To The Moon

Hewlett-Packard's $ Wise and Technology (HPE)$ announced its Q3 FY2024 results on September 5, with strong performance and elevated guidance proving once again that the company has benefited greatly from the AI wave, but the market seems to be "desensitized" to this, and did not give the expected surge.However, the market seems to be "desensitized" to this and did not give the expected surge.

Overall performance overview

1. The company's total revenue reached $7.7 billion, up 10% year-over-year and near the top of the company's expectations.Of this, AI gave the company over 35% year-over-year growth

2. Non-GAAP diluted EPS of $0.50, an increase of $0.01 from the same period last year, exceeding the high end of expectations.

3. Non-GAAP gross margin was 31.8%, a decrease of 410 basis points from the year-ago period, primarily due to a lower percentage of Intelligent Edge revenues and a higher percentage of AI server revenues

4. The Company realized over $660 million in free cash flow and declared a dividend of $0.30 per share.

   

Segment Business Overview

1. Servers.Server revenue was $4.3 billion, benefiting from accelerated conversion of AI systems orders and double-digit order growth in the traditional server business.AI systems revenue amounted to approximately $1.3 billion, an increase of 39 percent from the second quarter.The segment's operating margin was 10.8 percent, up from 10.1 percent a year ago.

2. AI Business.AI systems orders grew to $1.6 billion in the quarter, with cumulative orders reaching $6.2 billion, demonstrating strong customer demand for AI solutions. revenues from AI systems reached approximately $1.3 billion, an increase of 39 percent from the second quarter.The traditional server business also delivered double-digit order growth, showing signs of a rebounding market. hPE continued to pursue profitable deals in this area, maintaining stable operating margins.

3. Hybrid Cloud.The HPE GreenLake platform has nearly 37,000 customers, driving annual subscription revenue growth.HPE also enhanced its hybrid cloud capabilities with the acquisition of Morpheus Data.

4. Intelligent Edge.The Intelligent Edge business is beginning to see a market recovery after the post-epidemic correction, particularly in Wireless LAN and Secure Access Service Edge (SASE).

HPE's results reflect its growth in several areas, particularly in artificial intelligence (AI) systems and hybrid cloud solutions.The company saw strong demand in North America, Asia Pacific, Japan and India, while Europe and the Middle East lagged.HPE's overall strategy is centered around an edge-to-cloud vision, driving innovation in products and services.

Enhancement Guidance

Looking ahead to the fourth quarter.

• Earnings per share are expected to be between $0.52 and $0.57, beating the consensus estimate of $0.54;

• Revenue between $8.1 billion and $8.4 billion.The median was above the consensus estimate of $8.15 billion.

The company expects full-year EPS of $1.92 to $1.97, up from $1.85 to $1.95 previously.

Investment Highlights

On the potential and demand in the AI market

Demand in the AI market is growing rapidly, particularly in enterprise and sovereign AI clouds.HPE's AI system orders grew to $1.6 billion in the quarter, with growing customer interest in generative AI, and the pace of adoption accelerating, although it is still in its infancy.

Hybrid Cloud and HPE GreenLake Performance

The CFO noted that HPE GreenLake's annual subscription revenue grew by 39 percent and that there is strong customer demand for a consumption model that eases investment pressure and maintains flexibility.The company also plans to increase the value of HPE GreenLake by continuing to introduce new hybrid cloud solutions.

Cost Control and Profitability

HPE has taken rigorous measures to control costs, and despite gross margin pressure, HPE has achieved operating profit stability through effective cost management and maintaining price discipline.Non-GAAP gross margin was 31.8 percent, down 410 basis points year-over-year, but the company expects to see benefits from cost structure optimization in the second half of the year.

Impact of the Juniper Networks Acquisition

The acquisition of Juniper will significantly enhance HPE's networking business capabilities and the deal is expected to close in late 2024 or early 2025.

1. Juniper's Mist platform is a leader in AI-driven network management, which HPE can leverage to enhance the intelligence of its networking products.

2. HPE will be able to phase out its legacy Aruba switches and optimize its product portfolio to be more competitive in the market. juniper's solutions will complement HPE's presence in the edge computing and private cellular network services markets, creating synergies

3. HPE is expected to expand its market share in the WLAN business in the financial, professional services and government sectors.