Q2 2025 Hewlett Packard Enterprise Co Earnings Call

Unknown Attendee: Good afternoon, and welcome to the fiscal 2025 second quarter Hewlett Packard Enterprise earnings conference call. 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. As a reminder, this conference is being recorded for replay purposes.

Good afternoon, and welcome to the fiscal 2025 second quarter Hewlett Packard Enterprise earnings Conference call. 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 Starkey followed by zero.

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

Paul Glaser: I would now like to turn the presentation over to your host for today's call, Paul Glaser, Head of Investor Relations.

I'd now like to turn the presentation over to your host for today's call Paul Glaser head of Investor Relations. Please go ahead, Sir good afternoon, I am Paul Glaser head of Investor Relations for Hewlett Packard Enterprise I would like to welcome you to our fiscal 'twenty twenty-five second quarter earnings conference call with Antonio Neri H.

Unknown Attendee: Please go ahead, sir.

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

Paul Glaser: I would like to welcome you to our Fiscal 2025 Second Quarter Earnings Conference Call with Antonio Neri, HPE's President and Chief Executive Officer, and Marie Myers, HPE's Chief Financial Officer. Before handing the call to Antonio, let me remind you that this call is being A replay of the webcast will be available shortly after the call concludes. We have posted the press release in the slide presentation accompanying the release on our HPE investor release.

Antonio Neri: He is president and Chief Executive Officer, and Marie Myers, Hp's, Chief Financial Officer.

Before handing the call to Antonio Let me remind you that this call is being webcast a replay of the webcast will be available. Shortly after the call concludes we have posted the press release and the slide presentation accompanying the release on our HPE Investor Relations webpage.

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 businesses as we see them HPE assumes no obligation and does not intend to update any such forward We also note that the financial information discussed on this call reflects estimates based on information available at this time and could differ materially from the amounts ultimately reported in HPE's quarterly report on Form 10-Q for the fiscal quarter ended April 30, 2025. For more detailed information, please see the disclaimers on the earnings materials relating to forward-looking statements.

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

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 on Form 10-Q.

For the fiscal quarter ended April 30th 2025 for more detailed information. Please see the disclaimers on the earnings materials relating to forward looking statements that involve risks uncertainties and assumptions.

Paul Glaser: involved risks, uncertainties, and Please refer to HPE's filings with the SEC for a discussion of For financial information we have expressed on a non-GAAP basis, we have provided reconciliations to the comparable GAAP information on our website. Please refer to the tables and slide presentation accompanying today's earnings release on our website for details. Throughout this conference call, all revenue growth rates, unless noted otherwise, are presented on a year-over-year basis and adjusted to exclude the impact of current Antonio and Marie will refer to our earnings presentation in their prepared comments.

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

For financial information, we are expressed on a non-GAAP basis, we have provided reconciliations to the comparable GAAP information on our website. Please refer to the tables and slide presentation accompanying today's earnings release on our website for details.

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

Antonio Neri: Antonio in Murray will refer to our earnings presentation and their prefer Eric comments.

Paul Glaser: Finally, I would like to announce that we will hold our security analyst meeting on October 15th, 2025. We will provide more details as the day With that, let me turn it over to Thank you, Paul.

Speaker Change: Finally, I would like to announce that we will hold our security analyst meeting on October 15th 2025, we will provide more details as the date gets closer.

Speaker Change: With that let me turn it over to Antonio.

Speaker Change: Thank you Paul good afternoon, everyone. Thank.

Antonio Neri: Good afternoon, everyone. In Q2, HPE delivered solid results. We executed well and delivered both revenue and non-GAAP diluted net earnings per share above the high end of CAIDA. Through focused and disciplined execution, we have addressed the operational challenges we experienced in our service segment last quarter. We expect these actions will contribute to margin improvement through fiscal year end. In the second quarter, we saw a very dynamic macro and trade policy environment. The IT industry continues to navigate significant uncertainty brought on by tariffs, the AI diffusion policy withdrawal, and broad macroeconomic concerns. While this led to uneven demand during the quarter, we did not benefit from significant order pull-ins.

Antonio Neri: In Q2, H B E delivered solid results.

Antonio Neri: We executed well and delivered both revenue and non-GAAP diluted net earnings per share above the high end of guidance.

Antonio Neri: Through focused and disciplined execution, we have addressed the operational challenges we experienced in our service segment last quarter, though.

Antonio Neri: We expect these actions will contribute to margin improvement through fiscal year end.

Antonio Neri: In the second quarter, we saw a very dynamic macro and trade policy environment. The.

Antonio Neri: The industry continues to navigate significant uncertainty brought on by Todd is the AI the future policy with are all well and broad macroeconomic concerns.

Antonio Neri: While this led to uneven demand during the quarter, we did not benefit from significant order pull ins.

Antonio Neri: We ended Q2 with a stronger pipeline compared to Q1, reinforcing that our strategy is the right one. Q2 revenue was $7.6 billion, up 7% year-over-year, and just above the high end of a previously provided guidance. We saw year-over-year revenue growth in every product segment. The results were led by higher AI system revenue conversion in server, solid performance in intelligent edge, and stronger than expected performance in our hybrid cloud segment, which was driven by our HPE Alletra MP storage transition and the continued adoption of HPE GreenLake cloud subscription services. Q2 Operating Profit Group Year-over-Year in Hybrid Cloud, Intelligent Edge, and HP Financial Services.

Antonio Neri: We ended Q2 with a stronger pipeline compared to Q1 reinforces that our strategy is the right one.

Antonio Neri: Q2 revenue was $7.6 billion up 7% year over year and just above the high end of our previously provided guidance.

Antonio Neri: We saw year over year revenue growth in every product segment.

Antonio Neri: The results were led by higher AI system revenue conversion in server solid performance in the intelligent edge and stronger than expected performance in our hybrid cloud segment, which was driven by our H B Allegra MP started the transition and the continued adoption of H B Fuller cloud subscription services.

Antonio Neri: Q2, operating profit grew year over year hybrid cloud and the intelligent edge and HP financial services.

Antonio Neri: As we said in our Q1 earnings, we expected server operating profit to decline quarter over quarter, although our server revenue and operating margin were near the high end of our Q2 guide. We remain laser focused on execution in our server segment. Since our last update, we have closely monitored the changes implemented to improve profitability. These include the rollout of new pricing analytics, increased discount scrutiny, and inventory management. As we said in our last call, it will take a couple of quarters to realize the full benefit of these measures, and we expect our server segment operating margin will recover to approximately 10% exiting Q4.

Antonio Neri: As we said in our Q1 earnings we expect that server operating profit to decline quarter over quarter, Although our service revenue and operating margin were near the high end of our Q2 guide.

Antonio Neri: We remain laser focused on execution in our service segment.

Antonio Neri: Since our last update we have closely monitored the changes implemented to improve profitability.

Antonio Neri: These include the rollout of new pricing analytics increased discount scrutiny and inventory management.

Antonio Neri: As we said in our last call. It will take a couple of quarters to realize the full benefit of these measures. We expect our service segment operating margin would've recovered to approximately 10% exiting Q4.

Antonio Neri: We deliver non-GAAP diluted net earnings per share of $0.38 above the high end of our previously provided guidance. We benefited from lower than anticipated tariff impact and more favorable OI&E. Net of these items, non-GAAP EPS was still at the high end of our outlook, driven by solar revenue performance and cost management. As we move into the second half, we have improved line of sight to timing of our AI revenue conversion. As such, we are tightening our revenue outlook to be up 7% to 9% year over year. In addition, we are raising the low end of our non-GAAP diluted net earnings per share range by 8 cents.

Antonio Neri: We delivered non-GAAP diluted net earnings per share of 38 cents above the high end of our previously provided guidance, we benefited from lower than anticipated tariff impact and more favorable or any <unk>.

Antonio Neri: Net of these items non-GAAP EPS will still at the high end of our outlook driven by solid revenue performance and cost management.

Antonio Neri: As we won't be until the second half we have improved line of sight to timing of our revenue conversion.

Antonio Neri: Such we're tightening our revenue outlook to be up 7% to 9% year over year.

Antonio Neri: In addition, we are raising the low end of our non-GAAP diluted net earnings per share range by eight cents.

Antonio Neri: We continue to capitalize on the megatrends reshaping the IT industry across networking, AI and hybrid cloud. In networking, the market continues to recover. Year over year, our business achieved its third consecutive quarter of orders growth and return to revenue growth. In AI, we signed $1.1 billion of net new orders, with Enterprise accounting for one-third. We converted more than $1 billion into revenue, up from $900 million last quarter. And we exited with $3.2 billion of backlog in AI systems. Our pipeline remains multiples of our backlog. In our hybrid cloud segment, we saw another solid quarter of storage revenue performance with our Aletra portfolio growing high double digits year over year.

Antonio Neri: We continue to capitalize on the Mega trends reshaping the industry across networking AI and hybrid cloud.

Antonio Neri: And it's working the market continues to recover year over year, our business achieved its third consecutive quarter of orders growth and a return to revenue growth.

Antonio Neri: And I, we signed $1 $1 billion of net new orders with enterprise accounted for one third.

Antonio Neri: We converted more than $1 billion into revenue up from $900 million last quarter, and we exited with $3.2 billion of backlog in AI systems.

Antonio Neri: Our pipeline remains multiples of our backlog.

Antonio Neri: In our hybrid cloud segment, we saw another solid quarter of storage revenue performance with our outlet or a portfolio growing high double digits year over year.

Antonio Neri: The transition to a subscription business model is a revenue headwind in the near term, or more accretive to profitability long term. Orders for Aletra MP have grown more than 75% year-over-year for four consecutive quarters, contributing to a growing deferred software revenue balance. This demonstrates the value of our disaggregated architecture with multi-protocol support and the flexibility of our office. Finally, GreenLake continues to deliver strong results. We are growing customer count, which now totals approximately $42,000, generating over $2.2 billion of annualized revenue run rate. This is up 47% year over year and above our 35 to 45% CAGR commitment.

Antonio Neri: The transition to a subscription business model is a revenue headwind in the near term, we're more accretive to profitability long term.

Antonio Neri: All of this for a letter M P have grown more than 75% year over year for four consecutive quarters.

Antonio Neri: We've moved to a growing deferred software revenue balance.

Antonio Neri: This demonstrates the value of our disaggregated architecture with multi protocol support and the flexibility of our offering.

Antonio Neri: Finally, Green Lake continues to deliver strong results with.

Antonio Neri: We are growing customer count, which now totals approximately 42000 generating over $2.2 billion of annualized revenue run rate.

Antonio Neri: This is up 47% year over year and above our 35% to 45% CAGR commitment.

