs.

Molly: non-GAAP operating margin was nine 9% down 160 basis points year over year, and 120 basis points sequentially, primarily due to headwinds in gross margin.

Speaker Change: We will continue to make bold moves to enhance our portfolio and attract new customers in ways that are isolated value for our shareholders.

Molly: Operating margin, partially benefited from a 9% decrease in non-GAAP operating expenses, reflecting lower variable compensation and continued cost discipline.

Speaker Change: Now, let me turn the call over to money, who will provide more details on the quarter money.

Speaker Change: Thank you Antonio and good afternoon, everyone.

Speaker Change: During the first quarter of fiscal 2025, we saw increased demand for servers storage and networking products.

Speaker Change: In my first year as CFO, we implemented cost saving measures by targeting discretionary spending reducing non-GAAP operating expenses from 24% in fiscal 2023% to 22% of revenue in fiscal 2024 and.

Speaker Change: Our revenue grew 17% compared to last year, marking the fourth straight quarter of accelerated revenue growth.

Speaker Change: We met our outlook, achieving double digit growth in server and hybrid cloud and.

Speaker Change: In Q1, these actions lowered operating expenses to a record low of 19% of revenue.

Speaker Change: Intelligent edge also performed better than we expected and is set to grow further in this quarter.

Speaker Change: This year, we aim to target more structural cost savings.

Speaker Change: We reported non-GAAP diluted net earnings per share up 49 cents aligning with that outlook, showing strong profitability and hybrid cloud and intelligent edge.

Speaker Change: Free cash flow was negative $877 million in line with normal seasonal patterns.

Speaker Change: However, we faced some challenges in this segment, which we are addressing here's a closer look at the details of the quarter.

Speaker Change: GAAP diluted net earnings per share was 44 cents above guidance of 31 to 36 cents due to a gain recognized on the sale of our communications technology group or CTG and lower than expected Japan related costs.

Speaker Change: Our first quarter revenue was $7 $9 billion up 17% year over year, but down 7% quarter over quarter, reflecting typical seasonality and lower AI systems revenue.

Speaker Change: non-GAAP diluted net earnings per share up 49 cents was within our guided range of 47 to.

Speaker Change: Annual recurring revenue was $2.1 billion up 46% year over year, driven by AI and intelligent edge.

Speaker Change: <unk> 52 cents.

Speaker Change: non-GAAP diluted net earnings per share excludes $57 million and net costs, primarily related to stock based compensation expense.

Speaker Change: non-GAAP gross margin was 29, 4% down 680 basis points year over year, and 150 basis points quarter over quarter.

Speaker Change: Tracy divestiture related severance costs acquisition disposition and other charges and amortization of intangible assets, primarily offset by the gain recognized on the sale of CTG.

Speaker Change: On a year over year basis gross margin was impacted by higher mix of server revenue and lower contribution from intelligent edge.

Speaker Change: Now, let's break down the segment results.

Speaker Change: And we face challenges in soda that pressured margin, but year over year and sequentially.

Speaker Change: Service revenue was $4 $3 billion up 30% year over year.

Speaker Change: non-GAAP operating margin was nine 9% down 160 basis points year over year, and 120 basis points sequentially, primarily due to headwinds in gross margin.

Speaker Change: Revenue fell sequentially, primarily due to the timing of AI assistance deals.

Speaker Change: In traditional compute agenda, let and value proposition resonated with customers contributing to year over year <unk> growth.

Speaker Change: Operating margin, partially benefited from a 9% decrease in non-GAAP operating expenses, reflecting lower variable compensation and continued cost discipline.

Speaker Change: 10, 11 accounts for the majority of our traditional compute sales and we expect to begin shipping the new Gen 12 portfolio later this year.

Speaker Change: And AI systems, we signed one $6 billion in net orders and added enterprise and suffering customers. Although most demand is still from model builders.

Speaker Change: We recognized roughly $900 million of revenue up from about $400 million last year, but down sequentially as expected due to chip availability and customer readiness.

Speaker Change: In Q1, these actions lowered operating expenses to a record low of 19% of revenue. This.

Speaker Change: This year, we aimed to target more structural cost savings.

Speaker Change: We expect these factors will continue to affect our AI systems business.

Speaker Change: Free cash flow was negative $877 million in line with normal seasonal patterns.

Speaker Change: Several operating margin was well below expectations at 8.1%.

Speaker Change: Diluted net earnings per share was 44 cents above guidance of 31 to 36 cents due to a gain recognized on the sale of our communications technology group or CTG and lower than expected Japan related costs.

Speaker Change: While our guidance of 10 to 11 assumed impact from the G. P <unk> transition.

Speaker Change: And competitive pricing.

Speaker Change: Pressures were greater than expected and execution issues further impacted operating margin.

Speaker Change: non-GAAP diluted net earnings per share of 49 cents was within our guided range of 47 to 52 cents.

Speaker Change: We have made improvements and taken additional steps to reduce costs expecting server operating margin to be around 10% by Q4.

Speaker Change: non-GAAP diluted net earnings per share excludes $57 million and net costs, primarily related to stock based compensation expense H Tracy divestiture related severance costs acquisition disposition and other charges and amortization of intangible assets, primarily offset by the gain.

Speaker Change: Let me provide the details.

Speaker Change: In traditional compute we faced challenges and pricing strategies and discounting.

Speaker Change: We now have a more rigorous discount framework with increased deal mixed scrutiny.

Speaker Change: These changes will take time to impact our P&L as we work through our backlog.

Speaker Change: Recognize on the sale of CTG.

Speaker Change: Now, let's break down the segment results.

Speaker Change: In addition, we expect pricing adjustments may negatively impact top line growth in the near term.

Speaker Change: Service revenue was $4 $3 billion up 30% year over year.

Speaker Change: In AI, our margins were affected by the transition to new Gpus and managing older GPU inventory.

Speaker Change: Revenue fell sequentially, primarily due to the timing of AI assistance deals.

Speaker Change: In traditional compute are generating value proposition resonated with customers contributing to year over year, a U P growth.

Speaker Change: We believe this is an industry wide challenge that will improve our supply and demand aligned.

Speaker Change: We have implemented actions to reduce inventory.

Speaker Change: Gen 11 accounts for the majority of our traditional compute sales and we expect to begin shipping the new Gen 12 portfolio later this year.

Speaker Change: Now on to intelligent edge, which exceeded our expectations and is ready for growth in Q2.

Speaker Change: Revenue was $1.1 billion up 2% quarter over quarter ahead of guidance of flattish growth.

Speaker Change: In AI systems, we signed $1.6 billion in net orders and added enterprise and sovereign customers. Although most demand is still from model builders.

Speaker Change: Revenue was down 4% year over year, as we move past post pandemic related backlog.

Speaker Change: We saw double digit year over year growth in assessing and data center switching with notable order growth for wireless Lan and campus switching.

Speaker Change: We recognized roughly $900 million of revenue up from about $400 million last year, but down sequentially as expected due to chip availability and customer readiness.

Speaker Change: Despite some pressure from weekend federal spending we grew orders double digits year over year in all major regions.

Speaker Change: We expect these factors will continue to affect our AI systems business.

Speaker Change: We expect the business to return to year over year growth in Q2, given order trends and normalized channel inventory.

Speaker Change: Several operating margin was well below expectations at 8.1% well.

Speaker Change: Well our guidance of 10 to 11 assumed impact from the G. P O transition.

Speaker Change: Operating margin was 27, 4% down 200 basis points year over year, but up 300 basis points quarter over quarter due to higher revenue and cost controls.

Speaker Change: Competitive pricing market crashes with greater than expected and execution issues.

Speaker Change: Impacted operating margin.

Speaker Change: Moving to hybrid cloud.

Speaker Change: We have made improvements and taken additional steps to reduce costs expecting similar operating margin to be around 10% by Q4.

We saw broad based strength growing revenue, 11% year over year to $1 $4 billion in line with that guidance sequentially. The business declined 12%, our HPE Electra N. P platform is ramping nicely, adding over 150, new logos this quarter.

Speaker Change: Let me provide the details.

Speaker Change: In traditional compute we faced challenges and pricing strategies and discounting.

Speaker Change: We now have a more rigorous discount framework with increased deal mixed scrutiny.

H B E electric EM piece higher deferred revenue will benefit the long term P&L impacts near term growth and margin.

Speaker Change: These changes will take time to impact our P&L as we work through our backlog.

Speaker Change: The transition to electric N P pools to more owned IP, which benefits profit.

