The paragraph introduces the first quarter fiscal 2025 earnings conference call for Hewlett Packard Enterprise (HPE). Paul Glaser, the Head of Investor Relations, welcomes participants and introduces key speakers, Antonio Neri, HPE's President and CEO, and Marie Myers, HPE's CFO. The call is webcast and recorded for replay. Financial information shared may include forward-looking statements, based on current estimates that could differ from future reports. Participants are directed to HPE's Investor Relations webpage for more details, including press releases and presentations. Lastly, there's a disclaimer about the potential risks and uncertainties associated with forward-looking statements, with a reference to HPE's SEC filings for further information on these risks.

In the conference call, Antonio Neri addresses the Department of Justice's lawsuit against the proposed acquisition of Jourdan Networks, criticizing their market analysis and expressing confidence in the transaction's benefits, including $450 million in expected synergies. The trial date is set for July 9th, and the companies aim to complete the acquisition by fiscal 2025. He also discusses the impact of new US tariffs on imports from Mexico, Canada, and China, stating that HPE plans to mitigate these effects through global supply chain adjustments and pricing changes, while their outlook for the year considers the potential impacts of these tariffs.

In the quarter, the company achieved significant year-over-year revenue growth but faced challenges in executing better, largely due to server pricing and inventory issues, aggressive market pricing, and higher AI inventory costs. Despite implementing measures to address these issues, the company expects ongoing pressure for the next couple of quarters and plans to cut its employee base by 5% to better align costs and strategy. While revenue and earnings per share were consistent with outlooks, further corporate cost actions are anticipated to strengthen the company's financial stance. Marie will provide additional financial details for each segment.

In Q1, the company achieved a 17% revenue growth, driven largely by a 30% increase in server business revenue and expansion in the hybrid cloud sector. Non-GAAP operating profit remained flat year-over-year, with diluted net earnings per share at 49 cents. The Intelligent Edge segment saw 2% revenue growth, marking its third consecutive quarter of growth. The company experienced double-digit year-over-year order growth across key geographies and products, with notable demand for HP Aruba networking and new large enterprise customers. Hybrid cloud grew 11% year-over-year, despite a sequential decline, reflecting successful storage and greener cloud strategies. Aletra storage product demand surged, representing over 50% of IP block product orders. HP GreenLake saw over 41,000 enterprise users and surpassed $2 billion in annual recurring revenue, up 46% year-over-year. AI system orders hit $1.6 billion in the quarter, totaling $8.3 billion cumulatively, with Blackwell GPU products making up 70% of new orders. The company ended the quarter with a $3.1 billion AI systems backlog, a 29% quarter-over-quarter increase.

In Q1, HP achieved $900 million in AI systems revenue and anticipates increased AI revenue in late 2025 with the shift to Blackwell GPUs. The enterprise AI market shows accelerated adoption, with a 40% increase in enterprise AI orders year-over-year. Partnerships, like with KDDI and HPE, are developing platforms for domain-specific generative AI models. The AI pipeline is expanding, with significant interest from global sovereign customers deploying AI systems. The Leibniz Supercomputer Center selected HP for their new supercomputer, using HP's innovative cooling and networking solutions. Additionally, HP and Accenture are developing a procurement-focused agent AI solution using Accenture AI Refinery and HP's private cloud AI technology.

HPE is expanding its offerings with new solutions across various sectors, including category and sourcing strategies, spend management, and contract obligation management. The company highlights its innovative products, such as security-first AI-driven network solutions for retailers and a more cost-effective KVM-based virtualization software in hybrid cloud. The VM essentials software, integrated into private cloud offerings, demonstrates significant market interest. HPE's Aletra MP portfolio shows triple-digit growth, offering a disaggregated, subscription-based hybrid cloud-native service for diverse data workloads, reducing customer management needs. Additionally, the ProLiant Gen 12 server platform introduces enhanced security and cooling features.

The latest generation of servers from HPE offers improved sustainability and cost efficiency, with one Gen 12 server capable of replacing multiple older models and significantly reducing power consumption. Despite strong demand driven by product innovations and customer interest, HPE acknowledges it could have improved execution in the server segment. The company is committed to enhancing performance by fiscal year 2025 through strategic adjustments and portfolio enhancements. During the first quarter of fiscal 2025, HPE experienced a revenue growth of 17% and achieved double-digit growth in server and hybrid cloud sectors. While there were strong performances in Intelligent Edge and challenges in the service segment, profitability remained strong.