Antonio Neri: Software and services continue to be more than 70% of our AIR, demonstrating a portfolio shift to higher growth and higher margin areas of the stack.

Antonio Neri: Software and services continue to be more than 70% of our AI are demonstrated in our portfolio shift to higher growth and higher margin areas of the stack.

Marie Myers: Marie will provide more details on Q2 and our fiscal year outlook.

Antonio Neri: Marty will provide more details on Q2, and our fiscal year outlook, but first I would like to highlight several recent product launches the further reinforce our strategy.

Antonio Neri: But first, I would like to highlight several recent product launches that further reinforce our strategy. Last month, we launched the industry's most advanced private cloud portfolio. Morpheus and our HPE virtualization software have been integrated into our HPE private cloud portfolio. Through this integration, we can lower customers' virtualization costs by up to 90% on a core basis and unify management of their entire multi-cloud and multi-vendor IT estate. Customer interest in VM Essentials has been very strong. Notably, Danfoss is planning to replace 75% of its virtual estate with VM Essentials within HPE GreenLake for Private Cloud Enterprise.

Antonio Neri: Last month, we launched the industry's most advanced private cloud portfolio.

Antonio Neri: Morpheus and our H P virtualization software have been integrated into our H B private cloud portfolio.

Antonio Neri: Through this integration, we can lower our customers' virtualization costs by up to 90% on a core basis and unified management of their entire multi cloud multi vendor atheist state.

Antonio Neri: Customer interest in via Essentials has been very strong, notably Downfalls is blended to replace 75% of its virtually state with via essentials within H B Green Lake for private cloud enterprise.

Antonio Neri: In networking, we introduced new capabilities with HPE Aruba Networking Central to expand universal zero-trust network access solutions to help enterprises bolster cybersecurity. HPE Aruba Networking Central is now also available to deploy as an on-premises option. This is particularly helpful for customers prioritizing data sovereignty. Aruba Networking Central now manages over 5 million devices and is contributing to strong AIR subscription growth within Intelligent Edge.

Antonio Neri: In networking, we introduced new capabilities with HP Aruba network in central to expand Universal Zero Trust network access solutions to help enterprises bolster cyber security.

Antonio Neri: H B Aruba networking central is now also available to deploy us on on premises option.

Antonio Neri: This is particularly helpful for customers prioritize and data sovereignty.

Antonio Neri: Aruba network in Central now manages over 5 million devices and is contributing to strong AI, our subscription growth within intelligent edge.

Antonio Neri: We are maintaining a rapid pace of AI innovation in our deep and longstanding partnership with NVIDIA. One of the cluster buildouts we are working on right now with NVIDIA is a large deployment of NVIDIA Grace Blackwell MVL72 system. We are nearing completion and appreciate the continued partnership that pairs our capabilities.

Antonio Neri: We're maintaining our rapid pace of innovation in our deep and long standing partnership with Nvidia.

Antonio Neri: One of the cluster build outs, we are working on right now with Nvidia is a large deployment of N V. The Grace Blackwell N V L 72 systems.

Antonio Neri: We are nearing completion and I appreciate the continued partnership that payers are capabilities.

Antonio Neri: Most recently, at GTC Taipei at Computex, we announced several enhanced storage and server platforms targeting all customer sectors. In 2025, we integrated NVIDIA's latest GPUs into our server portfolio, which deliver record-breaking performance for generative AI inference. We announce advancements in storage to unify enterprise data management to create context-rich, AI-ready object data with built-in intelligence. And we launched the HP Electra Storage NPX 10,000 SDK solution for the NVIDIA AI data platform, bringing enterprise data into an intelligent orchestrated pipeline within the NVIDIA AI ecosystem. All these new innovations are aligned to our strategy to continue to move upstack to areas of higher growth with higher margins.

Antonio Neri: Most recently at GTC Taipei, a computex, we announced several enhanced storage and server platforms targeting all customer segments.

Antonio Neri: In 2025, we integrated and devious latest gpus into our server portfolio, which delivered record breaking performance for joining us today are influencing.

Antonio Neri: We announced advancements in storage to unify enterprise data management to create context rich a already object data with built in intelligence.

Antonio Neri: And we launched the HP elite storage MP X 10000, SDK solution for the Nvidia AI data platform, bringing in enterprise data into an intelligent orchestrate the pipeline within the Nvidia AI ecosystem.

Antonio Neri: All of these new innovations are aligned to our strategy to continue to move up stack to areas of higher growth with higher margins.

Antonio Neri: We continue to help enterprises accelerate their business transformation across networking, hybrid cloud, and AI, and we will unveil even more exciting breakthrough innovations at the HP Discover later this month.

Antonio Neri: We continue to help enterprises accelerate their business transformation across networking hybrid cloud and AI and we will unveil even more exciting breakthrough innovations are the HP discover later this month.

Antonio Neri: Finally, I want to reinforce our commitment to closing the Juniper Networks Transact. We expect the proposed transaction will deliver at least $450 million in annual run rate synergies to our shareholders within 36 months of closing the transaction. The deal will help both companies deliver a modern, secure, AI-driven edge-to-cloud portfolio of networking products and services. We continue to expect to close the transaction before the end of fiscal year 2025.

Antonio Neri: Finally, I want to reinforce our commitment to closing the juniper networks transaction. We expect the proposed transaction will deliver at least $450 million in annual run rate synergies to our shareholders within three to six months of closing the transaction.

Antonio Neri: The deal will have both companies delivered a modern secure AI driven edge to cloud portfolio of networking products and services.

Antonio Neri: We continue to expect to close the transaction before the end of fiscal year 'twenty to 'twenty five.

Antonio Neri: In closing, in Q2, we deliver solid results through focused and disciplined execution. As we committed, we have addressed the server execution challenges. Our leadership team and I took accountability and swift action, despite the challenges of a fluid microenvironment. We remain focused on executing against our goals and becoming a more agile and nimble company to continue to increase our profitability and enhance shareholder value. I remain excited about the profitable growth opportunities HP has ahead, including the anticipated closure of the Juniper Network Funds Act. We have the right strategy and the right team to continue to accelerate value for our shareholders.

Antonio Neri: In closing in Q2, we delivered solid results through focused and disciplined execution.

Antonio Neri: As we committed we have addressed the server execution challenges our leadership team and I took accountability and Swift action. Despite the challenges of a fluid macro environment.

Antonio Neri: We remain focused on executing against our goals and becoming a more agile and nimble company to continue to increase our profitability and enhance shareholder value.

Antonio Neri: Excited about the profitable growth opportunities H B has ahead, including the anticipated closure of the Juniper networks transaction.

Speaker Change: We have the right strategy and the right team to continue to a sort of value for our shareholders with that let me turn it over to Marie Marie.

Marie Myers: With that, let me turn it over to Marie. Thank you, Antonio, and good afternoon. In Q2, we addressed the execution challenges we experienced in Q1, which enabled us to drive improved margin performance in our server business as we moved through the quarter. While we still have more work to do to return the segment's operating profit margin performance to a double-digit rate, we are on the right trajectory to achieve that by Q4 of this year. In addition, our Intelligent Edge business returned to year-over-year top-line growth after five quarters as the networking market recovery gained momentum. and we reported double-digit year-over-year revenue growth in our hybrid cloud segment for the third consecutive quarter with all park lines contributing to growth.

Marie: Thank you Antonio and good afternoon.

Marie: Q2, we addressed the execution challenges, we experienced in Q1, which enabled us to drive improved margin performance in our survey business as we moved through the quarter. While we still have more work to do to return. This segment operating profit margin performance to a double digit rate. We are on the right trajectory to achieve that by Q4 of this year. In addition.

Marie: Our intelligent edge business returned to year over year top line growth after five quarters as the networking market recovery gains momentum.

Marie: And we reported double digit year over year revenue growth in our hybrid cloud segment for the third consecutive quarter with all product lines contributing to growth.

Marie Myers: We also made significant progress against the cost reduction program we announced last quarter, which we expect will contribute to our results in future quarters. We reported non-gap diluted net earnings per share of $0.38 ahead of our outlook, driven in part by a more moderate tariff impact and operational benefits.

Marie: We also made significant progress against the cost reduction program, we announced last quarter, which we expect will contribute to our results in future quarters. We reported non-GAAP diluted net earnings per share of 38 cents ahead about outlook driven in part by more moderate tax impact and operational benefits.

Marie Myers: However, we continue to navigate a complex macroeconomic and geopolitical landscape and remain prepared to take additional action in the back half of the year to deliver against our fiscal 25-hour Let's talk about the details of the quarter. Our second quarter revenue was $7.6 billion, up 7% year-over-year, but down 3% quarter-over-quarter, reflecting strong top-line performance in Intelligent Edge and Hybrid Cloud and a year-over-year increase in server revenue. We did not see a significant benefit from tariff-related demand pull-forward based on quarterly business linearity and historical order power. Our annualized revenue run rate was $2.2 billion, up 47% year-over-year, driven again by AI and Intelligent Edge.

Marie: However, we continue to navigate a complex macroeconomic and geopolitical landscape and remain prepared to take additional action in the back half of the year to deliver against our fiscal 'twenty five outlook.

Marie: Let's talk about the details of the quarter.

Marie: Our second quarter revenue was $7.6 billion up 7% year over year, but down 3% quarter over quarter, reflecting strong topline performance and intelligent edge and hybrid clouds and a year over year increase in server revenue, we did not see a significant benefit from tariff related demand pull forward.

Speaker Change: Based on quarterly business than the Audi and historical order patents.

Speaker Change: Our annualized revenue run rate was $2.2 billion up 47% year over year, driven again by AI intelligent edge.

Marie Myers: Our software and services ARR grew nearly 60% year over year and improved its mix of ARR by several hundred basis points to 75%. primarily due to an increase in GreenLakeFlex subscriptions and AIS. Non-GAAP gross margin was 29.4% down 370 basis points year-over-year and flat quarter-over-quarter. On a year-over-year basis, gross margin was impacted primarily by an unfavorable mix within server, including the dilutive backlog in traditional compute we carried into the core. Non-GAAP operating margin was 8%, down 150 basis points year-over-year, reflecting lower gross margins partially offset by cost. The 190 basis point sequential decline was primarily due to increased variable compensation and higher marketing expenses.

Speaker Change: Our software and services a R grew nearly 60% year over year and improved its mix of a ah by sounds like 100 basis points to 75% primarily due to an increase in green like flex subscriptions and AI services.

Speaker Change: non-GAAP gross margin was 29.4% down 370 basis points year over year and flat quarter over quarter on a year over year basis gross margin was impacted primarily by an unfavorable mix fit into that including the dilutive backlog in traditional compute we carried into the quarter.

Speaker Change: non-GAAP operating margin was 8% down 150 basis points year over year, reflecting lower gross margins, partially offset by cost management.

