HPE(HPE) - 2024 Q4 - Earnings Call Transcript

Financial Data and Key Metrics Changes - The company reported record quarterly revenue of $8.5 billion, up 15% year-over-year, exceeding$ 8 billion for the first time in history [12][38] - Fiscal year 2024 revenue growth topped 3% year-over-year, exceeding $30 billion, with a record-breaking free cash flow of$ 2.3 billion [19][33] - Non-GAAP diluted net EPS was $0.58, above guidance, with a non-GAAP operating margin of more than 11%, a 110 basis points increase sequentially [18][41] Business Line Data and Key Metrics Changes - Server revenue reached an all-time high of$ 4.7 billion, up 31% year-over-year, marking the third consecutive quarter of double-digit growth [13][43] - AI systems revenue grew 150% year-over-year to $4.1 billion, with a backlog of over$ 3.5 billion [35][46] - Hybrid cloud revenue increased 18% year-over-year and 21% sequentially to $1.6 billion, driven by HPE Private Cloud and HPE Storage [15][47] - Intelligent Edge revenue was$ 1.1 billion, down 20% year-over-year, but showed signs of recovery with strong order growth [50][52] Market Data and Key Metrics Changes - The company added more than 9,000 new customers across its portfolio in fiscal year 2024, ending with approximately 39,000 unique customers [19][39] - HPE Financial Services financing volumes rose to an all-time high of $2.1 billion, up 41% year-over-year [17][53] Company Strategy and Development Direction - The company is focused on providing a complete portfolio of modern, secure networking solutions, particularly in AI and hybrid cloud [10][20] - Continued investment in innovation is aimed at enhancing product offerings and capturing additional market share [21][24] - The pending acquisition of Juniper Networks is expected to strengthen HPE's position in the market and enhance its portfolio [31][57] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the upcoming fiscal year, anticipating increased IT spending and continued recovery in traditional compute and AI systems [58][62] - The company expects to close the Juniper transaction in early 2025, which will provide combined company guidance for fiscal 2025 [57][62] - Management highlighted the importance of disciplined cost management and strategic investments to drive profitability [41][100] Other Important Information - The company achieved a non-GAAP operating profit of$ 938 million in Q4, translating to a non-GAAP operating margin of 11.1% [18][41] - The cash conversion cycle was a negative 12 days, indicating efficient cash flow management [55] Q&A Session Summary Question: Can you provide insight into the AI pipeline given the backlog levels dipped? - Management indicated that the AI pipeline is a multiple of the current backlog, with significant growth in enterprise AI and ongoing orders from model builders and hyperscalers [66][68][70] Question: Can you discuss the dynamics affecting gross margins, particularly server margins? - Management noted that the server segment achieved an operating margin of 11.6%, driven by strong performance in AI server revenue and effective cost controls [75][78][81] Question: What drove the significant sequential increase in Hybrid Cloud revenue? - Management attributed the growth to strong performance in Private Cloud and the adoption of HPE Alletra MP Storage, with no unusual large deals impacting the results [121][125][130] Question: How is the company managing gross margin degradation? - Management explained that the decline in gross margin was primarily due to a lower contribution from Intelligent Edge revenue, but gross profit dollars increased year-over-year [94][96][98] Question: What is the outlook for traditional servers in the upcoming quarter? - Management confirmed expectations for traditional servers to be flattish to slightly up sequentially, driven by ongoing momentum and the transition to Gen11 products [104][105][107]