Speaker Change: In addition, we expect pricing adjustments may negatively impact topline growth in the near term.

Speaker Change: H P private cloud AI continues to attract customers with fast appointment uncompetitive on Hawaii.

Speaker Change: In AI, our margins were affected by the transition to new Gpus and managing older GPU inventory.

Speaker Change: We continue to grow our pipeline with opportunities spanning regions and sectors.

Speaker Change: We believe this is an industry wide challenge that will improve our supply and demand aligned.

Speaker Change: During the quarter, we received orders for small medium and large configurations with use cases varying from infringing and fine tuning to manufacturing and life Sciences.

Speaker Change: We have implemented actions to reduce inventory.

Speaker Change: Now on to intelligent edge, which exceeded our expectations and is ready for growth into two.

Speaker Change: Revenue was $1.1 billion up 2% quarter over quarter ahead of guidance of flattish growth.

Speaker Change: Record operating margin was 7% up 300 basis points year over year, primarily due to cost controls, but down 80 basis points sequentially.

Speaker Change: Revenue was down 4% year over year, as we knew Pos post pandemic related backlog.

Speaker Change: Lastly financial services.

Speaker Change: We saw double digit year over year growth and sassy and data center switching with notable order growth for wireless Lan and campus switching.

Speaker Change: Our financial services business generated $873 million of revenue up 2% year over year and flat quarter over quarter.

Speaker Change: Despite some pressure from weaker federal spending we grew orders double digits year over year in all major regions.

Speaker Change: Financing volumes decreased 14% year over year to $1.2 billion after a record high last quarter.

Speaker Change: Q1 loss ratio was 6% and return on equity totaled 16.4%.

Speaker Change: We expect the business to return to year over year growth in Q2, given the order trends and normalized channel inventory.

Speaker Change: Operating margin was solid at 9.4% up 90 basis points year over year, and up 20 basis points quarter over quarter.

Speaker Change: Operating margin was 27.4% down 200 basis points year over year, but up 300 basis points quarter over quarter due to higher revenue and cost controls.

Speaker Change: Moving to cash flow and capital allocation.

Speaker Change: Reflecting normal seasonality, we consumed $319 million of operating cash flow in the quarter and free cash flow was an outflow of $877 million.

Speaker Change: Moving to hybrid cloud.

Speaker Change: We saw broad based strength growing revenue, 11% year over year to $1.4 billion in line with that guidance.

Speaker Change: Inventory totaled $8 $6 billion at the end of the period up $767 million quarter over quarter, primarily to support AI systems orders signed during the quarter.

Speaker Change: Sequentially the business declined 12%.

Speaker Change: P E Electra N P platform is ramping nicely, adding over 150, new logos this quarter H.

Speaker Change: H P E electric M P's higher deferred revenue will benefit the long term P&L, but impacts near term growth and margin the.

Speaker Change: We are focused on reducing inventory levels to normal ranges.

Speaker Change: Q1 cash conversion cycle was positive five days up 17 days from last quarter, primarily due to an increase in the days of inventory to support purchases for AI systems.

Speaker Change: The transition to electric N P pools to more owned IP, which benefits profit.

Speaker Change: H P private cloud AI continues to attract customers with fast appointment and competitive on Hawaii.

Speaker Change: Partially offset by an increase in days payable due to timing of vendor payments.

Speaker Change: We continue to grow our pipeline with opportunities spanning regions and sectors. During the quarter. We received orders for small medium and large configurations with use cases varying from inferencing and fine tuning to manufacturing and life Sciences.

Speaker Change: We returned $171 million through dividends and $52 million via share repurchases to common shareholders respectively.

Speaker Change: Overall, the quarter was within our guidance, but given the performance instead, we took immediate actions to limit hiring travel and discretionary expenses.

Speaker Change: Hybrid cloud operating margin was 7% up 300 basis points year over year, primarily due to cost controls, but down 80 basis points sequentially.

Speaker Change: We also decided to take further actions in the form of workforce reductions and attrition management to better align our cost structure with the current business needs.

Speaker Change: Lastly, financial services offer.

Speaker Change: A natural services business generated $873 million of revenue up 2% year over year and flat quarter over quarter.

Speaker Change: This tough decision will help streamline our organization.

Speaker Change: Proved productivity and speed up decision, making we.

Speaker Change: Financing volume decreased 14% year over year to $1.2 billion after a record high last quarter.

Speaker Change: We will support affected team members with resources and assistance during this transition.

Speaker Change: Our Q1 loss ratio was 6% and return on equity totaled 16.4%.

Speaker Change: We expect to achieve at least $350 million in gross savings by fiscal 2027 with about 20% of the savings achieved by the end of this year.

Speaker Change: Operating margin was solid at nine 4% up 90 basis points year over year, and up 20 basis points quarter over quarter.

Speaker Change: The timing of reductions will vary by geography.

Speaker Change: Total cash charges will be around $350 million through fiscal 2026. These savings are in addition to the synergies we will realize after closing the juniper acquisition.

Speaker Change: Moving to cash flow and capital allocation.

Speaker Change: Reflecting normal seasonality, we consumed $319 million of operating cash flow in the quarter.

Speaker Change: Before I get into the details of that guidance, let me first provide some context.

Speaker Change: And free cash flow was an outflow of $877 million.

Speaker Change: Inventory totaled $8 $6 billion at the end of the period up $767 million quarter over quarter, primarily to support AI systems orders signed during the quarter.

Speaker Change: Recent tariff announcements have created uncertainty for our industry, primarily affecting our server business.

Speaker Change: We are working on plans to mitigate these impacts through supply chain measures and pricing actions.

Speaker Change: We are focused on reducing inventory levels to normal ranges.

Speaker Change: Through these efforts, we expect to mitigate to a significant degree the impact on the second half of the year and to a lesser extent the impact on Q2 as it takes time to implement mitigation.

Speaker Change: Q1 cash conversion cycle was positive five days up 17 days from last quarter, primarily due to an increase in the days of inventory to support purchases AI assistance.

Speaker Change: The guidance, we are providing today reflects our best estimate of the impacts of the March 4th tariffs and our mitigation plans.

Speaker Change: Partially offset by an increase in days payable due to timing of vendor payments.

Speaker Change: Also because we now expect to close triple by the end of this fiscal year, we will provide full year standalone guidance.

Speaker Change: We returned $171 million through dividends at $52 million via share repurchases to common shareholders respectively.

Speaker Change: For fiscal 2025, we expect constant currency revenue growth of 7% to 11% with revenue weighted towards the second half.

Speaker Change: Overall, the quarter was within our guidance, but given the performance instead of the we took immediate actions to limit hiring travel and discretionary expenses.

Speaker Change: We estimate currency impacts of around 150 basis points.

Speaker Change: We also decided to take further actions in the form of workforce reductions and attrition management to better align our cost structure with the current business needs.

By segment, we expect intelligent edge will grow sequentially through the year equating to year over year growth in the mid single digits.

Speaker Change: This tough decision will help streamline our organization.

Speaker Change: The hybrid cloud revenue is expected to grow in the high single digits.

Speaker Change: Prove productivity and speed up decision, making.

Speaker Change: And so server.

Speaker Change: We will support affected team members with resources and assistance during this transition.

Speaker Change: We anticipate revenue will slow to low double digit growth with AI systems revenue ramping meaningfully in the back half.

Speaker Change: We expect to achieve at least $350 million in gross savings by fiscal 2027 with about 20% of the savings achieved by the end of this year.

Speaker Change: In addition, we expect to see more pronounced surface seasonality in Q3, given the expected timing of AI shipments.

Speaker Change: Our outlook assumes non-GAAP gross margin will be below 30% for the full year with quarterly rates impacted by the timing of AI assistance deals.

Speaker Change: The timing of productions will vary by geography.

Speaker Change: Total cash charges will be around $350 million to fiscal 'twenty 'twenty. Six. These savings are in addition to the synergies we will realize after closing the acquisition.

Speaker Change: We expect full year non-GAAP operating margin of around 9% at the midpoint, but we expect to exit the year approaching normal ranges.

Speaker Change: Before I get into the details of that guidance, let me first provide some context.

Speaker Change: By segment, we expect hybrid cloud operating margin in the mid to high single digits and intelligent edge to remain in the mid 20% range.

Speaker Change: Recent tariff announcements have created uncertainty for our industry, primarily affecting us show the business we.

Speaker Change: We are working on plans to mitigate these impacts through supply chain measures and pricing actions.