Speaker Change: 119 basis points sequential decline was primarily due to increased variable compensation and higher marketing expenses.

Marie Myers: Non-GAAP operating expense as a percentage of revenue increased sequentially from a record low in Q1 and declined 220 basis points year-over-year reflecting better cost discipline as our business scales We'll continue managing discretionary costs and driving efficiencies while working to increase the incremental structural cost savings we drove this. Free cash flow was negative 847 million dollars, slightly better than expected, due in part to the conversion of some AI backlog.

Speaker Change: non-GAAP operating expense as a percentage of revenue increased sequentially from a record low in Q1 and declined 220 basis points year over year, reflecting better cost discipline as that business scales Buda well.

Speaker Change: We will continue managing discretionary costs and driving efficiencies, while working to increase the incremental structural cost savings we closed this quarter.

Speaker Change: Free cash flow was negative $847 million slightly better than expected due in part to the conversion of some AI backlog.

Marie Myers: Gap diluted net loss per share of $0.82, with below guidance of positive $0.08 to $0.14, primarily due to a non-cash goodwill impairment charge recorded in the quarter. Nongap Diluted Net Earnings Per Share of $0.38 was above our guided range of $0.28 to $0.34. EPS included two cents each related to tariffs and OIU needs. Non-GAAP diluted net earnings per share excludes $1.7 billion in net costs primarily driven by a non-cash goodwill impairment charge of approximately $1.4 billion, or $1.03 per share related to a hybrid cloud-based This charge is due primarily to the macroeconomic uncertainty that played out during the second quarter, requiring an additional interim impairment test of our goodwill.

Speaker Change: GAAP diluted net loss per share of 82 cents was below guidance of positive eight cents to 14th primarily due to a noncash goodwill impairment charge recorded in the quarter.

Speaker Change: non-GAAP diluted net earnings per share up 38 cents was above our guided range of 28 cents to 34 cents.

Speaker Change: EPS included two cents each related to tariffs and Ah why any expense.

Speaker Change: non-GAAP diluted net earnings per share excludes $1 $7 billion in net costs, primarily driven by a noncash goodwill impairment charge of approximately $1.4 billion or one dollar and three cents per share related to a hybrid cloud business.

Speaker Change: This charge is due primarily to the macroeconomic uncertainty that played out during the second quarter, requiring an additional interim impairment test of that goodwill.

Marie Myers: These tests use a market-based cost-of-capital assumption which increased significantly since our last test, leading to the material non-cash impairment charge.

Speaker Change: These tests used a market based cost of capital assumption, which increased significantly since our last test leading to the material noncash impairment charge of <unk>.

Marie Myers: Our view on our hybrid cloud business has not Other factors excluded from our non-GAAP diluted net earnings per share include expenses related to our cost reduction program, stock-based compensation expense, acquisition, disposition, and other charges, amortization of intangible assets, and H3C divestiture-related severance Now, let's turn to our segment results. Server revenue was $4.1 billion, up 7% year-over-year, and a decline of 5% sequentially, consistent with the higher end of the guidance range we provide. The quarter-over-quarter revenue decline was impacted by lower traditional compute volumes due to the implementation of corrective pricing actions we took at the end of Q1, offset partially by higher-than-expected AI systems We took decisive actions to address the execution issues that impacted our performance last quarter.

Speaker Change: Are you on a hybrid cloud business has not changed.

Speaker Change: Other factors excluded from our non-GAAP diluted net earnings per share include expenses related to our cost reduction program stock based compensation expense acquisition disposition and other charges amortization of intangible assets and hates to recede divesture related severance costs.

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

Speaker Change: So the revenue was $4 $1 billion up 7% year over year, and a decline of 5% sequentially consistent with the high end of the guidance range we provided.

Speaker Change: The quarter over quarter revenue decline was impacted by lower traditional compute volumes due to the implementation of corrective pricing actions. We took at the end of Q1 offset partially by higher than expected AI systems revenue.

Speaker Change: We took decisive actions to address the execution issues that impacted our performance last quarter.

Marie Myers: Firstly, we implemented more rigorous reporting processes and analytics to more quickly identify and remediate operational issues. Secondly, we tightened our deal desk controls to require greater management scrutiny, including forward-costing assumptions on orders. Lastly, we are managing inventory exposure associated with AI transactions and potential component We believe these steps will improve performance and profitability as we progress through the back half of Fiscal 25 and into next year. In traditional server, consistent with our expectations, revenue declines sequentially, driven by volume declines, offsetting AUP growth as the Gen11 server refresh continues to drive the majority of our core compute sales.

Speaker Change: Firstly, we implemented more rigorous reporting processes and analytics to more quickly identify and remediate operational issues.

Speaker Change: Secondly, we tightened down deal desk controls to require greater management scrutiny, including food costing assumptions on orders.

Speaker Change: Lastly, we are managing the exposure associated with AI transactions and potential component transitions.

Speaker Change: We believe these steps will improve performance and profitability as we progress through the back half of fiscal 'twenty five and into next year.

Speaker Change: In traditional server consistent with our expectations revenue declined sequentially driven by volume declines offsetting a U P growth as the Gen 11 server refresh continues to drive the majority of our KOL compute sales mix.

Marie Myers: We began shipping Gen12 servers during Q2 and remain confident in its adoption and growth trajectory. In AI systems, we signed $1.1 billion in net new orders driven by strong growth in our enterprise and sovereign markets on both a year over year and sequential basis. We recognize more than $1 billion of revenue during the quarter, up from $900 million last year. AI systems revenue increased by greater than 10% sequentially versus that guidance of a modest decline due to improved customer readiness. Server Operating Margin of 5.9% was consistent with expectations. Our margin performance improved over the course of the quarter, as the remediation actions we implemented in late Q1 helped offset some of the backlog pricing headwinds we carried into the quarter.

Speaker Change: We began shipping Gen 12 service during Q2 and remain confident in its adoption and growth trajectory.

Speaker Change: In AI systems, we signed $1.1 billion in net new orders driven by strong growth in our enterprise and southern markets on both a year over year and sequential basis, we recognized more than $1 billion of revenue during the quarter up from $900 million last year.

Speaker Change: Our systems revenue increased by greater than 10% sequentially versus that guidance, although a modest decline due to improved customer readiness.

Speaker Change: So the operating margin of five 9% was consistent with expectations.

Speaker Change: <unk> performance improved over the course of the quarter as the remediation actions we implemented in late Q1 helped offset some of the backlog pricing headwinds we carried into the quarter.

Marie Myers: Tariff-related headwinds were milder than expected, and margins are expected to benefit further from remediation actions as we progress through the second half of the year. Our Intelligent Edge business performance aligned with expectations as revenue and operating profit returned to year-over-year growth in Q2 for the first time in five quarters. Revenue was $1.2 billion, up 8% year-over-year, in line with our outlook for positive revenue growth due to the ongoing network market recovery and the diminished effect of the prior year's backlog. Revenue was up 2% quarter-over-quarter, reflecting improved demand. We saw orders grow high single digits year-over-year, including double-digit growth in both data center and campus switching.

Speaker Change: Caf related headwinds will milder than expected and margins are expected to benefit further from remediation actions as we progressed through the second half of the year.

Speaker Change: Our intelligent edge business performance aligned with expectations as revenue and operating profit returned to year over year growth in Q2 for the first time in five quarters revenue was $1 $2 billion up 8% year over year in line with the outlook for positive revenue growth due to the ongoing network market with.

Speaker Change: <unk> and the diminished effect of the price he is backlog.

Speaker Change: Revenue was up 2% quarter over quarter, reflecting improved demand.

Speaker Change: We saw orders grow high single digits year over year, including double digit growth in both data center and campus switching Wifi seven demand ramped meaningfully with orders up triple digits sequentially Federal state and local and education spending was mixed in the quarter as the U S government adjust to the new administration's priorities well.

Marie Myers: Wi-Fi 7 demand ramped meaningfully, with orders up triple digits sequentially. Federal, state and local, and education spending was mixed in the quarter, as the U.S. government adjusted new administration's priorities, while enterprise spending continued its positive trend. Our orders remained strong, and our channel imagery levels remained healthy as sell-through increased sequentially, despite some pockets of softness across our geography. Operating margin was 23.6 percent up 180 basis points year over year driven by revenue growth and cost discipline resulting in operating profit dollar growth of 16 percent. Operating margin was down 380 basis points quarter over quarter, primarily due to increased variable compensation expense and slightly lower gross profit.

Speaker Change: Spending continued its positive trend our orders remained strong and our channel inventory levels remained healthy sell through increased sequentially. Despite some pockets of softness across the geographies.

Speaker Change: Operating margin was 23, 6% up 180 basis points year over year, driven by revenue growth and cost discipline, resulting in operating profit dollar growth of 16%.

Speaker Change: Operating margin was down 380 basis points quarter over quarter, primarily due to increased variable compensation expense and slightly lower gross profit.

Marie Myers: Moving to Hybrid Cloud. Revenue was $1.5 billion. Once again, we saw broad-based strength across all areas of the business, contributing to strong revenue growth of 15% year-over-year. Sequentially, revenue increased 4%, exceeding our expectations. In storage, our HPE Electra MP platform continues to drive robust growth with revenue up triple digits year over year, and new logos up almost 300 sequentially. In addition, it continues to constitute over half of our IP block orders. In private cloud, we are seeing a strong pipeline for our PC AI product, doubling quarter over quarter, while VM Essentials has garnered at least 1000 interested customers.

Speaker Change: Moving to hybrid cloud revenue was $1 $5 billion. Once again, we saw broad based strength across all areas of the business contributing to strong revenue growth of 15% year over year.

Speaker Change: Sequentially revenue increased 4% exceeding our expectations.

Speaker Change: In storage, our H P E Electric M. P platform continues to drive robust growth with revenue up triple digits year over year, and new logos up almost 300 sequentially.

Speaker Change: In addition, it continues to constitute over half of our IP block orders and private cloud we are seeing a strong pipeline for our P. C AI product doubling quarter over quarter, while the M. Essentials has gone at at least 1000 interested customers.

Marie Myers: For more information, visit hpe.com.au Hybrid cloud operating margin rose 440 basis points year over year to 5.4%, driven by strong cost management, but declined 160 basis points sequentially due to higher variable compensation.

Speaker Change: Hybrid cloud operating margin rose 440 basis points year over year to 5.4% driven by strong cost management, but declined 160 basis points sequentially due to higher variable compensation.

Marie Myers: Lastly, financial services. Our financial services business generated revenue of $856 million, up 1% year over year, and down 2% quarter over quarter. Financing volumes decreased 20% year over year to $1.3 billion. Our Q2 loss ratio was 0.6%, and return on equity totaled 17.5%. operating margin of 10.4% increased 110 basis points year over year and 100 basis points quarter over quarter and was the highest in two years primarily due to strong cost management.