In the first quarter, the company reported $7.9 billion in revenue, a 17% year-over-year increase but a 7% decrease from the previous quarter due to typical seasonality and lower AI systems revenue. Annual recurring revenue grew 46%, driven by AI and Intelligent Edge, while non-GAAP gross margin decreased year-over-year and sequentially, impacted by a higher server revenue mix and challenges in server margins. Non-GAAP operating margin fell due to gross margin pressures but benefited from a 9% reduction in operating expenses. Cost-saving measures reduced operating expenses to 19% of revenue, with plans for further structural savings. The free cash flow was negative $877 million, aligning with seasonal trends. GAAP diluted net earnings per share exceeded guidance at 44 cents, aided by a gain from selling a communications technology group, while non-GAAP earnings per share of 49 cents fell within the guided range. Non-GAAP earnings excluded various net costs related to stock-based compensation, divestitures, and other charges.

The paragraph discusses the company's financial performance, focusing on server and AI systems results. Server revenue increased to $4.3 billion, a 30% year-over-year rise, but sequentially declined due to AI deal timing. Despite challenges in the traditional compute sector, Gen 11 products contributed to year-over-year growth, with Gen 12 set to launch soon. In AI systems, $1.6 billion in net orders were signed, recognizing $900 million in revenue, though sequentially down due to chip availability and customer readiness. Server operating margin was 8.1%, below the 10 to 11% guidance, due to greater-than-anticipated market pressures and execution issues. Measures to reduce costs and improve pricing strategies have been implemented, aiming for a 10% margin by Q4. Challenges also include the transition to new GPUs and managing inventory, expected to stabilize as supply and demand balance. The subsequent segment, Intelligent Edge, surpassed expectations and is poised for Q2 growth.

The company reported $1.1 billion in revenue, a 2% increase from the previous quarter but a 4% decrease from the previous year due to the completion of post-pandemic backlog. Despite weaker federal spending, double-digit year-over-year growth was seen in various areas, including Sassy and data center switching. The operating margin was 27.4%, which improved quarter-over-quarter due to higher revenue and cost controls. The hybrid cloud segment grew 11% year-over-year to $1.4 billion, even though it saw a sequential decline of 12%. The HPE Electra MP platform is performing well, impacting near-term growth and margins while benefiting long-term profitability. Hybrid cloud operating margins increased 300 basis points year-over-year due to cost controls. In financial services, the company generated $873 million in revenue, a 2% increase year-over-year but flat quarter-over-quarter, with financing volumes decreasing 14% after a previously strong quarter. The Q1 loss ratio was 0.6%, and return on equity was 16.4%.

In the quarter, the company achieved a solid operating margin of 9.4%, with increases both year-over-year and quarter-over-quarter. Operating cash flow was impacted by normal seasonality, resulting in a $390 million consumption, while free cash flow saw an outflow of $877 million. Inventory increased to $8.6 billion, largely to support AI systems orders. The cash conversion cycle improved, with an increase of 17 days over the previous quarter, mainly due to higher inventory days. The company returned $171 million through dividends and $52 million in share repurchases. In response to server performance, the company is limiting hiring and discretionary expenses, implementing workforce reductions, and attrition management to better align costs, aiming for $350 million in gross savings by fiscal 2027. They plan to achieve 20% of these savings by the end of the year. Total cash charges will be around $350 million through fiscal 2026, aside from the synergies expected from the Juniper acquisition. The industry faces uncertainty from recent tariff announcements, affecting the server business.

The company is working on mitigating the impact of recent tariffs through supply chain and pricing strategies, expecting significant mitigation in the year’s second half, but less so in Q2. They provide a full-year guidance expecting constant currency revenue growth of 7-11% in fiscal 2025, with currency impacts of 150 basis points. By segment, Intelligent Edge should have mid-single-digit growth, hybrid cloud high single-digit growth, and server low double-digit growth, with AI systems ramping in the year's latter half. Services will show more seasonality in Q3 due to AI timing. The full-year non-GAAP gross margin is expected below 30%, and an operating margin of around 9%, improving by year's end. Hybrid cloud margins are anticipated in the mid to high single digits, Intelligent Edge in mid-20%, and server margins to improve to 10% by year-end. An OINE net expense of $15 million is projected, with GAAP EPS guidance between $1.15 and $1.35 and non-GAAP EPS between $1.70 and $1.90, skewed towards the second half.