Speaker Change: Server is expected to improve in the back half exiting the year with operating margin around 10% we.

Speaker Change: We expect Oh, I any will be a net expense of approximately $15 million.

Speaker Change: We are guiding GAAP diluted net earnings per share between $1 15, and $1 35, and our non-GAAP diluted net earnings per share between $1 70, and $1 90 weighted to the second half.

Speaker Change: The guidance, we are providing today reflects our best estimate of the impacts of the March 4th tariffs and our mitigation plans.

Speaker Change: Also because we now expect to close should a bit by the end of this fiscal year, we will provide full year standalone guidance.

Speaker Change: non-GAAP diluted net earnings per share outlook assumes Q4 will account for a higher percentage of annual non-GAAP net earnings compared to recent periods.

The fiscal 'twenty 25, we expect constant currency revenue growth of 7% to 11% with revenue weighted towards the second half.

Speaker Change: We expect free cash flow will be approximately $1 billion, including operating profit of roughly $3 billion at the midpoint negative working capital and the restructuring charges related to the cost savings we announced today.

Speaker Change: We estimate currency impacts of around 150 basis points.

Speaker Change: By segment, we expect intelligent edge will grow sequentially through the year equating to year over year growth in the mid single digits.

Speaker Change: Q2, we expect revenue will be between $7.2 billion and $7 $6 billion.

Speaker Change: This range includes a return to year over year growth in intelligent edge with operating margin in the mid 20% range.

Speaker Change: The hybrid cloud revenue is expected to grow in the high single digits.

Speaker Change: It's a hybrid cloud we expect revenue will be down slightly sequentially with operating margin in the mid single digits, reflecting seasonality for.

Speaker Change: And for silver.

We anticipate revenue will slow to low double digit growth with AI systems revenue ramping meaningfully in the back half.

Speaker Change: For <unk>, we forecast a sequential decline in the mid to high single digits, including a modest decline in AI systems revenue.

Speaker Change: In addition, we expect to see more pronounced surface seasonality in Q3, given the expected timing of AI shipments.

Speaker Change: Q2 will be the trough for say the operating margin in the mid single digits due to both the timing of tariff implementation and the corrective actions we are taking in the business.

Speaker Change: Our outlook assumes non-GAAP gross margin will be below 30% for the full year with quarterly rates impacted by the timing of AI assistance deals.

Speaker Change: We expect GAAP diluted net earnings per share to be between eight cents and 14 cents.

Speaker Change: We expect full year non-GAAP operating margin of around 9% at the midpoint, but we expect to exit the year approaching normal ranges.

Speaker Change: non-GAAP diluted net earnings per share of between 28 cents and 34 cents.

Speaker Change: By segment, we expect hybrid cloud operating margin in the mid to high single digits and intelligent edge to remain in the mid 20% range.

Our earnings combined with investments in our AI business will be a headwind to Q2 free cash flow, resulting in abnormal seasonality.

Speaker Change: As such we expect Q2 will be our weakest cash generation quarter during 2025.

Speaker Change: Server is expected to improve in the back half exiting the year with operating margin around 10% we.

Speaker Change: In summary, we are confident in our measures to improve our service business.

Speaker Change: We expect Oh, I any will be a net expense of approximately $15 million.

Speaker Change: In 'twenty to 'twenty five we will focus on right sizing our cost structure, while leveraging AI technologies to enhance our processes aiming to make HPE more agile and positioned for the long term.

We are guiding GAAP diluted net earnings per share between $1 15, and $1.35 and our non-GAAP diluted net earnings per share between $1 70, and $1 90 weighted to the second half.

Speaker Change: We remain a leader in innovation and encouraged by the strong demand for products like HPE Electra N P and private cloud AI.

Speaker Change: non-GAAP diluted net earnings per share outlook assumes Q4 will account for a higher percentage of annual non-GAAP net earnings compared to recent periods.

Speaker Change: The networking market is recovering and our business is performing well we look forward to closing the Juniper acquisition later this year.

Speaker Change: With that I'll open the floor for questions.

Speaker Change: We will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone.

Speaker Change: Q2, we expect revenue will be between $7.2 billion and $7.6 billion.

Speaker Change: If you were using a speakerphone please pick up your handset before pressing the keys to withdraw your question. Please press Star then two.

Speaker Change: This range includes a return to year over year growth in intelligent edge with operating margin in the mid 20% range.

Speaker Change: In the interest of time, we request that you. Please ask only one question at this time, we will pause momentarily to assemble our roster.

Speaker Change: The hybrid cloud, we expect revenue will be down slightly sequentially with operating margin in the mid single digits, reflecting seasonality.

Meta Marshall: And your first question today will come from meta Marshall with Morgan Stanley. Please go ahead.

Speaker Change: For <unk>, we forecast a sequential decline in the mid to high single digits, including a modest decline in AI systems revenue.

Meta Marshall: Great. Thanks, I appreciate the question.

Speaker Change: Barry It sounds like you anticipated some of the racing pressure kind of on the GPU market. When you gave the original 10% to 11% operating margin guidance, but I just wanted to get a sense of the 250 basis point shortfall you know how much of that.

Speaker Change: We expect GAAP diluted net earnings per share to be between eight and 14 cents and non-GAAP diluted net earnings per share of between 28 cents and 34 cents.

Speaker Change: It was CPU versus a kind of pricing inventory additional pricing and inventory on G. P years. Thank you.

Speaker Change: Our earnings combined with investments in our AI business will be a headwind to Q2 free cash flow, resulting in abnormal seasonality.

Speaker Change: Yeah, Hi, Matt and thanks for your question I think you are referring to Q1, so I'm going to answer you in terms of the Q1 actuals. So as you know in our original guide, we actually had 10% to 11% for server and that did actually include some of the pressures that Antonio mentioned in his prepared remarks in terms of the AI.

Speaker Change: As such we expect Q2 will be our weakest cash generation quarter during 2025.

Speaker Change: In summary, we are confident in our measures to improve the business.

Speaker Change: In 'twenty to 'twenty five we will focus on right sizing our cost structure, while leveraging AI technologies to enhance our processes aiming to make <unk> more agile and positioned for the long term.

Speaker Change: <unk> GPU transitions, however, the magnitude of that.

Speaker Change: Impact was greater than we expected and what I would say was unanticipated was the pricing challenges that we experienced in traditional complaint that was not in our Q1 guide. So hopefully that gives you some context they matter.

Speaker Change: We remain a leader in innovation and encouraged by the strong demand for products like HPE Electric N P and private cloud AI.

Speaker Change: Your next question. Thank you.

Speaker Change: The networking market is recovering and our business is performing well.

Speaker Change: And your next question today will come from Aaron Rakers with Wells Fargo. Please go ahead.

Speaker Change: We look forward to closing the Juniper acquisition later this year.

Aaron Rakers: Yes, thanks for taking the question just kind of building on <unk> question there.

Speaker Change: With that I'll open the floor for questions.

When we look at the gross margin profile of your AI server revenue.

Speaker Change: We will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone.

Aaron Rakers: About the monetization of the backlog as we as we move forward.

Aaron Rakers: Curious of how you know.

Speaker Change: If you were using a speakerphone please pick up your handset before pressing the keys and to withdraw your question. Please press Star then two.

Aaron Rakers: How thats changed or how your views of kind of structurally changed over the course of the last three months and whether or not the gross margin pressure you might be seeing is there any kind of inventory charges or write downs that are more transitory in the model and just any context on how margin profile looks thinking about the hopper going to the Blackhawk product cycle would be helpful.

Speaker Change: In the interest of time, we request that you. Please ask only one question at this time, we will pause momentarily to assemble our roster.

Speaker Change: And your first question today will come from meta Marshall with Morgan Stanley. Please go ahead.

Aaron Rakers: Thank you.

Aaron Rakers: Yeah. Thanks, Adam This is Antonio so when I think about the AI market again, and the margin in that context, I'd say three segments right. So you can talk about the service provider mobile builders they lead with time to market with the latest technologies and that's why in Q1, we saw.

Great. Thanks, I appreciate the question.

Speaker Change: Barry It sounds like you anticipated some of the racing pressure kind of on the GPU market.

Speaker Change: When you gave the original 10% to 11% operating margin guidance, but I just wanted to get a sense of the 250 basis point shortfall you know how much of that was CPU versus kind.

Aaron Rakers: A quite significant amount of orders from Blackwell in fact, I think I said, 70% of the mix of the $1 6 billion Boes Blackwell.