Speaker Change: Lastly, financial services, our financial services business generated revenue of $856 million up 1% year over year and down 2% quarter over quarter financing volumes decreased 20% year over year to $1.3 billion, a Q2 loss ratio was <unk>, 6% and return on it.

Speaker Change: <unk> totaled 17.5% upper.

Speaker Change: Operating margin of 10, 4% increased 110 basis points year over year, and 100 basis points quarter over quarter and was the highest in two years, primarily due to strong cost management.

Marie Myers: Moving to cash flow and capital allocation. We consumed $461 million of operating cash flow in the quarter, and free cash flow was an outflow of $847 million, slightly better than we guided, which benefited from better than expected non-GAAP net earnings and inventory reduction. Inventory totaled $8.1 billion at the end of the period, down $481 million sequentially. Reducing our inventory balance to more normalized levels remains a key priority, and we expect to reduce inventory levels further in Q3 as we deploy a large AI system order booked earlier this year. Q2 cash conversion cycle was positive 26 days, up 21 days from last quarter.

Speaker Change: Moving to cash flow and capital allocation, we consumed $461 million of operating cash flow in the quarter and free cash flow was an outflow of $847 million slightly better than we guided which benefited from better than expected non-GAAP net earnings and inventory reduction.

Speaker Change: Inventory totaled $8.1 billion at the end of the period down $481 million sequentially, reducing out and rebalanced to a more normalized levels remains a key priority and we expect to reduce inventory levels. Further in Q3, as we deploy a large AI system order booked earlier this year.

Speaker Change: Q2 cash conversion cycle was positive 26 days up 21 days from last quarter. This was driven by a decrease in days payable due to higher vendor payments and lower inventory purchases and an increase in days receivable due to latest shipment timing in the quarter offset by a decrease.

Marie Myers: This was driven by a decrease in days payable due to higher vendor payments and lower inventory purchases and an increase in days receivable due to later shipment timing in the quarter, offset by a decrease in days of inventory due to higher ship. We expect sequential improvements in free cash flow partially driven by an improved cash conversion cycle over the back half of the year. We returned $171 million through dividends and $50 million via share repurchases to common shareholders.

Speaker Change: And days of inventory due to higher shipments.

Speaker Change: We expect sequential improvements in free cash flow, partially driven by an improved cash conversion cycle over the back half of the year.

Speaker Change: We returned $171 million through dividends and $50 million via share repurchases to common shareholders respectively.

Marie Myers: Our results this quarter reflect the importance of balancing investments in innovation and growth with disciplined cost management to improve our long-term profitability and to drive shareholder value. Last quarter, we announced a cost reduction program aimed at streamlining our workforce and reducing our cost structure. This was an important first step, but only part of broader actions were undertaken. This program is largely centered around a 5% workforce reduction that we expect to complete largely by year-end. We are on track to achieve our savings goals expected for FY25. We ended the quarter with a headcount just under 59,000, the lowest we have seen as an independent company.

Speaker Change: Our results this quarter reflect the importance of balancing investments in innovation and growth with disciplined cost management to improve our long term profitability and to drive shareholder value.

Speaker Change: Last quarter, we announced a cost reduction program aimed at streamlining our workforce and zinc juicing our cost structure.

Speaker Change: This was an important first step, but only part of a broader actions we're undertaking.

Speaker Change: This program is largely centered around a 5% workforce reduction that we expect to complete largely by year end.

Speaker Change: We are on track to achieve our savings goals expected for FY 'twenty five.

Speaker Change: We ended the quarter with a head count just under 59000, the lowest we have seen as an independent company.

Marie Myers: We are reducing management layers and flattening our organization, because flatter is faster, enabling swifter decision making and improving agility across functions. Today, we are accelerating those cost efforts through Catalyst, a comprehensive series of initiatives designed to accelerate revenue growth while also driving structural cost savings. These initiatives fall into four key categories and include the prior Workforce Cost Reduction Program, which we announced last quarter, in addition to efforts around operational efficiency, optimizing our portfolio, and using AI across our business. These workforce optimization efforts are covered by the existing $350 million in charges we announced last quarter, and any resulting benefits are included in our FY25 guide.

Speaker Change: We are reducing management layers and flattening our organization, because flatter as foster and enabling swift to decision, making and improving agility across functions.

Speaker Change: Today, we are accelerating those cost efforts through catalyst a comprehensive series of initiatives designed to accelerate revenue growth, while also driving structural cost savings.

Speaker Change: These initiatives fall into four key categories and include the prior workforce cost reduction program, which we announced last quarter. In addition to efforts around operational efficiency, optimizing our portfolio and using AI across our business.

Speaker Change: These workforce optimization efforts are covered by the existing $350 million in charges, we announced last quarter and any resulting benefits are included in our FY 'twenty five guide.

Marie Myers: We will update you at our Securities Analyst Meeting in October when we provide our Fiscal 26 Outlook. As part of Catalyst, we want to make it easier to do business with us. Simplifying our offerings, streamlining our sales processes, and aligning our team internally to be more responsive to customers. In addition, we will be leveraging AI to improve efficiency across our business. As an example, we are adopting an agentic AI initiative as part of our campaign. Within finance, HPE and Deloitte co-developed Zora AI CFO Insights agents built on NVIDIA's advanced AI stack and deployed on our own HPE private cloud AI platform.

Speaker Change: Update you at our Securities Analyst meeting in October when we provide our fiscal 'twenty six outlook.

Speaker Change: As part of catalyst, we want to make it easier to do business with us simplifying our offerings streamlining our sales processes and aligning our team internally to be more responsive to customers' needs.

Speaker Change: In addition, we will be leveraging AI to improve efficiency across that business. As an example, we are adopting and Egencia AI initiative as part of our campaign, we didn't finance H P E and Deloitte co developed Zora AI CFO insights agents built on the various advanced AI stack.

Speaker Change: And deployed on our own H P E private cloud AI platform.

Marie Myers: This strategic move will transform our executive reporting. We're turning data into actionable intelligence, accelerating our reporting cycles by approximately 50% and reducing processing costs by an estimated 25%.

Speaker Change: This strategic move will transform our executive reporting.

Speaker Change: Turning data into actionable intelligence.

Speaker Change: Celebrating our reporting cycles by approximately 50% and reducing processing costs by an estimated 25%.

Marie Myers: Our ambition is clear. A leaner, faster and more competitive organization. Nothing is off limits.

Speaker Change: Our ambition is clear.

Speaker Change: <unk> faster and more competitive organization nothing is off limits. We are focused on rethinking the business not just reducing our costs by transforming the way we operate well keep you regularly updated on our progress.

Marie Myers: We are focused on rethinking the business, not just reducing our costs, but transforming the way we operate. We'll keep you regularly updated on our program.

Marie Myers: Before addressing our outlook, given the evolving and uncertain state of global trade policy, I want to provide a brief update to our tariff outlook. Our initial full year guidance of a seven cent impact to earnings reflected our best estimate based on tariffs in place on March 4th, net of our mitigation effort. And as mentioned, we absorbed two cents in the second quarter. Looking out to the second half of the year, we are reducing our tariff impact by one penny to two cents as the 90-day pause currently in effect for most tariffs expires on July 9.

Speaker Change: Before addressing our outlook given the evolving and uncertain state of global trade policy I want to provide a brief update to a tariff outlook.

Speaker Change: Full year guidance of the seven cent impact to earnings reflected our best estimate based on tariffs in place on March 4th.

Speaker Change: Of that mitigation efforts.

Speaker Change: And as mentioned, we absorbed two cents in the second quarter.

Speaker Change: Looking out to the second half of the year, we are reducing a tariff impact by one penny to two cents as the 90 day pause in effect the most tariffs expires on July nine.

Marie Myers: For fiscal 2025, we are tightening our guidance due to improved visibility into the second half of the year. We now expect constant currency revenue growth of seven to nine percent. We estimate currency impacts of about 20 basis points improved from our prior view as FX becomes less of a headwind due to a weaker outlook for the US dollar. By segment, we expect to continue Intelligent Edge to grow mid-single digits, Hybrid Cloud to grow high single digits, and that Server will grow low double digits. We are maintaining our outlook for non-GAAP gross margin to be below 30% for the full year with Q4 exiting the year above that.

Speaker Change: But the school 2025, we are tightening our guidance due to improved visibility into the second half of the year. We now expect constant currency revenue growth of 7% to 9%.

Speaker Change: We estimate currency impacts of about 20 basis points improved from our prior view as ethics becomes less of a headwind due to a weaker outlook for the U S dollar by.

Speaker Change: By segment, we expect to continue intelligent edge to grow mid single digits hybrid cloud to grow high single digits, and that's subtle will grow low double digits.

Speaker Change: We are maintaining our outlook for non-GAAP gross margin to be below 30% for the full year with Q4 exiting the year about that.

Marie Myers: In Q3, we expect operating expense to increase sequentially due to the higher marketing expenses associated with the annual Discover event, but is expected to step back down in Q4 to a level more consistent with Q2. We expect full-year non-gap operating margin above 9% at the midpoint, as we see sequential improvements in the second half of fiscal 2025, exiting the year approaching normal range. By segment, we continue to expect hybrid cloud operating margin in the mid to high single digits, intelligent edge to remain in the mid 20% range and server to improve sequentially exiting the year with an operating margin around 10%.

Speaker Change: In Q3, we expect operating expense to increase sequentially due to the higher marketing expenses associated with that and you will discover event, but is expected to step back down in Q4 to a level more consistent with Q2.

Speaker Change: We expect full year non-GAAP operating margin of about 9% at the midpoint as we see sequential improvements in the second half of fiscal 2025 exiting the year approaching normal ranges.

Speaker Change: By segment, we continue to expect hybrid cloud operating margin in the mid to high single digits intelligent edge to remain in the mid 20% range and settle to improve sequentially exiting the year with an operating margin around 10%. We now expect Oh irony will constitute a net benefit of approximately.

Marie Myers: We now expect OI&E will constitute a net benefit of approximately $15 million.

Speaker Change: $15 million.

Marie Myers: We are narrowing our fiscal year 2025 non-gap diluted net earnings per share outlook to $1.78 to $1.90. $0.03 of this is related to a lower-than-expected net tariff expense, and $0.01 is related to operational improvement.

Speaker Change: We are narrowing our fiscal year 'twenty 25, non-GAAP diluted net earnings per share outlook to one dollar and 78 cents to one dollar and 93.

Speaker Change: Three sense of this is related to a lower than expected net tariff expense and once that is related to operational improvements.

