The Six Five team discusses HPE Earnings.

If you are interested in watching the full episode you can check it out here.

Disclaimer: The Six Five Webcast is for information and entertainment purposes only. Over the course of this webcast, we may talk about companies that are publicly traded and we may even reference that fact and their equity share price, but please do not take anything that we say as a recommendation about what you should do with your investment dollars. We are not investment advisors and we do not ask that you treat us as such.

Transcript:

Patrick Moorhead: Let’s move into HPE earnings. What can I say? They absolutely crushed it. Okay. And you know something good is going to happen when in the subhead or the heading of the press release, it says the word records, okay. They beat on the top line, second highest quarter revenue ever. They met earnings expectation, revenue overall was up 12% in constant currency. But I think even more impressive is what the company is trying to do. And it’s as a service areas which was up 33% for the quarter in constant currency and ARR up 25%.

Those are freaking great numbers, but hey, let’s talk just product sales, compute up 22% at this incredible margin around 15%. That doesn’t mean that they’re growing by going after some of the low end business that some of the other vendors in this space go after. They did it with what they call value, which is high margin business. So growing at the top line with an obnoxiously awesome margin, I absolutely love it. Edge came back. I mean, here’s the thing, edge has been a little bit off. And by the way, a very easy explanation. People were huddled inside of their homes and they weren’t going to the edge, they weren’t going to theaters, they weren’t going to retail, they weren’t going to banks, they weren’t going to stadiums.

But most of the world is back baby except for China. And the Aruba folks saw 23% growth on that. Probably the only blemish that I think needs a little bit of explanation is HPC off 11% in constant currency. And it’s like, well wait a second straight quarter all about one thing. It’s about frontier supercomputer that they cannot recognize revenue for that until the DOE says, yep, up and running. A hundred percent. We’re good to go. I have a feeling we’re going to have a monster, one monster quarter. It’s probably going to be 40%-50%, but we’ll see. That’s it. Good stuff. Congratulations, Antonio, to you and your team.

I feel like it’s very safe to say that the strategy is working and I’d like to see the company continue this for the next two or three quarters so it doesn’t look like an outlier. Final note, sorry Dan. Every one of these record breaking numbers also were included shutting down Russia and Belarus, which for HPE. Oh and yeah, it’s a big deal. I mean it is not a rounding number.

Daniel Newman: Pat, look, I got to do a victory lap here. I don’t normally get things right, but when I do get things right, I really get them right. And so I actually wrote a market watch op-ed piece a week before talking about the return of old traditional legacy IT and yes, I’m sorry, HPE, IBM, Cisco, Dell, anyone that feels that we’re being critical, I’m not being critical. What I’m really saying is that, well, for the past few years we’ve had this sort of, everything’s going to go to public cloud, everything’s going to be SaaS, everything’s going to be these kind of new cool snowflakes and everything pen and we’re going to put all our infrastructure in the cloud and we’re going to do everything. This was just proof. Okay, so what happens when the economy shifts? It has labor tightens, you have inflation high, you’ve got interest rates rising, you’ve got the markets down is companies go into a strategic hibernation in terms of massive CapEx projects and also lift and shift transformational projects like moving their entire, I don’t know, ERP system to the cloud.

So what that means is that legacy infrastructure and existing software that’s been implemented in the company becomes more important. And keys technology partners like those I named become critical. Now add another layer. Three or four years ago when Antonio Neri said, Hey, we’re going to do everything as a service on-prem, all of a sudden they actually added a layer of intrigue for all those companies now that need to get more from their resources that say, hey, you can stay on-Prem, but you can benefit from a cloud operating model at the same time. And you can scale your business, get things done that you need. Whether that’s data, networking, security, and you could do it all with us, with a company like HPE.

So GreenLake has been growing nicely for a long time, but you’re talking about a billion in annual recurring revenue. Not a huge number yet. It actually is a huge number. It’s just not a huge number comparatively to the size of the company that’s $30 plus billion in revenue. But the corner is being turned. We’ve seen Dell, Cisco, IBM, and so many others moving to this really strong hybrid and on-prem cloud, these subscription services, these things that basically enable companies to scale, grow and meet transformational needs with only moving that 10% to 20% of key enterprise workloads that are going into the public cloud.

Well, beneficiaries are companies like HPE. And HPE was first to really go all in on this. They’ve come up with a very comprehensive set of services to address everything from not just compute but also the data services, security services, edge services. And so they’ve been very ambitious and so we’re starting to see that come to fruition and this particular market condition is actually favorable for HPE and it should be good for the company as we come out of it and it should see the business grow faster.

So you kind of hit all the segments. I wanted to hit the macros. We both had a chance to talk to Antonio Neri, we’ve both been cheering this on and it was good to see some numbers. You said something Pat very salient and that is it can’t be one and done meaning this was the first what I would say, really good overall quarter I’ve seen from HPE. They’ve had moments in parts of the business over the past several quarters. This was a good overall quarter. A few more of these and maybe the public interest will really start to see some acceleration. Clearly the customer interest already.