Hewlett Packard Enterprise Co Q1 2025 Earnings Call Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Meta Marshall - Morgan Stanley - Analyst : Marie, it sounds like you anticipated some of the pricing pressure kind of on the GPU market when you gave the original 10% to 11% operating margin guidance. But I just wanted to get a sense, of the 250 basis point shortfall. How much of that was CPU versus kind of pricing inventory -- additional pricing in inventory on GPUs?

Question: Aaron Rakers - Wells Fargo - Analyst : Just kind of building on Meta's question there, when we look at the gross margin profile of your AI server revenue and thinking about the monetization of the backlog as we move forward, I'm curious of how that's changed or how your views have kind of structurally changed over the course of the last three months? And whether or not the gross margin pressure you might be seeing, is there any kind of inventory charges or write-downs that are more transitory in the model? And just any context on how margin profile looks, thinking about the Hopper going to the Blackwell product cycle, would be helpful.

Question: Wamsi Mohan - Bank of America - Analyst : Your guidance implies over $2 billion year-on-year growth in revenue, but at the midpoint, almost $150 million year-on-year decline in operating profit dollars. So can you just help us think through how much of operating profit dollar headwind you are baking in explicitly from your tariff assumptions? And if you could bridge that similarly for free cash flow on a year-on-year basis where you're going from north of $2 billion to $1 billion, how much of that is tariffs versus competitive pricing versus inventory that would be helpful.

Question: Timothy Long - Barclays - Analyst : Sorry to keep beating the AI server horse here. But maybe, Antonio, just on the strategy side, just curious, it seems like from the outside year, 1.5 years, 2 years ago, some of your peers were really chasing model builders, lower gross margin business. You guys seem much more focused on supercompute and areas that had better margin to it. It seems like that strategy has changed and now HPE is more willing to get into some of these lower-margin businesses. Like the GB200 NVL72, I imagine it is very low gross margin. Am I right in that strategy change? And in the future, should we expect that chasing the model builder business may never get better on a gross margin basis, so that might be something that's more challenging to continue to compete in if we're going to be talking single-digit gross margins for that?

Question: Simon Leopold - Raymond James - Analyst : I wanted to see if you could talk a little bit about your customer mix and how it might be changing. And to be transparent, I'm wondering, are you targeting more of the cloud builders right now? And is that affecting some of the assumptions, so you're in a more aggressive space? Or are we seeing issues where perhaps your federal market, which I assume is very profitable, is weaker in the mix. So trying to get a little bit of unpacking, particularly around compute, around what's going on in the verticals that might be affecting margin.

Question: Amit Daryanani - Evercore ISI - Analyst : I guess, Antonio, Marie, if I look at the fiscal '25 guide that you folks are giving out right now, it sort of implies that revenue growth will be close to double digits, 9.5%, 10% in the back half of the year. And at the same time, I think you're implying about $1 EPS in the back half. So that would, I think, mathematically get to about a 250 basis point step-up in operating margins in H2 versus the Q2 levels. Can you spend some time on what's REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. MARCH 06, 2025 / 10:00PM, HPE.N - Q1 2025 Hewlett Packard Enterprise Co Earnings Call giving you the confidence that, a, revenues will actually snap up this way? And then b, if the revenues are really going to snap up with AI servers, how do you get that sort of operating margin expansion in the back half of the year?

Question: Samik Chatterjee - JPMorgan - Analyst : I guess, Antonio, Marie, you're talking about the mitigation efforts that you're doing in relation to the tariffs. I was curious how should I think about the sort of focus relative to supply chain flexibility versus pricing to mitigate the impact of tariffs, which one is sort of the bigger focus here going into the back half? And particularly when it comes to pricing, how are you thinking about sort of the level of confidence in taking pricing, particularly when you're mentioning certain end markets where discounting is more aggressive than you thought? And how should we think about the sort of level of visibility or confidence into getting those pricing actions done without really impacting demand? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. MARCH 06, 2025 / 10:00PM, HPE.N - Q1 2025 Hewlett Packard Enterprise Co Earnings Call

Question: David Vogt - UBS - Analyst : Marie, I thought I heard you say on the call the cost restructuring savings are in addition to the Juniper savings. So does that mean -- I couldn't hear you clearly, but does that mean the savings that you're announcing today impact more the Server, Storage side of the business and not Aruba and Intelligent Edge? Just trying to get a sense for how that layers in over the next couple of years. And if that's the case, is the $425 million or $450 million that you mentioned regarding Juniper all from the Juniper side, from the transaction if it closes?

Question: Michael Ng - Goldman Sachs - Analyst : Antonio, I just wanted to ask about the AI systems orders momentum throughout the quarter. The $1.6 billion implies a little bit of a slowdown in December and January after the $1 billion-plus order in November. Has the demand environment for AI systems changed? What have you seen during the quarter and then in the couple of months since? And then if I could just ask Marie, a quick follow-up on free cash flow. Anything other than the $250 million of cash restructuring that impacts the outlook? I just wanted to see if there was anything unusual there.

Question: Matthew Niknam - Deutsche Bank - Analyst : I'm wondering, has the macro backdrop and specifically around tariff uncertainty, has that had any impact on customer purchasing or demand to date? And just in a similar vein, are you baking in any incremental softness from US Fed as a result of some of the DOGE initiatives?

Question: Ananda Baruah - Loop Capital - Analyst : Antonio, just a quick question on gen AI server mix as you guys are thinking about it for fiscal '25. And I guess, really, what I'm interested in is any context on how much of what you're looking at in the backlog pipeline would go into GreenLake versus the revenues in the traditional sales sets? And then any sense of how your mix might change from SPs and model builders relative to enterprise and sovereigns? And that's it for me.