Marie Myers: We are guiding GAAP diluted net earnings per share between $0.30 and $0.42, inclusive of the goodwill and payment charge previously mentioned, versus our previous GAAP guidance range of approximately $1.15 to $1.35. Our outlook for free cash flow of approximately $1 billion remains intact.

Speaker Change: We are guiding GAAP diluted net earnings per share of between 30, and 42 cents inclusive of the goodwill impairment charge previously mentioned versus our previous GAAP guidance range of approximately one dollar and 15 cents to one dollar and 35 cents.

Speaker Change: Our outlook for free cash flow of approximately $1 billion.

Speaker Change: Means intact.

Marie Myers: For Q3, we expect revenue will be between $8.2 and $8.5 billion. For Intelligent Edge, we expect revenue will continue to improve sequentially as the networking market recovery progresses, with operating margin remaining in the mid 20% range. For hybrid cloud, we expect revenue to increase slightly sequentially with operating margin in the mid single digits, improved sequentially and year over year. For server, we forecast a sequential increase at mid-teens rate, reflecting a strong double-digit increase in AI systems revenue due to a large AI deal we expect to ship in Q3. Server operating margin is expected to improve sequentially, falling in the mid-to-high single-digits range due to the corrective actions we took, offsetting a higher mix of AI systems revenue.

Speaker Change: For Q3, we expect revenue will be between eight point to an $8.5 billion for intelligent edge. We expect revenue will continue to improve sequentially as the networking market recovery progresses with operating margin remaining in the mid 20% range for hybrid cloud we.

Speaker Change: Expect revenue to increase slightly sequentially with operating margin in the mid single digits improved sequentially and year over year.

Speaker Change: For server, we forecast a sequential increase at mid teens rate, reflecting a strong double digit increase in AI systems revenue due to a large a ideal we expect to ship in Q3.

Speaker Change: The operating margin is expected to improve sequentially falling in the mid to high single digits range due to the corrective actions, we took offsetting a higher mix of AI systems revenue.

Marie Myers: We expect gap-diluted net earnings per share to be between $0.24 and $0.29, and non-gap-diluted net earnings per share to be between $0.40 and $0.45.

Speaker Change: We expect GAAP diluted net earnings per share to be between 24 cents and 29 cents and non-GAAP diluted net earnings per share to be between 40, and 45 cents. We expect the second half of fiscal 2025 will be seasonally stronger than the first half with free cash flow rebounding sequentially in Q3, primarily due to the.

Marie Myers: We expect the second half of fiscal 2025 will be seasonally stronger than the first half, with free cash flow rebounding sequentially in Q3, primarily due to the continued reduction in inventories and increased net income.

Speaker Change: Reduction in inventories and increased net income.

Unknown Attendee: With that, I'll open the floor for questions. Thank you. We will now begin the question and answer session. To ask a question, you may press star, then 1 on your touchtone phone. If you are using a speakerphone, please pick up your handset before pressing the key. If at any time your question has been addressed, and you would like to withdraw your question, please press star, then T. In the interest of time, we request that you please ask only one question.

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

Speaker Change: Thank you we will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone. If you are using a speakerphone. Please pick up your handset before pressing the keys.

Speaker Change: At anytime your question has been addressed and you would like to withdraw your question. Please press Star then two in the interest of time, we request that you. Please ask only one question, we will now pause momentarily to assemble our own.

Unknown Attendee: We will now pause momentarily to assemble our.

Amit Daryanani: And your first question today will come from Amit Daryanani with Evercore. Please go ahead. Good afternoon. Thanks for my question. You know, I guess maybe just to talk about April quarter numbers came in better than expected, especially on the server side, where you had a few issues last quarter, I think both on the x86 and the AI side.

Amidst Daria: And your first question today will come from amidst Daria <unk> with Evercore. Please go ahead.

Amidst Daria: Good afternoon, and thanks for taking my question.

Speaker Change: I guess, maybe just to talk about April quarter numbers came in better than expected up, especially on the service side, but you had a few issues last quarter I think both on the X 86, and the AI side.

Antonio Neri: If you just talk about, you know, what's needed at this point for server margins to go from 5% to 10% plus by year end, it would be helpful just to understand and get an update on what issues have been resolved, versus what still needs to be tackled as you go forward to get to that 10% number.

Speaker Change: If you can just talk about you know.

Speaker Change: What what's needed at this point for silver margins to go from 5% to 10% plus by year end. It would it would be helpful. Just to understand and get an update on what issues had been resolved versus what's still needs to be tackled as you go forward to get to that 10% number and then Antonio maybe somewhat related to all those since we last spoke there they've been public articles around an activist engagement.

Antonio Neri: And then Antonio, maybe somewhat related to all this, since we last spoke, there have been public articles around an activist engagement. So I'd love to understand how do you think about it, and maybe talk about your priorities or options in the event Juniper doesn't close, because I think you've talked a fair bit about, you know, what the model can look like with Juniper in there. Thank you. Well, thanks, Amit, and good afternoon. So, as I said in my remarks, so Marie, we addressed the execution challenges we had in Q1. If you recall, we spoke about three issues.

Speaker Change: Love to understand sort of how do you think about it and maybe talk about your priorities of options.

Speaker Change: They've been juniper doesn't close because I think you've talked a fair bit about you know what the model can look like.

Speaker Change: Thank you.

Speaker Change: Yeah.

Speaker Change: Well, thanks, Amit and good afternoon.

Speaker Change: As I said in my remarks, so Murray we address the execution challenges we had in Q1. If you recall, we spoke about three issues. It was the cost and our pricing. It was the discounting and it was the inventory or Petrobras it was elevated and that drove incremental expenses.

Antonio Neri: It was the cost in our pricing, it was the discounting, and it was the inventory, which obviously was elevated, and that drove incremental expenses. So we felt that we have addressed those issues with very targeted, you know, actions. That will continue to deliver results as we go through the back half of the year. So examples of those actions are on the pricing side, new analytics, so that gives us a better insight of what comes next in our pipeline, and how to price and discount those, obviously very, very stringent discounting empowerment throughout the organization. And so we are confident that those actions will help us return to that 10% exit on operating margins in Q4.

Speaker Change: So we felt that we have addressed those issues with very targeted.

Speaker Change: You know actions that will continue to deliver results as we go through the back half of the year. So examples of the actions are on the pricing side, new analytics of their guests.

Speaker Change: Give us a better insight of what comes next in our pipeline and how to price and discount those are obviously very very stringent discounting empowerment.

Speaker Change: Throughout the organization and then on the inventory side look quarter over quarter, we reduced inventory by $500 million. We believe that the remaining actions will be addressed through the back half as we convert more revenue in.

Speaker Change: In Q3, we're going to convert a very large deployment that we expect to be completed soon.

Speaker Change: So we are confident that those actions will help us return to the 10% exit on operating margins in Q4.

Antonio Neri: And also, clearly, that's also substantiated also by the incremental actions we're taking on cost. So we are confident about that. That's why we have raised the bottom end of our guide, and we believe we have line of sight to that.

Speaker Change: And also clearly that's also associates also by the incremental actions we have taken on costs. So we are confident about that that's why we have raised the bottom end of our guide.

Speaker Change: And we believe we have line of sight to that.

Antonio Neri: In terms of your second question, look, we don't comment on specific communication that we have with our shareholders. You know, our board and I engage a number of shareholders, and we have an ongoing dialogue on a range of issues and opportunities. We value the constructive input from all of them. We believe today the fastest path to increase in asset-related shareholder value is the Juniper transaction, but we also have seen and explored a number of other options if the Juniper deal doesn't happen, and that inclusive of capital return and other portfolio actions. But we are not going to discuss those until we see the outcome of the Juniper transaction.

Speaker Change: In term of your second question look we don't comment on specific communication that we have with our shareholders. You know our board and I engage a number of shareholders and we have an ongoing dialogue.

Speaker Change: Or on a range of issues and opportunities.

Speaker Change: We value the constructive input from all of them. We believe today the fastest path to increase and have further shareholder value as the journal transaction.

Speaker Change: But we also have seen and explore a number of other options are if the juniper deal doesn't happen and that's inclusive of capital return and other portfolio actions, but we are not going to disclose those until we see the outcome of the junior for transaction. Then we are look we are within five weeks of the trial and we hope they will.

Antonio Neri: And look, we are within five weeks of the trial, and we hope to get that result and start the integration of the asset.

Speaker Change: We'll get that resolved and the integration of the asset.

Unknown Attendee: Very good. Thank you, Amit.

Speaker Change: Very good thank you Amit.

Speaker Change: Next question please.

Tim Long: And your next question will come from Tim Long with Barclays. Please go ahead. Thank you. Antonio, I was hoping you could elaborate a little bit. You talked about, I think, the pipeline exiting Q2 being a little stronger than exiting Q1. You also mentioned, you know, the multiplier on the AI backlog. So I'm assuming that's part of the answer. But can you just kind of run through the businesses and give us a little bit color on that pipeline, whether it's, you know, product driven or geographic? What is what is driving that upside? In pipeline compared to last quarter?

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

Speaker Change: Thank you.

Tim Long: Well, Tony I was hoping you could elaborate a little bit you talked about I think the pipeline.

Tim Long: Exciting Q2, being a little stronger than exiting Q1.

Speaker Change: You also mentioned you know a multiplier on the backlog so I'm, assuming that's part of the answer but can you just kind of run through the businesses and give us a little bit color on that pipeline, whether it's you know product driven or geographic what is what is driving that upside.

Speaker Change: In pipeline compared to last quarter. Thank you.

Antonio Neri: Thank you. Yeah, thanks, Tim.

Speaker Change: Yeah. Thanks, Sam look we saw another pipeline across the portfolio. So let's start with AI. Obviously, you saw that we recorded one third of our orders in the NII be now enterprise driven so that's a very strong.

Antonio Neri: Look, we saw a strengthening of the pipeline across the portfolio. So let's start with AI. Obviously, you saw that we recorded one third of our orders in AI being now enterprise driven. So that's a very strong momentum there. It's driven by our servers, both ProLiant and Cray with GPUs and private cloud AI. Then in Sovereign, we continue to see a very strong engagement. We have a number of opportunities in the making. And we hope to close some of those here in the short term. And then in the traditional service provider, right, and model builders, obviously, those are large deployments.

Speaker Change: Our momentum there is driven by our server bulk reliant and Cray with Gpus and private cloud AI.

Speaker Change: Then in sovereign and we continue to see a very strong engagement, we have a number of opportunities in the Bakken and we hope to close some of those are here in the short term and then in the traditional service provider right and modal builders, obviously those are large deployments.