When you go to the other two segments the sovereign and the enterprise AI. That's not the case that go with a combination of private technologies and maybe new technologies in the sovereign and an enterprise market definitely is N minus one or even minus two four.

Speaker Change: Kind of pricing inventory additional pricing and inventory on G. P years. Thank you.

Speaker Change: Yeah hard matter and thanks for your question I think you were referring to Q1, so I'm going to answer you in terms of the Q1 actuals.

Speaker Change: As you know now original guide, we actually had 10% to 11% per server and that did actually include some of the pressures that Antonio mentioned in his prepared remarks in terms of the AI GPU transition. However, the magnitude of that impact was greater than we expected and what I would say was unanticipated.

Aaron Rakers: For the mother and so that's why that inventory in the AI that was higher than normal is because now we will take a little bit longer for us to basically transition that inventory as we go through the other two segments consumption of wireless service providers and their mobile builders will shift much more quickly.

Speaker Change: The painted woods the pricing challenges that we experienced in traditional compute that was not in our Q1 guide. So hopefully that gives you some context for that matter.

Aaron Rakers: Into the the latest technologies and that working capital because in the end is all working capital pressure is not so much the margin pressure what you solve when is what compounded the issue in Q1 and it will take like we said one or two quarters to convert that backlog the $3 one bill.

Speaker Change: Your next question. Thank you.

Speaker Change: And your next question today will come from Aaron Rakers with Wells Fargo. Please go ahead.

Speaker Change: Yes, thanks for taking the question just kind of building on <unk> question there.

Aaron Rakers: Info revenue plus new orders are coming in and then return the traditional server business.

Speaker Change: When we look at the gross margin profile of your AI server revenue in thinking about the monetization of the backlog as we as we move forward.

Aaron Rakers: To the what I would call more normal operating margins because that was mostly impacted by the the.

Speaker Change: Curious of how.

Speaker Change: How that's changed or how your views of kind of structurally changed over the course of the last three months and whether or not the gross margin pressure you might be seeing is there any kind of inventory charges or write downs that are more transitory in the model and just any context on how margin profile looks thinking about the hopper going to the Blackwell product cycle would be helpful.

Aaron Rakers: What I called the higher discounting and that one time thing we would call it the value of our inventory itself.

Aaron Rakers: Okay.

Aaron Rakers: Thank you Aaron next question please.

Speaker Change: Your next question today comes from <unk> Mohan with Bank of America. Please go ahead.

Speaker Change: Thank you.

Mohan: Yes, thanks for the question.

Speaker Change: Yeah. Thanks, Adam This is Antonio so when I think about the AI market again, and the margin in that context, I see three segments right. So you talk about the service provider mobile builders, they lead with time to market with the latest technologies and that's why in Q1, we saw.

Speaker Change: Your guidance implies over $2 billion, a year on year growth in revenue, but at the midpoint almost a $150 million a year on year decline in operating profit dollars, but can you just help us think through how much of operating profit dollar headwind you are baking in explicitly from Europe from your tariff is on.

Speaker Change: A quite significant amount of orders on Blackwell in fact, I think I said, 70% of the mix of the one 6 billion was Blackwell.

Mohan: And if you could bridge that.

Mohan: Similarly for our free cash flow on a year on year basis, where youre going from lots of $2 billion to 1 billion.

Speaker Change: When you go to the other two segments the sovereign and the enterprise AI. That's not the case that go with a combination of private technologies and maybe new technologies in the sovereign and an enterprise market definitely is N minus one or even minus two four.

Speaker Change: How much of that is tariff sources competitive pricing versus inventory.

Mohan: Well thank you.

Speaker Change: Yeah, Hey, one thing good afternoon, and maybe I'll take the second part of your question first in terms of cash itself.

For the mother and so that's why the inventory in the AI that was higher than normal is because now we will take a little bit longer for us to basically transition that inventory as we go through the other two segments consumption wireless service providers and the mobile builders will shift much more quickly.

Speaker Change: So for the full year guide as you know we are in my prepared remarks, I mentioned at least $1 billion.

Speaker Change: The way to think about cash flows if you take out net earnings at the midpoint of 180 <unk>.

Speaker Change: Biggest driver is really working capital and then also the announcement that we made around the cost efficiency program. So they're the two biggest drivers that sort of influence cash flow from a year on year basis.

Speaker Change: Into the the latest technologies and that working capital because in the end is all working capital pressure is not so much the margin pressure to what you sold when is what compounded the issue in Q1 and it will take like we said one or two quarters to convert that backlog the 3.1 Bill.

Speaker Change: And then obviously the tariff impact flowed straight into the the earnings at the midpoint in terms of tariffs once it had to answer that what we've got in the guide is actually seven cents for the here and that gets you to the midpoint of the 180 on the guide I would add the way to think about tariffs is we're working we've worked obviously on <unk>.

Speaker Change: Into revenue plus new orders are coming in and then return the traditional server business.

Speaker Change: To the what I would call more normal operating margins because that was mostly impacted by the the.

Speaker Change: <unk> effects, but it does take time to see those mitigation effects take place. So as a result literally four cents of that seven cents is actually going to be in Q2, and it's also in the third of the business, which is where we see the greatest extent of that server sorry of the tariff impact so tariffs.

Speaker Change: What I called the higher discounting and that one time thing we would call it the value of our inventory itself.

Speaker Change: Okay.

Speaker Change: Thank you Aaron next question please.

Speaker Change: Seven cents in here, but the sort of like the hottest part of the tariffs.

Speaker Change: Your next question today comes from <unk> Mohan with Bank of America. Please go ahead.

Speaker Change: Impact is really going to be borne in Q2.

Speaker Change: Okay. Thank you Ami next question please.

Speaker Change: Yes, thanks for the question.

Speaker Change: And your next question today will come from Tim long with Barclays. Please go ahead.

Speaker Change: Thank you.

Speaker Change: Sorry to keep beating the AI server a horse here, but maybe Antonio just on the strategy side.

Speaker Change: Just curious.

Speaker Change: It seems like from the outside a year year and a half two years ago. Some of your peers were really chasing model builders lower gross margin business you guys seemed much more focused on.

Speaker Change: And if you could bridge that.

Similarly for our free cash flow on a year on year basis, where youre going from loss of $2 1 billion.

Speaker Change: Supercomputer in areas that had better margin to it seems like that strategy has changed and now HPE is more willing to get into some of these lower margin businesses like the GBP 200, Npls 72, I imagine is very low gross margin, what what's with the M. I.

Speaker Change: How much of that is tariff sources competitive pricing versus inventory.

Speaker Change: Well thank you.

Speaker Change: Yeah, Hey, good afternoon, and maybe I'll take the second part of your question first in terms of cash itself.

So for the full year guide as you know we are in my prepared remarks, I had mentioned at least $1 billion.

Speaker Change: And that strategy change in in the future should we expect that chasing the model builder business may never get better on a gross margin basis, so that might be something that's more challenging to continue to compete in if we're going to be talking single digit gross margins for that thank you.

Speaker Change: The way to think about cash flows if you take out net earnings at the midpoint of 180 <unk>.

Speaker Change: Biggest driver is really working capital and then also the announcement that we made about the cost efficiency program. So they're the two biggest drivers that sort of influence cash flow from a year on year basis.

And then obviously the tariff impact flowed straight into E. The earnings at the midpoint in terms of tariffs once they know how to answer that what we've got in the guide is actually seven cents for the year and that gets you to the midpoint of the 180 of the guide would add the way to think about tariffs is we're working we've worked obviously on <unk>.

Speaker Change: Yeah. Thank you so no our strategy has not changed.

Speaker Change: If you look at the Q1 performance on our server operating margins. It was not particularly driven by the high gross margins or operating margins in many ways of the pricing of the deals we participate in service provider, where we believe through scale and other mixes that we do.

Speaker Change: <unk> effects, but it does take time to see those mitigation effects take place. So as a result literally full sense of that seven cents is actually going to be in Q2, and it's also in the third of the business, which is where we see the greatest extent of that server sorry of the tariff impact so tariffs.

Speaker Change: In the in the deal whether its services manufacturer and the like we can make the math work, but ultimately to deliver the overall, 10% server margin combined with the rest of the server business.

Speaker Change: Seven said to me here, but the sort of like the hottest part of the tariffs.

Speaker Change: What was different in Q1 for US was again the higher than anticipated discounting on the traditional server business and the fact that unfortunately this is a mess.

Speaker Change: Impact is really going to be borne in Q2.

Speaker Change: Okay. Thank you <unk> next question please.