The company anticipates that Q4 will have a higher portion of annual non-GAAP net earnings and projects about $1 billion in free cash flow, factoring in $3 billion in operating profit, negative working capital, and restructuring charges. For Q2, projected revenue is between $7.2 billion and $7.6 billion, with growth in Intelligent Edge and a slight sequential decline in hybrid cloud and server revenues. GAAP and non-GAAP diluted net earnings per share are expected to be between 8-14 cents and 28-34 cents, respectively. Lower earnings and AI investments are predicted to challenge Q2 free cash flow, marking it as the weakest quarter for cash generation in 2025. The company plans to optimize its cost structure and enhance agility by leveraging AI technologies, highlighting strong demand for its products and an improving networking market. It also anticipates closing the Juniper acquisition later in the year.

During a Q&A session, Marie Myers addresses a question about the effects of CPU and GPU market pressures on their Q1 results. She acknowledges that while their original guidance accounted for some AI GPU transition impacts, the actual impact was greater than expected, particularly due to unforeseen pricing challenges in traditional computing. Aaron Rakers from Wells Fargo further asks about the AI server revenue's gross margin and any potential inventory charges or transient impacts on margins. Antonio Neri offers to provide insights into how the margin profile and product cycles, particularly moving from hopper to Blackwell, are being considered in response.

The paragraph discusses the dynamics of the AI market, identifying three segments: service providers/builders, sovereign, and enterprise AI. It explains that the service providers quickly adopt the latest technologies, which led to a significant use of Blackwell technology, accounting for 70% of a $1.6 billion mix in Q1. In contrast, sovereign and enterprise segments rely more on older technologies, causing slower inventory transitions and higher working capital pressure. This issue, compounded by discounted inventory, is expected to normalize within one or two quarters. Marie Myers thanks Aaron Rakers, who then calls for the next question from Wamsi Mohan of Bank of America, who highlights a forecasted $2 billion revenue growth but a $150 million decline in operating profit.

In the paragraph, Marie Myers discusses the impact of tariffs and other factors on operating profit and cash flow for the year. She explains that for the full year, the company is guiding at least $1 billion in free cash flow, noting that the key drivers are working capital and a cost efficiency program. Tariffs are expected to impact earnings by seven cents for the year, with the most significant effects occurring in Q2, particularly in the server business. Four cents of the tariff impact will be felt in Q2. Paul Glaser then calls for the next question from Tim Long at Barclays, who continues the discussion on AI servers.

Antonio Neri addresses a question about HPE's strategy, clarifying that it hasn't changed despite appearances. While competitors pursued lower-margin model builder markets, HPE focused on higher-margin areas like supercomputing. The question suggests HPE might now be entering lower-margin markets, but Neri explains that their strategy remains constant. The company's Q1 performance wasn't driven by AI or related margins but was affected by unexpected discounting and inventory cost valuations in the traditional server business. HPE aims for a 10% overall server margin by balancing different business areas, including service providers, despite the challenges of discounting and GPU transition impacts on working capital.

In this paragraph, the speaker addresses the impact on AI margins, attributing the issue to a unique set of circumstances in Q1, rather than pricing errors. They assure that corrective measures are in place and emphasize a focus on balancing three segments: enterprise AI, which has seen 40% year-over-year order growth, maintenance and GreenLake subscriptions, and a mix between generative AI and supercomputing. Additionally, they plan to normalize overall server margins to 10% by Q4. Tim Long then invites Simon Leopold from Raymond James to ask about customer mix changes, focusing on cloud builders and the federal market's impact on margins. Antonio Neri responds that there is no new significant change to report.

The paragraph discusses a company's strategy in targeting service providers and enterprises with their innovative, fanless direct liquid cooling technology. The market for mobile and service provider model builders is concentrated, with limited key players, leading to a focus on enterprise customers adopting AI models. Although these transactions have a different margin profile, there is significant growth potential. There is concern about potential slowdowns in CapEx deployment; however, there's currently a solid market outlook. The company is succeeding in supercomputer projects, winning a majority of bids, and is expanding into generative AI sectors with institutions like the University of Bristol. Traditional computing also reflects strong performance, with double-digit growth in yearly orders.