Antonio Neri: As I said, we are closing now at deployment, which will be one of the largest GP200 deployments so far in the world. And we participate there where it makes sense, because obviously, there is a margin aspect and a working capital aspect. But then also, we have multiples of our current backlog, which is now $3.2 billion. So we went up $100 million quarter over quarter. So that's on AI.

Speaker Change: As I said, we're closing now at deployment.

Speaker Change: Which will be one of the largest GBP 200 deployments so far in the world.

Speaker Change: And we participate there where it makes sense because obviously there is a margin aspect and the working capital aspect, but there also we have multiples of our current backlog, which is now $3 $2 billion. So he went up.

Speaker Change: Quarter over quarter. So that's an AI and so we continue to see very strong momentum in the hybrid cloud.

Antonio Neri: And so we continue to see very strong momentum in the hybrid cloud. I'm very, very pleased with the momentum we have in storage with our Aletra MP portfolio. Booking more than 75% order growth for four consecutive quarters is pretty stunning. But as you know, a portion of that order gets deferred once we convert to revenue, because there is a SaaS piece connected to the CapEx. In the short term, it's a revenue headwind. In the long term, it's a profit accretion. But the demand for Aletra is very strong, because we introduce a very unique disaggregated architecture with multi-protocol support.

Speaker Change: I'm very very pleased with the momentum we have in storage without a letter and PE portfolio.

Speaker Change: Booking more than 75% order growth for four consecutive quarters, the stunning, but as you know a portion of that order gets defer once we convert to revenue because there is a fast piece connected to the capex in the short term as a revenue headwind in the long term is a profit accretion.

Speaker Change: But the demand for a letter a is very strong because we introduced a very unique disaggregated architecture with multiple multi protocol support we also introduce integrated offerings with Nvidia and at the same time each of these aspects, whether it's the server or storage guests.

Antonio Neri: We also introduce integrated offerings with NVIDIA. And at the same time, each of these aspects, whether it's the server or the storage, gets integrated in a private cloud portfolio. In addition, the virtualization part of the private cloud is very, very strong. Marie stated that there are now 1,000 customers logged in our pipeline. And now they're going through POCs. One customer, Danfoss, has already committed to transition 75% of their estate. That's a pretty fine number. And we see tremendous opportunities ahead.

Speaker Change: Within our private cloud portfolio innovation, the the virtualization possible. The private cloud is very very strong, but he stated that they are now a thousand customer.

Speaker Change: <unk> locked in our pipeline.

Speaker Change: And now Theyre going through Plc's, one customer Downfalls has already committed to transition 75% will go to state that's predefined number.

Speaker Change: And we see tremendous opportunities ahead.

Antonio Neri: And then GreenLake, GreenLake continued to do extremely well, you know, with 47% in subscription services growth, and that's through both storage growth and intelligent edge growth, and the private cloud growth. And then in networking, the market, I believe, has recovered, right, three consecutive quarters of order demand. We see that in Y5-7 transition, in the upgrade cycle of switching in campus and branch. And now we start seeing growth in data center switching, because we have a unique position there. But once we close the Juniper deal, we expect that growth to continue to accelerate.

Speaker Change: And then Green Lake Lac Green Lake continued to do extremely well you know with 47% and subscription services growth and that's true both storage growth in intelligent edge growth and the private cloud growth.

Speaker Change: And then and that's working the market I believe has to recover right three consecutive quarters of all the demand we see that a Wi Fi seven transition in the upgrade cycle of switching in campus and branch and that we're still seeing growth in data center switching because we have a unique position there, but once we close the general deal.

Speaker Change: We expect that growth to continue to oscillate right. So we saw strong solid momentum across the the creators of the portfolio balance across geography, actually I will say Europe was very solid.

Antonio Neri: So we saw strong, solid momentum across the three areas of the portfolio, balance across geography, actually, I will say Europe was very solid. Now, Europe, obviously, now you have the euro strengthening, right? which is helpful from a revenue perspective but at the same time you know we need to see what happens after the summer which normally tends to be a reset in many ways but so far so good.

Speaker Change: Europe, obviously now you have the euro strengthening right.

Speaker Change: Helpful.

Speaker Change: From a revenue perspective.

Speaker Change: But at the same time, you know we need to see what happens after the summer, which normally because it'll be a reset in many ways, but so far so good I am very encouraged and here in three weeks, we're going to make a citizen new announcements, which I believe will strengthen our pipeline.

Unknown Attendee: I'm very encouraged and here in three weeks we're going to make a series of new announcements which I believe will strengthen that pipeline. Very good. Thank you.

Speaker Change: Very good thank you.

Speaker Change: Operator next question please.

Unknown Attendee: Your next question today will come from Meta Marshall with Morgan Stanley. Please go ahead. Yeah, Mita. So on the server side, look, it's a combination depending on the customer segment. When you think about these large service providers, of Model Builders, they tend to consume a large amount of compute, is very compute driven, meaning accelerating computing. But that comes with networking and other things that you have to surround around the infrastructure, which obviously, direct liquid cooling, which we have been talking about since last October, is now a necessity. And we believe HPE is uniquely positioned both from an IP perspective, and manufacturing capability as a scale perspective.

Speaker Change: Your next question today will come from meta Marshall with Morgan Stanley. Please go ahead.

Meta Marshall: Great. Thanks, just wanted to get a sense of kind of where you're seeing the most AI server attraction kind of right now.

Speaker Change: And then maybe just on the second piece, just about improving kind of the margin profile of the storage business realized kind of electric doing quite well.

Meta Marshall: Just kind of how what you see as the path towards kind of improving the margin profile. There are with your own IP products. Thanks.

Meta Marshall: Yeah.

Meta Marshall: Yes.

Meta Marshall: So on the server side.

Speaker Change: Look it's a combination depending on the customer segment, where do you think about these large service providers.

Meta Marshall: The builders are they tend to consume a large amount of compute is very compute driven and accelerated computing.

Meta Marshall: But that comes with networking and all the things that you have to surround around infrastructure, which obviously direct liquid cooling, which we have been talking about since last October is now a necessity and we believe HPE is uniquely positioned both from an IP perspective and manufacturing capability at scale.

Antonio Neri: It takes an enormous amount of work. And we have learned a lot in these deployments in the last few months. But then as you go to sovereign, it's a mix of compute and storage, and as well supercomputing, let's not forget supercomputing continue to be a very important element. But clearly, there is 15 to 20 countries, they're all trying to deploy AI factories. For sovereign reasons and, and the like. And they are again, very compute centric, but there are other type of infrastructure you can attach to it. And an enterprise is all the above, right? And what we see in enterprise is time to value, is not time to market.

Meta Marshall: <unk>. It takes an enormous amount of work and we have learned a lot in the deployments in the last few months.

Meta Marshall: But then as you go to sovereign is a mix of compute.

Meta Marshall: And storage and as well as supercomputer and let's not forget supercomputer continues to be a very important element, but clearly there is 15 to 20 countries, they're all trying to deploy AI factories.

Meta Marshall: For sovereign reasons, and and and and the like and there again very compute centric, but there are older.

Meta Marshall: Type of infrastructure, you can attach to it and then enterprise is all about right.

Meta Marshall: And what we see in enterprise is time to value.

Meta Marshall: It's not time to market.

Marie Myers: Time to value meaning I don't need to spend a lot of time gluing together infrastructure I need to deploy infrastructure at the speed that can deliver value to the enterprise And this is where storage and compute are very tightly coupled with a networking that really brings all of that together and the software piece of that is the most essential component and that's why GreenLake relates because once you are in GreenLake you already have access to all the software and that's the co-engineering work we have done with NVIDIA bringing their software and HP software in an environment where they can accelerate time to value So that's what we have seen in terms of storage margin, Marie, you want to take that?

Meta Marshall: Time to value, meaning I don't need to spend a little time, gluing together infrastructure and need to deploy infrastructure at the speed that can deliver value to the enterprise and this is where storage and compute are very tightly coupled with our networking that really brings all of that together.

Meta Marshall: And the software piece of that is the most beneficial component and that's why I agree Lake.

Meta Marshall: Because once you are in Green Lake you already have access to all the software and that's the core engineering work, we have done with Nvidia, bringing their software and HP software in an environment, where they can accelerate time to value. So that's what we have seen instead of all of our storage margin, whether you want to look at it.

Marie Myers: Yeah, look, I'd say we do expect to see the margins, as you know, we reflect that in our hybrid cloud segment and through the course of the year, we do expect to see the margins actually turned up towards the end of the year to the highest single digit So you'll see some of that favorability basically flow through by the end of Q4 Thanks, Meta.

Meta Marshall: They made a we do expect to see the margins as you know we reflect that in our hybrid cloud segment and through the course of the heat we do expect to see.

Meta Marshall: The margins actually trend up towards the end of the year to the high single digits. So you'll see some of that favorability through basically flow through by the end of Q4.

Speaker Change: Okay. Thanks Peter.

Speaker Change: Next question please.

Unknown Attendee: And your next question today will come from Simon Leopold with Raymond James. Please go ahead. Hi, guys.

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

Unknown Attendee: This is Victor Chui for Simon Leopold. Has Blackwell Demand helped bridge the recovery in AI servers and, you know, contribute to the improved line of sight that you noted earlier? And, you know, I guess, you know, what steps have you taken to ensure that you have optimized, you know, inventory levels around AI servers going forward? Yeah, I mean, in Q1, I said that the demand, the orders we booked, shifted very rapidly to Blackwell. And that clearly is now what we've seen. And, you know, the way we drive this process now, remember, for some of the customers, not all of them is prepayment, and that means that unless we pre-pay us we don't buy inventory.

Speaker Change: Hi, guys. This is Victor Chu in for Simon Leopold.

Speaker Change: It has a black oil demand help to bridge the recovery in AI servers and contribute to the improved line of sight that you noted earlier and you know I guess, what steps have you taken to ensure that you've optimized inventory levels around AI servers going forward.

Speaker Change: Yeah, I mean in Q1, I said that the demand the orders, we booked a shift to very rapidly to Blackwell and that clearly is not what we've seen.

Speaker Change: And you know the way we drive this process now remember for some of the customers not all of them as prepayments.

Speaker Change: And that means that unless we prepay us we don't buy inventory. So that's number one.

Antonio Neri: So that's point number one. And point number two is that on the previous generation that inventory has been decreased dramatically. There's still demand but our exposure on the older inventory is significantly lower and we are adequately reserved at this point in time. Okay, thank you.

Speaker Change: And point number two is that on the previous generation of inventory has been decreased dramatically.

Speaker Change: Demand, but our exposure on the OLED inventory is significantly lower and we are adequately reserved at this point in time.

Speaker Change: Okay.

Speaker Change: Thank you next question please.