Tim Long: And your next question today will come from Tim long with Barclays. Please go ahead.

Speaker Change: There's good news in many ways right.

Speaker Change: Is that the the costs that we saw in our.

Speaker Change: Thank you.

Speaker Change: Evaluation of the inventory was not completely fact on their pricing for traditional servers compounded by the higher than anticipated discounting and then obviously the GP utilization on the working capital that muddy just described which obviously have an impact on the AI margin, but not because.

Sorry to keep beating the AI server horse here, but maybe Antonio just on the strategy side.

Speaker Change: Just curious.

Speaker Change: Seems like from the outside a year year and a half two years ago. Some of your peers were really chasing model builders lower gross margin business and you guys seemed much more focused on.

Speaker Change: You know the pricing was off or anything so in many ways I'm confident obviously, we have put the right actions in place. The cost issue has been taken care of we found that the near end of the Q1. So I'm personally very disappointed about that analysis on my.

Speaker Change: Supercomputer in areas that had better margin to it seems like that strategy has changed and now HPE is more willing to get into some of these lower margin businesses like the GBP 200, NPL 72, I imagine, it's very low gross margin, what what's with the EMA.

Speaker Change: And we feel we have the corrective actions in place, but you know our focus is really on that mix of the three segments.

Speaker Change: Right and that strategy change in in the future should we expect that.

Clearly a huge focus on enterprise AI as I said, the mother marks 40% year over year orders growth, we have a great platform. There we drive additional services, particularly on the maintenance and the Green Lake subscription on that and then the balance in sovereign between generative if they they are.

Speaker Change: Chasing the model builder business may never get better on a gross margin basis, so that might be something that's more challenging to continue to compete and if we're going to be talking single digit gross margins for that thank you.

Speaker Change: Yeah. Thank you so no our strategy has not changed.

Speaker Change: In supercomputing, which is very good for us and then in the service provider what it makes sense.

Speaker Change: You know if you look at the Q1 performance and our Surber operative margins. It was not particularly driven by the <unk> gross margins or operating margins in many ways of the pricing of the deals we participated in service provider, where we believe through scale and other you know.

Speaker Change: And so for me is is is that's the approach and again in Q1, we have this unique set of situations that we know we're going to fix and that's why at the end of Q4, we're going to basically drive to normalize what are called 10% overall server margin in the full segment.

Speaker Change: Mix is that we drive in the in the deal whether its services manufacturer and the like we can make the math work to ultimately deliver the overall, 10% service margin combined with the rest of the server business what was different in Q1 for US was again the higher than anticipated discounting.

Speaker Change: Thank you Tim next question please.

Simon Leopold: And your next question today will come from Simon Leopold with Raymond James. Please go ahead.

Simon Leopold: Thank you very much I wanted to see if you could talk a little bit about.

Simon Leopold: Your customer mix and how it how it might be changing and to be transparent I'm wondering are you targeting more of the cloud builders right now and is that affecting some of the assumptions that you're in a more aggressive space.

Speaker Change: On the traditional server business and the fact that unfortunately this is enough.

Speaker Change: Good news in many ways right is that the the cost that we saw in our valve.

Simon Leopold: Or are we seeing issues, where perhaps your federal market, which I assume is very profitable is is weaker in the mix. So trying to get a little bit of unpacking, particularly around compute.

Speaker Change: Evaluation of the inventory was not completely factor in that pricing for traditional service compounded by the higher than anticipated discounting and then obviously the GP authorization on the working capital that Muddy just described which obviously had an impact on the margin, but not because.

Simon Leopold: Around what's going on in the verticals that might be affecting margin. Thank you.

Simon Leopold: Well thank you Simon.

Simon Leopold: I mean I don't think this is new news, but in the service provider mobile builders, we obviously try to get those who value the value of our intellectual property now obviously direct link with call it 100% and far less this is what we shipped three weeks ago for the first time and ER and that takes a lot.

Speaker Change: The pricing was off or anything so in many ways I'm confident obviously, we have put the right actions in place. The cost issue has been taken care of we found out that near end of the Q1. So I'm personally very disappointed about that analysis on my.

Simon Leopold: Our work both on the carpet side, but as well on the manufacturing side, but that's a market that's super concentrated I mean, when you think about it the modal builders may be you can counter with the finger of two hands, maybe less and then on the service provider is probably 15 to 20 that make a difference right and that's why you need to.

Speaker Change: And we feel we have the corrective actions in place, but you know our focus is really on that mix of the three segments.

Speaker Change: Clearly a huge focus on enterprise AI as I said in my remarks, 40% year over year orders growth, we have a great platform. They are we drive additional services, but they go out on the maintenance and the Green Lake subscription on that and then the balance on sovereign between generator with D var.

Simon Leopold: Find a balance approach.

Simon Leopold: I am, particularly targeting the tens of thousands of enterprise customers that now are now adopting a variety of AI models that more of a genetic approaches.

Speaker Change: In supercomputing, which is very good for us and then in the service provider whether it makes sense.

Simon Leopold: And while the value of the order transaction is much lower obviously calls with a complete different margin profile.

Speaker Change: And so for me is is that the approach and again in Q1, we have this unique set of situations that we know we're going to fix and that's why the end of Q4, we're going to basically drive to that normalize what are called 10% overall server margin in the full segment.

Simon Leopold: And what I'm pleased is that we now see the acceleration of that and a significant pipeline and our channel motion is actually an advantage for us. So you may end up you know obviously everybody to think about what's going to happen with our capex deployment in one segment of the market that maybe no slow down at some point.

Tim Long: Thank you Tim next question please.

Simon Leopold: And your next question today will come from Simon Leopold with Raymond James. Please go ahead.

Simon Leopold: Thank you very much I wanted to see if you could talk a little bit about your.

Oh, no, but right now it feels solid and then our growth on the enterprise, which will benefit our mix between the segments and then between the server. The sovereign right. You know when you think about our sovereign when it comes out to supercomputers I think we win three out of four.

Simon Leopold: Your customer mix and how it might be changing and to be transparent I'm wondering are you targeting more of the cloud builder right now and is that affecting some of the assumptions that you're in a more aggressive space.

Simon Leopold: Very easily and then on top of that you are now. These generative today are and you know like the University of Bristol or Japan, ASC or many others that are coming through the pipeline and that's where we find that balance for the server business and in the meantime drive a refresh in the traditional compute.

Simon Leopold: Or are we seeing issues, where perhaps your federal market, which I assume is very profitable is weaker in the mix so trying to get a little bit of unpacking, particularly around compute.

Simon Leopold: Around what's going on in the verticals that might be affecting margin. Thank you.

Simon Leopold: Well thank you Simon.

Simon Leopold: Which has been very solid in fact, we have again double digit year over year orders growth.

Simon Leopold: No I mean I don't think this is new news, but in the service provider mobile builders, we obviously try to get those who value the value of our intellectual property now obviously direct link with call it 100% far less this.

Simon Leopold: And all of them and they're not with Gen 12, we have another great platform to transition the installed base to a lower cost per <unk> or.

Simon Leopold: With more sustainability with 65% of imager reduction.

Simon Leopold: What we shipped three weeks ago for the first time and and that takes a lot of work both on the carpet side, but as well on the manufacturing side, but that's a market that's super concentrated.

Simon Leopold: Thank you Simon next.

Speaker Change: Next question please.

Speaker Change: Your next question today will come from Amit <unk> with Evercore. Please go ahead.

When you think about it the modal builders may be you can counter with the finger of two hands, maybe live and then on the service provider is probably 15 to 20 that make a difference right and that's why you need to find a balance approach I'm, particularly targeting the tens of thousands of enterprise customers that now.

Speaker Change: Thanks, All for taking my question you know I guess, you know Antonio Marie if I look at the fiscal 'twenty five guide that you folks are giving out right now it sort of implies that.

Speaker Change: Revenue growth will be close to double digits nine 510% in the back half of D. R and at the same time, either you're implying about a dollar EPS in the back half. So I would I think mathematically get to about a 250 basis point step up in operating margins in H two versus the Q2 levels can you spend some time on whats give you the confidence that <unk> revenues will actually snap up this way.

Simon Leopold: Are now adopting a variety of AI models have more agenda approaches.

Simon Leopold: And while the value of the order transaction is much lower obviously calls with a complete different margin profile.

Speaker Change: And then B if the revenues are really going to snap up with AI servers, how do you get that sort of operating margin expansion in the back half of the year.