In the paragraph, Antonio Neri and Marie Myers address Amit Daryanani's question regarding the fiscal 2025 guidance, which anticipates close to double-digit revenue growth and an operating margin increase in the latter half of the year. Marie explains that both revenue and profitability are expected to be more weighted toward the year's second half, similar to fiscal 2024, driven by AI systems' timing. She highlights their server business's expected exit at around 10% profitability, supported by improvements in server execution mentioned by Antonio.

The paragraph discusses several factors influencing the company's financial performance and future outlook. These include the impact of tariffs, cost efficiency programs, and AI systems on profitability, with a higher concentration of earnings expected in Q4. Antonio Neri adds that the company's network business is recovering, showing sequential growth and double-digit order growth. This recovery is anticipated to result in mid single-digit revenue growth for the rest of the year. The company also sees significant profit recovery opportunities through a deal with Juniper, expecting strong margins and benefits to manifest by Q4 and continue into 2026. The discussion is concluded with acknowledgment from Paul Glaser and a transition to the next question from Samik Chatterjee of JPMorgan.

Antonio Neri discusses the company's strategies to mitigate the impact of tariffs through supply chain flexibility and pricing adjustments. The company maintains a global supply chain, allowing it to produce goods near customers and shift production as needed. On pricing, the company plans to be more flexible and manage discounting tightly while driving down working capital. There is uncertainty about how tariff increases will affect market demand in the latter half of the year, but the company remains confident in its revenue forecast, targeting high single-digit or possibly double-digit growth.

In the paragraph, David Vogt from UBS asks Marie Myers about cost structure restructuring savings in addition to savings associated with the Juniper transaction. Marie clarifies that the $450 million savings is related to Juniper as a standalone, while $350 million in annual run rate savings is tied to the current organization, focused on cost efficiency and eliminating about 2,500 jobs. She mentions that these are two separate initiatives planned to be achieved by 2025 and 2026. Antonio Neri adds that despite disappointment over a DOJ lawsuit affecting the transaction's closure timeline, they plan to achieve at least $800 million in savings by combining the two programs.

The paragraph discusses the status of a transaction related to Juniper and a commitment to deliver $450 million once it closes, while proceeding with a separate $350 million initiative. It mentions market expectations, tariffs, and past issues addressed in Q1. Paul Glaser seeks the next question from Mike Ng of Goldman Sachs, who inquires about AI systems' order momentum, noting a potential slowdown after a strong November. Antonio Neri acknowledges the lumpiness of the business, with fluctuations in demand. Marie Myers addresses free cash flow, confirming the impact of a $250 million cash restructuring and noting strong overall order bookings of $8.3 billion, which are up significantly quarter over quarter.

In the article paragraph, the speaker discusses strong performance in their AI systems, with net orders in the quarter being twice as large as in Q4. They emphasize the strength of their AI enterprise and note that value is realized particularly in inferencing. The pipeline is robust across various AI segments, including sovereign, enterprise AI, model builders, and service providers. Marie Myers clarifies that the cash flow is at four hundred million, with contributions from a recent cost efficiency program and carryover from prior restructuring programs. Antonio Neri responds to a question from Matt Niknam about macroeconomic factors like tariff uncertainty and DOJ initiatives, stating that there has been no negative impact on customer purchasing to date. They report double-digit order growth in all business units, with storage experiencing particularly strong demand, showing triple digits growth. Though the full impact of tariffs is not yet evident, it may take a month or two. Demand remains strong, but federal response varies depending on the agency.

The paragraph discusses HP's core infrastructure services provided to agencies like the Department of Defense and the Department of Energy, which are crucial for national security. It mentions the challenges in predicting future developments. The focus then shifts to fiscal 2025, where there is a discussion on the mix of enterprise AI solutions going through HP's GreenLake platform, which involves software subscriptions and CapEx on infrastructure, particularly in collaboration with NVIDIA. The company is experiencing 40% growth in orders in this area. It also notes that recent purchases by service providers and model builders have been predominantly capital expenditures, with no GreenLake flexible offers currently associated with them.

In this paragraph, Antonio Neri concludes a call by emphasizing that the company delivered a solid quarter, although execution could have been better, particularly in server operating margins. The company is confident in returning to normalized EPS and achieving a 10% server margin by the end of Q4. They have taken actions to reduce costs and considered tariff impacts in their fiscal year 2025 outlook. Neri also reaffirms commitment to the Juniper deal, anticipating its closure in the second half of 2025, and mentions a trial date set for July 9th. He believes they have a strong case for a favorable ruling. The call then concludes.

This summary was generated with AI and may contain some inaccuracies.