Samik Chatterjee: And your next question will come from Samik Chatterjee with J.P. Morgan. Please go ahead. Hi, thanks for taking my question. I guess maybe, Antonio, on the general-purpose servos, if I can ask you, just relative to what FX Comparators has talked about, more specifically, sort of calling out weaker trends in general-purpose servos in the U.S.

Meta Marshall: And your next question will come from Cemig Chatterji with J P. Morgan. Please go ahead.

Cemig Chatterji: Oh, hi, Thanks for taking my question I guess, maybe Tony on the General purpose Sogou is if I can.

Speaker Change: You just read it too.

Speaker Change: That's about what benefit can you sort of calling out weaker trends in the.

Antonio Neri: specifically, maybe if you can sort of highlight what trends you're seeing there in terms of customer orders, independent of the execution improvement that you're seeing in that business, and maybe just a follow-up there. I know you're reiterating the 10% margin target for the total server segment for 4Q, but that's sort of the reiteration from the quarter ago, but tariffs are a lower headwind than what you anticipated 90 days ago, so could you automatically assume that the outlook is better than what you thought 90 days ago? Thank you. Yeah, I'm really sorry. I have a very hard time hearing you.

Meta Marshall: So within the U S quickly.

Meta Marshall: Maybe if you can.

Meta Marshall: What you're seeing there.

Meta Marshall: Rick.

Meta Marshall: But the execution improvement.

Meta Marshall: And that business.

Speaker Change: Maybe just a follow up there I know you're reiterating the 10% margin target for the total silver Beckman for you Greg.

Meta Marshall: Basically from the quarter, a cool but lower.

Meta Marshall: Lower headwind.

Meta Marshall: Debated 90 days ago.

Meta Marshall: Beyond that the outlook looks better than what you thought 90 days ago. Thank you.

Speaker Change: Yeah, I'm really sorry, I have a very hard time hearing you.

Antonio Neri: Maybe I don't know if you can reconnect with a better line. I caught a little bit about North America. I think it was You know, look, we in North America, we didn't see any slowdown at this point in time. I mean, it was steady as we normally have seen. We have a strong engagement with our partner network. And so I didn't see that at this point in time. In fact, I will argue that our month three order demand was stronger than the previous two months. So that's what I saw.

Speaker Change: Maybe I don't know if you can reconnect with a better line I caught a little bit about North America I think it was.

Speaker Change: Look we in North America, we didn't see any slowdown at this point in time I mean, it was a steady as we normally have seen we have a strong engagement with our partner network.

Speaker Change: And so I didn't see that at this point in time.

Meta Marshall: In fact, I would argue that our monthly order demand was stronger.

Meta Marshall: And then the previous two months so that's what I. So and then the second part honestly I Couldnt hear you got it.

Marie Myers: And then the second part, honestly, I couldn't hear. You got it? I think I heard you just talk about the server operating margins. So let me just sort of walk you through how to think about those margins through the year. As we look sequentially, we do expect to see those margins improve. So as we walk from Q2 to Q3 and Q4, Q3 is going to be driven, as Antonio mentioned earlier, by the mix of server revenue, which is going to be skewed by that large AI order that we expect to ship in Q3. And as you correctly said, as we move from Q3 to Q4, we do expect Q4 to exit the year around 10%.

Speaker Change: I think I heard you just talk about the safe operating margin. So let me just sort of walk you through how to think about those margins through the year.

Speaker Change: As we look sequentially, we do expect to see those margins improve so as you walk from Q2 to Q3 in Q3 to Q4 Q3 is going to be driven as Antonio mentioned.

Speaker Change: By the mix of server revenue, which is going to be skewed by that large.

Speaker Change: Order that we expect to ship in Q3 and as you correctly said has been moved from Q3 to Q4, we do expect Q4 to exit the year around 10% that's consistent with what we've said before so I just want to clarify that for you as well please.

Unknown Attendee: That's consistent with what we've said before. So I just want to clarify that for you as well. Great.

Unknown Attendee: Okay, thank you, Samik.

Speaker Change: Great. Okay. Thank you stomach operator next question please.

Ananda Baruah: Your next question today will come from Ananda Baruah with Loop Capital. Please go ahead. Oh, yeah. Thanks, guys. Appreciate the question. Yeah, just.

Speaker Change: Your next question today will come from Ananda Baruah with loop capital. Please go ahead.

Ananda Baruah: Oh, yeah. Thanks, guys I appreciate the question.

Antonio Neri: I guess, Antonio, as we get going through the Blackwell ramp, since we're at the front end, and you're already starting to notice it in your business, is it is it reasonable to anticipate higher highs, increased highs in in both systems revenue over time, and in backlog, as well as you go through the cycle, you saw this through the Hopper cycle, and it would make sense that you would see it through the Blackwell cycle. But just want to get your thoughts on that as well. Thanks. That's it for me. Yeah, no, thank you. Look, this business is lumpy, right?

Ananda Baruah: Yeah just.

Speaker Change: I guess.

Speaker Change: Antonio as we.

Speaker Change: Going through the Blackwell ran sits right at the front end and you're already starting.

Speaker Change: You can notice that in your business is it is it reasonable to anticipate.

Speaker Change: Higher highs increased size.

Speaker Change: And those systems revenue overtime and backlog as well as you get through the cycle you saw this through the hopper cycle and it would make sense that you would see it through the Blackwell cycle.

Speaker Change: But just wanted to get your thoughts on that as well.

Speaker Change: Thanks, that's it for me thanks.

Speaker Change: Yeah, and I'll take a look this business is lumpy right. So youre going to have periods of very high orders. If you close one or two very large deals with service providers.

Antonio Neri: So you're going to have periods of very high orders if you close one or two very large deals with service providers. And then obviously, then after that is the revenue recognition because I can tell you from what I learned in this deployment, it takes several months to build it, ship it, install it, and make it productive. And so, that said, though, as we go from the 200 to the 300, I think the mix is going to shift a little bit between the Grace Blackwell 300 with the Blackwell-only 300, and that has to do with performance, and it has to do with the use case between training and inferencing.

Speaker Change: And then obviously then after that is the revenue recognition because I can tell you from what alert.

Speaker Change: This deployment it takes several months to build it ship it installed.

Speaker Change: Install it and make them productive.

Speaker Change: And so that said, though as we go from the 200 to 300.

Speaker Change: I think the mix is going to shift a little bit between the Grace Blackwell.

Speaker Change: 300, with Blackwell, only 300 and that has to do with for four months and it has to do with a use case between training and inferencing.

Antonio Neri: But I will say that as I think about these large deals that are in the pipeline, pretty much all of them are 200 with a lot shifting already to 300, and that will take time to see it from orders to revenue because, remember, the 300 is coming in the back half of 2025 or early 2026 at scale.

Speaker Change: But I will say that as I think about these large deals that are in the pipeline.

Speaker Change: Pretty much all of them are 200 with our shift in already at 300 and that will take time to see it from orders to revenue because remember the 300 is coming in the back half of 'twenty 'twenty five orderly 'twenty to 'twenty six upscale.

Unknown Attendee: Thank you, Ananda.

Speaker Change: Okay. Thank you Amanda.

Speaker Change: Operator next question please.

Michael Ng: And your next question today will come from Michael Ng with Goldman Sachs. Please go ahead. Hi, good afternoon. Thank you for the question.

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

Michael <unk>: Hi, good afternoon. Thank you for the question.

Antonio Neri: First, I wanted to ask about the comments around federal and state and local education spending, you know, any visibility into, you know, when that when that improves, and when you get better line of sight into that. And then second, just on the higher than expected AI systems revenue in the quarter, I think you mentioned some of the AI outperformance driven by improved customer readiness. Could you just provide a little bit more texture around that? You know, is that driven by a greater need to do these AI deployments? Is it component availability? Any thoughts there would be great.

Speaker Change: First I wanted to ask about the comments around federal and state and local education spending.

Speaker Change: Any visibility into.

Speaker Change: When that when that improves and when you get better line of sight into that.

Speaker Change: And then second just on the higher than expected AI systems revenue in the quarter.

Speaker Change: I think you mentioned some of the AI outperformance driven by improved customer readiness.

Speaker Change: Can you just provide a little bit more texture around that.

Speaker Change: Is that due.

Speaker Change: Driven by a greater need to do these AI deployments is it component availability.

Antonio Neri: Thank you. Yeah, I mean, on the US federal spend, right? So clearly, there was a period of time where the government had to enact their their plans. But remember, you know, not every vendor participate uniformly across the federal, we are unique in many ways, because we provide systems at large scale, sometimes in classified environments, sometimes in non classified environments. And that has not slowed down, you know, in the context of what we see. However, there are areas of the government where there was a pause, you know, whether it's reviewing current, you know, deals that the government needed to an incremental approval to get it done.

Speaker Change: Any thoughts there would be great. Thank you.

Speaker Change: Yeah, I mean on the U S federal spend right. So clearly there was a period of time, where the government had to enact their or their plans.

Speaker Change: But remember you know not every vendor participate uniformly across the federal we are unique in many ways because we provide.

Speaker Change: <unk> systems are large scale sometime and classified environments, sometimes in non classified environments.

Speaker Change: And that has not slowed down in the context of what we see however, there are areas of the government, where there was a pause.

Speaker Change: Whether it's a review and current you know.

Speaker Change: Deals that the government needed an incremental approval to get it done, but but we expect that to solve itself as we go into the back half and we have a very solid pipeline related to the U S. Federal business. Now remember we are also a large provider supercomputing capacity that's very important.

Antonio Neri: But But we expect that to solve itself as we go in the back off. And we have a very solid pipeline related to the US federal business. Now remember, we are also a large provider of supercomputing capacity. That's very important.

Antonio Neri: And we already see new opportunities in the pipeline as we go through the refresh of that.

Speaker Change: And we already see new opportunities in the pipeline as we go through the refresh of that.

Marie Myers: The second part of the question was, I'm trying to think about the deal timing of, you know, or some of these AI deals. No, look, I mean, there is the timing of the deals and the And I just add that, specifically in Q2, that we saw that incremental AI revenue, it was really related to what Antonio said around customer readiness. So just thinking about it as from a timing perspective, that's the way to think about that AI revenue in Q2. Okay, thank you, Mike.

Speaker Change: The.

Speaker Change: The second part of the question was I'm trying to think about it.

Speaker Change: The deal timing of.

Speaker Change: For some of these.

Speaker Change: Ideals.

Speaker Change: No look I mean.

Speaker Change: There is the timing of the deals into deployment right.

Speaker Change: We believe that aligned to the customer needs. So when we think about these deployments, we see an acceleration of deployments because an enterprise they either put it in the Colo.

Speaker Change: They put it in their own data center and so when we see customers is modernizing the data center, especially because we are.