Simon Leopold: And what I'm pleased is that we now see the acceleration of that and a significant pipeline and our channel motion is actually an advantage for us. So you may end up obviously, everybody think about what's going to happen with our capex deployment in one segment of the market that maybe no slow down at some point.

Speaker Change: Yeah good.

Speaker Change: Good afternoon, let me take that one there and it's so first of all in terms of the back half you're correct. We are a.

Speaker Change: Very weighted in terms of both revenue and profitability in the back half and it's not that dissimilar to fiscal 'twenty 'twenty four a couple of things to bear in mind as I said in my prepared remarks, we do see the timing of AI systems, instead of moving into the back half as well so that will drive some of the revenue to the point you just raised and then.

Simon Leopold: Oh, no, but right now feels solid and then our growth on the enterprise, which will benefit our mix between the segments and then between the sort of the sovereign right. You know when you think about a sovereign when he comes out of supercomputers I think we win three out of four.

Speaker Change: Secondly, I would say this in terms of as you think about our profitability and the fact that I think we said in the prepared remarks, we do expect our server business to exit the year at around about the 10% range as well the factors underpinning that are obviously three set of critical areas one.

Simon Leopold: Very easily and then on top of that you are now these generative today I and you know like the University of Bristol or Japan, ASC or many others that are coming through the pipeline and that's where we find that balance for the silver business and in the meantime drive a refresh in the traditional compute.

Speaker Change: The actions that Antonio referred to around silver execution, you'll see those impacts obviously, they trough in Q2 and it will continue to flow through the P&L in Q3, and Q4, secondly, we would've had time to mitigate tariffs. So that's another contributor as well and then third we will see the impact of the cost efficiency program. So it's really those three.

Simon Leopold: Which has been very solid in fact, we have again double digit year over year orders growth.

Simon Leopold: And ultimately now with Gen 12, we have another great platform to transition the installed base to lower cost for or.

Speaker Change: Three drivers that will sort of influence profitability and then finally like I said, just reiterating just the timing of AI system, which really.

Simon Leopold: With more sustainability with 65% energy reduction.

Speaker Change: Deals doesn't have Senate passed a very lumpy and they sort of obviously you can drive a sort of different seasonality in terms of your quarterly revenue. So bear all that in mind. When you think about the guide, but it's actually Q4 is really going to account for a higher percentage of our full year earnings compared to what you've seen in terms of some of our recent.

Simon Leopold: Thank you Simon next.

Simon Leopold: Next question please.

Speaker Change: Your next question today will come from Amit <unk> with Evercore. Please go ahead.

Simon Leopold: Yep.

Speaker Change: Thanks for taking my question you know I guess, you know Antonio Marie if I look at the fiscal 'twenty five guide that you folks have given that right now it sort of implies that.

Simon Leopold: Revenue growth will be close to double digits nine 510% in the back half of D. R and at the same time, I think you're implying about a dollar EPS in the back half so that would I think mathematically get to about a 250 basis point step up in operating margins in H two versus the Q2 levels can you just spend some time on what gives you the confidence that <unk> revenues will actually snap up this way.

Speaker Change: Yes.

Speaker Change: I will have only one more thing to what Marty said is the fact that our networking business will continue its recovery right again, we talk about critical circuits.

Speaker Change: Quarters of sequential growth.

Speaker Change: Supported by now double digits double digits orders growth.

Speaker Change: On a year over year basis of this was the last quarter. The technically that we lap the higher compares and then from here on right. We expect it to be in the mid single digit revenue growth for the balance of the year. So that's why and that obviously comes with a completely different profile and as you know in Q1, we delivered.

Speaker Change: And then B if the revenues are really going to snap up with AI servers, how do you get that sort of operating margin expansion in the back half of the year.

Speaker Change: Yeah. Good afternoon, let me take that one there and it's so first of all in terms of the back half you're correct. We are a very weighted in terms of both revenue and profitability in the back half and it's not that dissimilar to the school 2024, a couple of things to bear in mind as I said in my prepared remarks, we do.

Speaker Change: 27% operating margins and <unk> and that's a big opportunity for us and Thats. Why we are also committed to the journey of appeal because the combination of the two will also the rate the profit recovery later once the deal close.

Speaker Change: See the timing of AI systems, instead of moving into the back half as well so that will drive some of the revenue to the point you just raised and then secondly, I would say this in terms of as you think about our profitability and the fact that I think we said in the prepared remarks, we do expect our service business to exit the year at around about the 10% ranges.

Speaker Change: You know in the back in the back of probably Q4, and then obviously in 2026.

Speaker Change: Thank you for the question Amit next question. Please.

Speaker Change: And your next question today will come from Cemig Chatterji with Jpmorgan. Please go ahead.

Speaker Change: Well the factors underpinning that are obviously things that are critical areas one.

Cemig Chatterji: Yeah, Hi, Thanks for taking my question I guess Antonio you were talking about the mitigation efforts that you're doing in relation to the data. If I was curious how should I think about the sort.

Speaker Change: The actions that Antonio referred to round silver execution, you'll see those impacts obviously, they trough in Q2 and they will continue to flow through the P&L in Q3, and Q4, secondly, we would've had time to mitigate tariffs. So that's another contributor as well and then third we will see the impact of the cost efficiency program. So it's really those three.

Speaker Change: So.

Speaker Change: Focus related to supply chain flexibility versus pricing to mitigate the impact of that is which one is sort of the bigger focus you are going into the back half and particularly when it comes to pricing.

Speaker Change: Three drivers that will sort of influence profitability and then finally like I said, just reiterating just the timing of AI systems, which really.

Speaker Change: Are you thinking about sort of the level of confidence in taking pricing, particularly when you're mentioning certain end markets were discounting is more aggressive than you had thought.

Speaker Change: Those deals as we've said in the past are very lumpy and they sort of obviously you can drive a set of different seasonality intensity quarterly revenue. So bear all that in mind. When you think about the guide, but it's actually Q4 is really going to account for a higher percentage of our full year earnings compared to what you've seen in terms of some of that recent.

Speaker Change: How should we think about those sort of level of visibility or confidence into getting those pricing actions done without really impacting demand. Thank you.

Speaker Change: Yeah.

Speaker Change: First of all we have a very holistic.

Speaker Change: Global supply chain, which allows us to mitigate some of the impact of the tariff.

Speaker Change: Yes.

Speaker Change: I will have only one more thing to what Marty said is the fact that our networking business will continue its recovery right again, we talk about three consecutive quarters of sequential growth.

Speaker Change: We build products around the globe close to the customer because obviously, we need to be close to them to meet the turnaround times that they require but we're able to shift production from one side to the other side because.

Speaker Change: Supported by now double digits double digits orders growth.

Speaker Change: So far our flexibility that we have separately you know on the on the pricing side no question.

Speaker Change: On a year over year basis. So this was the last quarter. The technically that we lap the higher compares and then from here on right. We expect it to be in the mid single digit revenue growth for the balance of the year. So that's why and that obviously comes with a completely different profile and as you know in Q1, we delivered.

We'll.

Speaker Change: Just pricing accordingly, while we continue to drive working capital down there the comments Murray made and therefore create more flexibility in our pricing as we manage discounting more tightly.

Speaker Change: 27% operating margins and the and that's a big opportunity for Us and Thats. Why we are also committed to the journey of appeal because the combination of two will also rate. The profit recovery later wanted the deal would close.

Speaker Change: What I don't know and you know this is best guess wherever it was and what the overall tariff increases and how that materialized in the end in the market will do to the Mt. You know maybe in the second half of the year, but we are confident in our revenue guide that we provided which I think are one of them.

Speaker Change: You know in the back in the back of probably Q4, and then obviously in 2026.

Speaker Change: Alex.

Speaker Change: Thank you for the question Amit next question. Please.

Speaker Change: Spot on you know the nine and a half at the midpoint, which is very high for US right in the very very high single digit perhaps even double digits.

Speaker Change: Your next question today will come from Cemig Chatterji with J P. Morgan. Please go ahead.

Cemig Chatterji: Hi, Thanks for taking my question I guess Antonio on Youre talking about the mitigation efforts that you're doing in relation to the staff's I was curious how should I think about the so.

Speaker Change: And we feel good about that it could impact maybe some aspects, but over all that range is very comfortable for us at this point in time.

Speaker Change: Thank you Sonic next.

Speaker Change: So.

Speaker Change: Next question please.

Speaker Change: Focus related to supply chain flexibility versus pricing to mitigate the impact of that is which one is sort of the bigger focus here going into the back half and particularly when it comes to pricing.

