The Six Five team dives into the latest earnings report from HPE.
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Daniel Newman: Let me drop into the next one, Pat, HPE followed Cisco and Dell and ISG, and was the third of kind of the big it OEMs over the last few weeks to report it’s quarterly earnings. And this to me was a big one, was a wave where I had come out early and said, “This is going to be the quarter where on-prem infrastructure returns to the black.” And I am one to often ignore when I make inaccurate prognostications, but I’m never one to forget, to make a victory lap when I get it right. So I predicted a high single digit percentage of growth across the board. And by the way, I think Cisco is around seven. Dell was around the same and Hewlett Packard enterprise came in at 11, but I want to say it’s nine because you had to adjust for constant currency, which by the way, I only adjust for that when it helps me, and in this case it did.
A couple of things there that I really called out from the earnings, Antonio Neri’s remarks and comments. One was the growth wasn’t heavily weighted to one part of the business. Now the company’s business is heavily weighted to compute and storage. That’s where a lot of the revenue, I think it’s about two thirds, but if you go across all their segments, they had Edge, IOT, HPC, storage compute, and their services business, and then of course financial services, every part of the business grew except financial services. Not only took a very small loss, but actually it was up on margins, but really solid growth at the intelligent edge. A really good result from the business from compute and storage. HPC had a very strong number and GreenLake came in at, I believe 30%, or as a service.
Now, everybody remembers that Antonio Neri came out almost two years ago, said by 2022, the entire HPE portfolio would be available as a service. Now I’m holding him accountable to this now because we are one year, not even away from this promise. And I will say the company has done a good job. It has diversified a lot of products. And I believe that its upcoming discover, Pat, will be announcing more services that will be coming into that family. We’ll have to wait and see, but the point is definitely ramping, as a service, definitely ramping up its hybrid cloud offerings, trying to really move to this annual recurring revenue model. And I thought it was a pretty robust result for the company. Overall, my impressions, this is still a company in transition. The market wasn’t particularly jazzed. The stock didn’t shoot up from this result.
But again, it has gone up a little bit into earnings. I continue to say, this is just the trend right now. Nobody’s acting on the news. Everybody’s acting on the rumors. It on-prem is up. I envisioned this as to continue to happen. And so before I turn it to you, I’ll just say the biggest thing I’m watching is that recurring revenue number, the company, in order to stabilize and prove they are a concept needs to show that it can grow, Neri said 30 to 40% compound over a multiple period of time was going to get the company to where it needs to be. So, as we’ve talked about with Pat Gelsinger, as we’ve talked about with our friend, Jim Anderson at Lattice, I’ve become a huge fan of say-do. If he says he’s going to do it, hope he does it. So good quarter for HPE.
Patrick Moorhead: Last quarter, when I got to talk to Antonio, I asked him about growth and he said, “Well, watch the future. Watch the future.” And sure enough, they cranked out and you and I look at it a little bit differently. I look at gap, you don’t, you look at non-gap, which I understand because that’s what investors look at. But 11% revenue increase the first double digit revenue quarter since 2018, which there’s two ways to look at that. The first one is to say, “Oh, my gosh, that’s incredible.” The other way it says, “Wow, you had a difficult couple of years”, but here’s the deal, they never committed to anything over single a digit here.
So hats off to HPE. What blew me away, Daniel, was the 10% on compute. And some people had thought that HPE was getting out of general purpose servers. Well, you look at the profit dollars that came out of that, that 10% of what they call their core business of compute and that’s in contrast to growth. Super impressive. The other thing that was impressive was free cashflow. Almost $370 million of free cashflow out there. And then what did the company do? They raised free cashflow and EPS outlook. And like you said, Daniel, they were rewarded with an indifferent wall street.
Daniel Newman: Well, in total fairness, though, Pat, Zoom grew 191% and the stock didn’t go up either. So and yes, I know they grew 369% the quarter before, but we really have hit this point where I don’t know if anything goes up for the right reasons anymore. So we try to look at the fundamentals, the technicals, the strategy, the business, meet the technical innovation with the numbers to say, hey, are these companies committed to their truth? So I hope that’s what you, as an audience hear, when you hear us talk. If we could predict what would go up or down, we wouldn’t be doing this podcast. I’m just being honest to you. We’d be doing something else.
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