AI Demand Ignites Performance Engine, Hewlett Packard Enterprise (HPE.US) Q2 Outlook Exceeds Expectations

HPE (HPE.US) announced that its second-quarter revenue outlook exceeded analyst expectations, indicating the company is benefiting from strong demand for hardware devices that help customers run AI workloads.

On Monday, the company stated that for the quarter ending in April, sales are expected to be between $9.6 billion and $10 billion. In comparison, analysts’ average forecast was $9.57 billion. HPE also said that, excluding certain items, earnings per share will be between 51 and 55 cents, in line with the analysts’ average of 53 cents.

The company reaffirmed its full-year revenue growth outlook and raised its annual profit forecast to $2.30 to $2.50 per share. The analysts’ average expectation is $2.35.

Driven by the need for faster data routing for AI tasks, demand for HPE’s networking products remains strong. The Texas-based company acquired Aruba Networks last year for about $13 billion and considers networking a key part of its future expansion. In the most recent quarter, due to industry-wide price increases and shortages of memory chips, HPE expanded margins by raising prices and selectively dropping some customers.

“In a vibrant environment driven by supply chain shortages and cost inflation, we executed our business with very, very strong discipline,” CEO Antonio Neri said in an interview.

In the first quarter of the fiscal year, the company’s sales grew 18% to $9.3 billion, with earnings per share of 65 cents after excluding certain items. Analysts previously expected sales of $9.37 billion and earnings of 58 cents.

Revenue from cloud and AI businesses, including servers and storage, declined 2.7% to $6.3 billion, although profit margins in this segment widened. Neri said the company has $5 billion worth of AI server orders backlog.

The stock closed at $21.81 during regular trading in New York and was roughly flat in after-hours trading. The stock has fallen 9.2% so far this year.

HPE expects memory chip shortages to continue into next year. The company is raising prices, sometimes even increasing quotes after initial offers and before shipment. HPE is also dropping some equipment sales to mobile service providers to focus on higher-margin customers such as enterprise clients and sovereign deals.

“We haven’t finished raising prices,” Neri said. But he added that HPE hasn’t really lost market share.

Neri said, “In some markets, segments, and products, you might gain share, while in others, you might lose share, depending on opportunities. But on average, we are in the same position.”

He also mentioned that the company is still pursuing more contracts with countries building their own AI clouds, but these deals take longer to sign and require U.S. export approval, so related revenue may be reflected in the second half of the year.