Speaker Change: And your next question today will come from David Ross with UBS. Please go ahead.

David Ross: Great. Thanks, guys for taking my question Maria I thought I heard you say on the call of the cost structure restructuring savings are in addition to the juniper savings. So does that mean I couldnt hear you clearly, but does that mean the savings that you're announcing today attack more of the server storage out of the business and not Aruba and intelligent edge I'm trying to get a sense of how that layers in over the next couple of years and if that's the case.

Speaker Change: Are you thinking about sort of the level of confidence in taking pricing, particularly when you're mentioning certain end market, where discounting is more aggressive than you had taught and how should we think about those sort of level of visibility or confidence into getting those pricing actions done without really impacting demand. Thank you.

David Ross: Before 25 or 450 that you mentioned regarding juniper all from the juniper side of it from the transaction if it closes thanks.

Speaker Change: Yeah.

Speaker Change: So first of all we have a very holistic and global supply chain, which allows us to mitigate some of the impact of the tariff will.

David Ross: Yes, David Hey, good afternoon, it's Maria so just to clarify yes. The festival the juniper at least $4 50 is completely tied to juniper.

Speaker Change: We built products are around the globe close to the customer because obviously, we need to be close to them to meet the turnaround times that they require but we were able to shift production from one site to the other side.

David Ross: As a standalone and then in terms of the $350 million of gross annual run rate savings that we announced today that actually ties to our current organization account company. So as I mentioned.

Speaker Change: Because of our flexibility that we have separately.

Speaker Change: Separately, you know on the on the pricing side no question.

David Ross: We expect to achieve these numbers over the course of 25 and 26 and this is really much more focused around what I would describe as cost efficiency and I think we mentioned in terms of eliminating or bad about 2500 jobs inside the company as it is today. So I would think about them instead of two separate initiatives in two separate plants.

Speaker Change: We'll.

Speaker Change: Just pricing accordingly, while we continue to drive working capital down or the comments <unk> made and therefore create more flexibility in our pricing as we manage discounting more tightly.

Speaker Change: What are the Ono and you know this is best guess wherever it was and what the overall tariff increases and how that matter lies in the end in the market will do to the Mt. You know maybe in the second half of the year, but we are confident in our revenue guide that we provided which I think one of them.

David Ross: You know I mean this is very simple we have the plan to close the transaction.

David Ross: The end of Q1, it is very disappointed that the Doj decided to file a lawsuit, but if we have the plan also to announce what we felt was the opportunity to go forward to take incremental cost out if you take the two programs together is at least $800 million, but we have not closed the journal transaction. Therefore, we have to wait for that.

Speaker Change: Legs sprawled on the nine and a half at the midpoint, which is very high for US right in the very very high single digit, perhaps even double digits and we feel good about that.

David Ross: And we are committed to deliver at least $450 million once the transaction closes in the meantime, we're moving forward with a 350, the Murray talked about it.

Speaker Change: It could impact maybe some aspects, but over all that range is very comfortable for us at this point in time.

David Ross: And that's why you know I think is the right time to do so also in the context, where the market is expecting and what's happening with that if and the like and also what happened to us in Q1, which we feel confident we will address.

Speaker Change: Thank you Samekh.

Speaker Change: Next question please.

Speaker Change: And your next question today will come from David Ross with UBS. Please go ahead.

David Ross: Great. Thanks, guys for taking my question Maria I thought I heard you say on the call of the cost structure restructuring savings are in addition to the juniper savings. So does that mean I couldn't hear you clearly, but does that mean the savings that you're announcing today impact more of the server storage side of the business and not Aruba and intelligent edge, just trying to get a sense of how that layers in over the next couple of years and if that's the case.

David Ross: Think about the whole thing it can be quite sizable.

David Ross: But in the meantime, we're addressing the standalone because that's where we are.

David Ross: Very good. Thank you David next question. Please.

Speaker Change: And your next question today will come from Michael <unk> with Goldman Sachs. Please go ahead.

David Ross: As before 25 or $4 50 that you mentioned regarding juniper all from the juniper side from the transaction if it closes thanks.

Michael: Hi, good afternoon, and thank you very much for the question.

Michael: And Tony I, just wanted to ask about the AI systems orders momentum throughout the quarter.

Speaker Change: Yeah, David Hey, good afternoon, it's Maria so just to clarify yes. The festival the juniper at least 450 is completely tied to juniper.

Michael: The $1 6 billion implies a little bit of a slowdown in December a December and January after the $1 billion plus order in November.

Speaker Change: As a standalone and then in terms of the $350 million of gross annual run rate savings that we announced today that actually ties to our current organization account company. So as I mentioned.

Michael: Has the demand environment for AI systems change.

Michael: Have you seen during the quarter and then.

Michael: And a couple of months since and.

Speaker Change: If I could just Maria quick follow up on free cash flow.

Speaker Change: We expect to you know.

Speaker Change: Anything other than the $250 million of cash restructuring and restructuring that impacts the outlook just wanted to see if there was anything unusual there. Thank you.

Speaker Change: Achieved these numbers over the course of 25 and 26 and this is really much more focused around what I would describe this cost efficiency and I think we mentioned in terms of eliminating about about 2500 jobs inside the company as it is today. So if you think about them instead of two separate initiatives in two separate plants.

Speaker Change: Yeah. Thanks, Michael I think Youre correct I mean, obviously, we were we started strong in the quarter and then obviously with vacations and the like but remember this is a lumpy business right.

Speaker Change: I mean this is very simple we have the plan to close the transaction at the end of Q1. It is very disappointed that the Doj decided to file a lawsuit, but if we had the plan also to announce what we felt was the opportunity to go forward to take incremental cost out if you take the two programs together is at least.

Speaker Change: They have strong spring demand.

Speaker Change: You know happened in one month, and then perhaps not so much the next month, but on aggregate got right. When you think about it.

Speaker Change: We booked $8 $3 billion that was up double digits, and we doubled quarter over quarter I think that's the message right. So our AI system net orders in the quarter were twice as big as the Q for.

Speaker Change: $800 million, but we have not closed the journal transaction. Therefore, we have to wait for that and we are committed to deliver at least $450 million. Once the transaction closes in the meantime, we're moving forward with a 350, the Murray talked about it and and that's why you know I think is the right time to do so.

Speaker Change: That said you know.

Speaker Change: What I'm, particularly proud of the fact that the AI enterprise is strong.

Speaker Change: And that to me is a testament that our customers are deploying the solutions, particularly in infancy, and the influences where all the value gets realized and the pipeline remains of multiples.

Speaker Change: Also in the context, where the market is expecting and what's happening with that and the like and also what happened to us in Q1, which we feel confident we will address but think about the whole thing it can be quite sizable.

Speaker Change: On every segment of the eye, whether a sovereign enterprise AI or model builders and service providers.

But in the meantime, with us in the Standalone, because that's where we are.

Speaker Change: And just to clarify on the cash flow the number for actually for $25 million to $400 million 250, which comes from the cost efficiency program that we just announced and we also have some carryover from prior period restructuring program. So that's what gets you to 400 and terms of the cash flow that I did earlier.

Speaker Change: Very good. Thank you David next question. Please.

Speaker Change: And your next question today will come from Michael <unk> with Goldman Sachs. Please go ahead.

Speaker Change: Hi, good afternoon, and thank you very much for the question.

Speaker Change: And Tony I, just wanted to ask about the AI systems orders momentum throughout the quarter.

Speaker Change: Thank you Mike.

Speaker Change: Next question please.

Speaker Change: And your next question today will come from Matt nickname with Deutsche Bank. Please go ahead.

Speaker Change: The $1 6 billion implies a little bit of a slowdown in December a December and January after the $1 billion plus order in November.

Speaker Change: Hey, Thanks, so much for squeezing me in I'm wondering has the macro backdrop and specifically around tariff uncertainty has that had any impact.

Speaker Change: Has the demand environment for AI systems change.

Speaker Change: Have you seen during the quarter and then.

Speaker Change: On customer purchasing or demand to date and just in a similar vein are you baking in any incremental softness from U S fed Israel's adult of some of the those initiatives. Thank you.

Speaker Change: And a couple of months since and I forgot to ask Maria quick follow up on free cash flow.

Speaker Change: Other than the $250 million of cash restructuring and restructuring that impacts the outlook just wanted to see if there was anything unusual there. Thank you.

Speaker Change: Yeah. Thank you know so far no and in fact, as we said in our prepared remarks, we have double digit order growth in all our business units.