Speaker Change: Focused on data sovereignty compliance free up the space and bring the infrastructure that they need to do right now fine tuning or infancy and.

Speaker Change: And then as service providers look there is a lower build outs, but they tend to be very straightforward unless you work a very very large deployment.

Speaker Change: In thermal components availability, we have now seen a constrained and component availability to the current generation as we go through the 300 is a different story and I'll just add that.

Speaker Change: Typically in Q2.

Speaker Change: We saw that incremental revenue and it was really related to what Antonio said around customer readiness. So just thinking about it is from a timing perspective, that's the way to think about the AI revenue in Q2.

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

David Vogt: And your next question will come from David Vogt with UBS. Please go ahead. Great, thanks, guys, for taking my question.

Speaker Change: And your next question will come from David <unk> with UBS. Please go ahead.

Antonio Neri: So maybe Antonio, can I dig in on sort of the industry drivers and the demand backdrop? Because I thought I heard you say, demand seems to be relatively solid, even in the third month of April. And I guess what I'm trying to understand is, you know, July the quarter guide looks relatively strong. But if I kind of take it in the context of the full year, you know, we're looking for, you know, I think a relatively modest sequential growth in October.

David: Great. Thanks, guys for taking my question, So maybe Antonio can I dig in on sort of the industry drivers and the demand backdrop, because I thought I heard you say that demand seem to be relatively solid even in the third month of April and I guess, what I'm trying to understand is July quarter guide looks relatively strong, but if I kind of taken in the context of the full year.

Speaker Change: We're looking for I think a relatively modest sequential growth in October and I recognize backdrop is murky and accomplished tough on a year over year can you maybe just expand on why you are being a little bit more conservative than I thought you were just given the trends in October and then maintenance for Murray on the workforce reduction plan I would imagine that the vast majority of that is.

Antonio Neri: Now, I recognize the backdrop is murky, and the comp is tough on a year over year, can you maybe just expand on why you're being a little bit more conservative than I thought you would be given the trends in October?

Marie Myers: And then maybe just for Marie, on the workforce reduction plan, I would imagine that the vast majority of that is skewed towards the server business. If not, please correct me. But I'm trying to think through, what are the margin impacts on server as we exit this year when the plan is complete, and you're exiting at a 10% rate? I mean, does that suggest that we can get back to the level of margins, you know, previously before this most recent downdraft, because it's an execution issue? So I'm thinking more of a fiscal 24.

Speaker Change: Skewed towards the server business if not please correct me, but I'm trying to think through what are the margin impacts on server as we exit this year. When the plan is complete and you're exiting at a 10% rate I mean does that suggest that we can get back to the level of margins previously before this most recent downdraft because it's an execution issue.

Unknown Attendee: Thank you.

Speaker Change: More by fiscal 'twenty four thank you.

Marie Myers: So why don't I take the second part of your question first on the server margins and the restructuring plan. So first of all, just pleased to say we're on track in terms of our savings goals. What we said on the last call, that we had 20 percent of savings of the $350 million in the year. At this point, you know, overall, I think I said in my prepared remarks, we've actually seen really good progress against a headcount. So absolutely on track to achieve the goals we had. With respect to how to tie that to server margin, that plan is actually more than server.

Speaker Change: So why don't I take the second part of your question first on the civil margins and and the restructuring plan. So first of all just pleased to say we're on track in terms of our savings goal. What we said on the last call that we had 20% of savings of the 350 later in the year at this point you know overall I think I said in my prepared remarks, we've actually seen really.

Speaker Change: Good progress against our head count so absolutely on track to achieve the goals, we had with respect to how to tie that to set a margin.

Speaker Change: That plan is actually more than server, it's actually enterprise wide. So I just want to correct. Your question because it's not specifically aimed at server. It's aimed at just actually the entire company and we did announce catalyst also as part of the statements I made as well earlier, so as we think about seven margins well, let you know because they got sand coming.

Marie Myers: It's actually enterprise wide. So I just want to correct your question because it's not specifically aimed at server. It's aimed at just actually the entire company. And we did announce Catalyst also as part of the statements I made as well earlier.

Marie Myers: So as we think about server margins, we'll let you know because we've got SAM coming up in October. So we'll give you further sort of color around how to think about those margins for 26. So that's it on the server piece.

Speaker Change: And our purpose they will give you further color around how to think about not just the 26. So that's it on the server piece and then in terms of just the revenue linearity in the back half of the year as I said in my prepared remarks, we do expect to ship a very large a ideal in Q3.

Antonio Neri: And then in terms of just the revenue linearity in the back half of the year, as I said in my prepared remarks, we do expect to ship a very large A.I. deal in Q3. So as a result of that, we're going to see a more non-seasonal pattern in Q3. And then we'll continue to see revenue growth from a year on year basis into Q4. But it's going to be moderated because of the fact we've got that large conversion of that large A.I. system deal in Q3. So that's how you should be thinking about the revenue seasonality in the back half and respectively between Q3 and Q4.

Speaker Change: As a result of that we're gonna see more non seasonal pattern in Q3, and then we'll continue to see revenue growth from a year on year basis into Q4, but it's gotta be moderated because of the fact, we've got that large conversion of that large AI system deal in Q3. So that's how you should be thinking about the revenue seasonality.

Speaker Change: Seasonality in the back half and <unk>, respectively between Q3 and Q4.

Antonio Neri: And I will say for Q4, right, look, there is timing related to some of the deals. But if you recall, in Q4 2024, we had an exceptional Q4 with a significant year over year revenue growth. And despite that, we expect year over year revenue growth in Q4. But to Marie's point, the seasonality between Q3 and Q4 is a little bit different because this very large acceptance we are working right now as we speak.

Speaker Change: Let's say for Q4 right look there are there is timing related to some of the deals, but if you recall.

Speaker Change: In Q4 of 'twenty 'twenty four we had an exceptional Q4 with a significant year over year revenue growth and despite that we expect year over year revenue growth in Q4.

Speaker Change: But to Marty's point, the seasonality between Q3, and Q4 is a little bit different because these very large acceptance. We are working right now as we speak.

Unknown Attendee: Okay, thank you.

Aaron Rakers: And operator, this will be our last question.

Speaker Change: Okay. Thanks.

Speaker Change: And operator this will be our last question. Please.

Aaron Rakers: And your final question today will come from Aaron Rakers with Wells Fargo. Please go ahead. Yeah, thanks for taking the question. I want to just kind of dig a little bit deeper into the AI, you know, server competitive landscape, you know, Antonio, if I look at your closest competitor, I think their new order number was like 12 billion, you guys talked about a billion.

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

Aaron Rakers: Yeah. Thanks for taking the question I wanted to just kind of dig a little bit deeper into the AI server competitive landscape.

Speaker Change: Tony If I look at your closest competitor I think their new order number it was like $12 billion you guys talked about 1 billion. So I'm I'm curious should.

Antonio Neri: So I'm, I'm curious, should we kind of think about HP as a little bit different in terms of how you're you're going to market what segments you really want to focus on, maybe relative to your peers? Or has there been any kind of changes in the competitive landscape in terms of deals that you'll go after and maybe walk away from? I'm just curious to how you would kind of compare, you know, the fairly different numbers in terms of the order momentum we're seeing on these AI servers. Thank you.

Speaker Change: Should we kind of think about HP is a little bit different in terms of how you're going to market. What segments, you really want to focus on maybe relative to your peers or has there been any kind of changes in the competitive landscape in terms of deals that Youll go after and maybe walk away for them I'm. Just curious of how you would kind of compare.

Speaker Change: Yeah.

Speaker Change: Fairly different numbers in terms of the order momentum we're seeing on these AI servers. Thank you.

Antonio Neri: Sure, Aaron. Look, we are focused on all segments of the market, but we participate with discipline, where we see a path to gross margin accretion and obviously working capital that eventually translates into a free cash flow. And look, what I saw there is probably a couple of large opportunities that we decided not to participate. And if you look at their results, it's fair to say that they actually, on the profitability, we'll see what they're going to do. But my view is that in enterprise, we're all in, and we see that momentum. In sovereign, we're all in, and we see the momentum as you see more in the next few weeks.

Speaker Change: Sure look we're focused in all segments of the market, but we participate with discipline, where we see a path through gross margin accretion and obviously working capital that eventually translates into free cash flow.

Speaker Change: And look.

Speaker Change: What I saw there is probably a couple of large opportunities that we decided not to participate.

Speaker Change: And if you look at the results it's fair to say that they are the they actually on the profitability, we will see what they're going to do but my my view is that in enterprise. We're all in.

Speaker Change: See that momentum.

Speaker Change: Sovereign, where I'll end and we see the momentum as you see more in the next few weeks and then in service provider will participate where we believe we can sustain that 10% operating margin and still sustain our revenue as we go forward.

Antonio Neri: And then in service provider, we participate where we believe we can sustain that 10% operating margin and still sustain our revenue as we go forward.

Antonio Neri: Antonio any closing comments? Yeah, no, look, I know we we probably have more questions, but I know we have follow up calls with each of you. Look, we delivered a solid Q2. I'm very pleased with the fifth consecutive quarter of year over year revenue growth. We see the actions we are taking in server already delivering the results that we want. And we don't see that in the next two quarters. Networking continue to do very well. And we are very pleased with the hybrid cloud. But as always, there is more work to do. I believe we have line of sight to our new guide and commitments.

Speaker Change: Antonio any closing comments, yeah, no look I know, we probably have more questions, but I know we have follow up calls with each of you look we delivered a solid Q2, I'm very pleased with our fifth consecutive quarter of year over year.

Speaker Change: Revenue growth we see.

Speaker Change: The actions we have taken in server.

Speaker Change: Already to delivering the results that we want it we don't see that in the next two quarters net.

Speaker Change: Networking continued to do very well and we are very pleased with the hybrid cloud.

Speaker Change: But as always there's more work to do I believe we have line of sight to our new guy than commitments and.

Antonio Neri: And it's all about driving the execution, which, you know, is sustained by an amazing portfolio with amazing innovation. And I hope you will pay attention to what we have to say in three weeks at HP Discover, you will be very impressed about the number of new innovation, we're going to continue to bring the market across networking, hybrid cloud and AI. And we hope next time we speak, we're going to have an answer on the Juniper network deal. So thank you again for your time today.

Speaker Change: It is all about driving the execution, which you know is sustained by an amazing portfolio with amazing innovation and I Hope you will pay attention to what we have to say in three weeks at HP discover it will be very impressed about the number of new innovation, we're going to continue to bring them to market across networking hybrid cloud and AI and we hope.

Speaker Change: Next time, we speak were going to have an answer on the Juniper network deal.

Speaker Change: So thank you again for your time today.

Unknown Attendee: Conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

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

Speaker Change: [music].