Speaker Change: Yeah. Thanks, Michael I think Youre correct I mean, obviously, we were we started strong in the quarter and then obviously vacations and the like but remember this is a lumpy business right.

Speaker Change: Through for networking that was true for servers those through for AI systems.

Speaker Change: You may have France first of demand are you know happened in one month and then perhaps not so much the next month.

That was true for storage was actually triple digits, and now theyre literally they represent more than 50% of the mix. So demand was very very strong.

But on an aggregate right when you think about it we booked $8 $3 billion.

Speaker Change: We don't see yet the full impact of the tariffs in the market I think it will take another month or two on the federal side, it depends on which agency you're working with.

Speaker Change: All up double digits, and we doubled quarter over quarter.

Speaker Change: That's the message right. So our AI systems net orders in the quarter were twice as big as the Q4.

Speaker Change: So far not a significant slowdown, but remember the HB company provides core core tech infrastructure for the department of Defense and Department of energy and many agencies that the the provide national security of sorts and therefore that has not been seen.

Speaker Change: That said.

Speaker Change: What I'm, particularly proud of the fact that the AI enterprise is strong.

And that to me is a testament that our customers are deploying the solutions, particularly in infancy, and the influences where all the value gets realized and the pipeline remains of multiples.

Speaker Change: We'll see what happens next are hard to predict at this point in time.

Speaker Change: On every segment of the AI, whether a sovereign enterprise AI or model builders and service providers.

Speaker Change: Okay. Thank you Matt.

We're ready for our last question.

Speaker Change: And your last question today will come from Ananda Baruah with loop capital. Please go ahead.

Marie Myers: And just to clarify on the cash flow the number for actually for 25 to 400 million 250, which comes from the cost efficiency program that we just announced and we also have some carryover from prior period restructuring program. So that's what gets you to 400 in terms of the cash flow that I did earlier.

Ananda Baruah: Hey, Yeah. Thanks, guys good afternoon.

Speaker Change: Hey, and Tony just a quick question on <unk> server.

Speaker Change: Sure Nick.

Ananda Baruah: You guys are thinking about it.

Speaker Change: For fiscal 'twenty five.

Speaker Change: And I guess really what I'm.

Speaker Change: What I'm interested in is any contacts.

Speaker Change: Thank you Mike.

Speaker Change: Next question please.

Speaker Change: How much of what Youre looking at.

Speaker Change: And your next question today will come from Matt nickname with Deutsche Bank. Please go ahead.

Speaker Change: The backlog pipeline would go into Green Lake versus the revenues in the traditional sales said.

Matt: Hey, Thanks, so much for squeezing me in I'm.

Matt: I'm wondering has the macro backdrop and specifically around tariff uncertainty has that had any impact on.

Speaker Change: And then any any sense of how your mix might change from a SaaS model.

Matt: On customer purchasing or demand to date and just in a similar vein are you baking in any incremental softness from U S. Fed israels adult of some of the those initiatives. Thank you.

Speaker Change: Motto is relative to unattractive sovereigns and that's it for me. Thanks.

Speaker Change: Yeah. Thank you you know when I think about enterprise AI. There is a big component of that goes through the Green Lake because it is a subscription of the sorcerer so they're getting like platform. All the software that we co engineer with Nvidia. So that's what we call Nvidia computing by HPE is actually.

Matt: Yes. Thank you know so far no in fact, as we said in our prepared remarks, we have double digit order growth in all our business units.

Matt: That's true for networking that was true for servers that was through for AI systems.

Speaker Change: They are subscription info, they're gonna Lake platform with a capex on the infrastructure attached to it think about it that way.

Matt: That was true for storage was actually triple digits and now they are little bit represent more than 50% of the mix. So demand was very very strong.

Speaker Change: They grow is very nice and you saw the 40% growth in order.

Speaker Change: Actually it takes time to see it right and now remember we have now $2 billion plus in AI are that you will be adding to it as we grow that installed base, but on the service providers or the Mueller builders those who have been in a list in the last couple of quarters old Capex purchases and then.

Matt: We don't see yet the full impact of the tariffs in the market I think it will take another month or two on the federal side, it depends on which agency you're working with.

Matt: So far not a significant slowdown, but remember the HB company provides core.

There is no green Lake.

Matt: Our tech infrastructure for the Department of Defense and Department of energy and many agencies that provide national security absorb and therefore that has not been seen but we'll see what happened next are hard to predict at this point in time.

Speaker Change: <unk> offer associates at this point in time without one.

Speaker Change: So that's why it's more capex on one and over time, you have a capex plus a subscription on the other one.

Speaker Change: Okay, well I think we are at the end of the call. Thank you for joining the call again I will leave you with this number one is we delivered a solid quarter, but we could have executed better I'm really proud of the demand that we've seen that tells me the innovation and the strategy is right but.

Speaker Change: Okay. Thank you Matt.

Matt: We're ready for our last question.

Speaker Change: And your last question today will come from Ananda Baruah with loop capital. Please go ahead.

Ananda Baruah: Hey, Yeah. Thanks, guys good afternoon.

Speaker Change: And Tony just a quick question on <unk> server mix that you guys are thinking about it.

Speaker Change: Dmitry, we could have executed better in the server operating margin side, where a couple of things were under our control and obviously, we're committed to go fix that confident towards towards the normalized <unk>.

Ananda Baruah: For fiscal 'twenty five.

Ananda Baruah: Really what I'm with them.

Interesting.

Ananda Baruah: Any context on.

Ananda Baruah: How much of what Youre looking at.

Speaker Change: EPS by Q4, and the 10% silver margin at the exit Q4.

And the backlog pipeline.

Ananda Baruah: Go into Green Lake is the revenues in the traditional sales said.

And then you know we took aggressive action on incremental cost that we can take out now and also we factor a tired of impact now. So you have one complete view all what fiscal year 2025 looks like a last analyst we are totally committed to the juniper deal. We believe we have a very strong.

Ananda Baruah: And then any any sense of.

Ananda Baruah: How your mix might change from <unk>.

Ananda Baruah: And model delegating.

Relative to an attractive and that's it for me. Thanks.

Ananda Baruah: Yeah. Thank you.

Speaker Change: Case, we expect to close the transaction.

Speaker Change: Think about enterprise AI that is a big component of that goes through the Green Lake because it is a subscription of the saucer or two they're getting like platform. All the software that we co engineer with them video. So that is what we call Nvidia computed by HPE is actually a subscription info, they're gonna Lake platform with a <unk>.

Speaker Change: In the second half of 2025 and the good news at least there is a trial date set for July 9th and we believe we have a compelling case to to get the favorable ruling.

Speaker Change: Thank you for your time today and hope to talk to you soon.

Speaker Change: Topics on the infrastructure attached to it think about it that way while they grow is very nice and you saw the 40% growth in orders.

Speaker Change: The conference has now concluded. Thank you for attending today's presentation you may now disconnect.

Speaker Change: It takes time to see it right and now will remember we have now $2 billion plus in AI.

Or that you will be adding to it as we grow that installed base, but on the service providers or the Mueller builders those who have been in a list in the last couple of quarters old Capex purchases and therefore, there is no green Lake Flex offer.

Speaker Change: Associates at this point in time with that one.

Speaker Change: So that's why it's more capex on one and over time, you have a capex plus the subscription on the other one.

Speaker Change: Okay, well I think we had at the end of the call. Thank you for joining the call again I will leave you with this number one is we delivered a solid quarter, but we could have executed better I'm really proud of the demand that we've seen that tells me the innovation and the strategy is right but over.

Speaker Change: Three we could have executed better in the server operating margin side, where a couple of things were under our control and obviously, we're committed to go fix that confidence towards the normalized <unk>.

Speaker Change: EPS by Q4, and the 10% silver margin at the exit Q4, and then you know we took aggressive action on incremental cost that we can take out now and also we factor a tired of impact now. So you have one complete view all what fiscal year 2025 looks like a last panelists.

Speaker Change: We are totally committed to the juniper deal. We believe we have a very strong case.

Speaker Change: We expect to close the transaction.

Speaker Change: In the second half of 2025 and the good news at least there is a trial date now set for July 9th and we believe we have a compelling case to to get the favorable ruling.

Speaker Change: Thank you for your time today and hope to talk to you soon.

Speaker Change: The conference has now concluded. Thank you for attending today's presentation you may now disconnect.

Speaker Change: [music].

Q1 2025 Hewlett Packard Enterprise Co Earnings Call

Request a DemoDemo

HPE

Hewlett Packard

Earnings