HPE hits record compute profit margin, insists you're buying bigger boxes, not being milked
Order books full and price cuts are coming as supply chains unkink
Server buyers who shopped from Hewlett Packard Enterprise contributed to the storied vendor achieving its highest ever operating profit margin for its compute business: 14.7 percent for the fourth quarter of FY22, in contrast to historical rates of between 11 and 13 percent and 9.4 percent for the same quarter in 2021.
Compute revenue hit $3.7 billion, up 16 percent from Q4 2021 (and 22 percent in constant currency).
HPE execs took pains to point out the company has not used recent events to hike prices.
“What's driving the demand for our Compute solutions is richer configs,” CFO Tarek Robbiati told investors on the company’s Q4 22 earnings call. In its results announcement (PDF) HPE said “Margin expansion was driven by product mix shift and strategic pricing actions, more than offsetting input cost increases.”
CEO Antonio Nero said customers are buying HPE servers because they like the company’s GreenLake IT-as-a-service offering, which he feels is a big differentiator. The balance sheet reflects enthusiasm for GreenLake: Neri said $8.3 billion in total contract value is already on the books, as are more orders for compute and edge product than HPE has ever previously recorded.
Whatever the reason for the revenue and margin spikes, Robbiati promised HPE won’t milk server buyers.
“We believe as supply continues to ease, there will be the need for us to adjust our pricing down to continue to grow the business moving forward,” he said. The company intends to “pass on the reduction in costs from commodities, DRAMs in particular.”
But the company is merely “starting to see some of this … it's early days. HPE’s plan is “to be extremely reactive and dynamic with our pricing.”
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HPE’s overall results were strong. Revenue of $7.9 billion was up 7.9 percent year on year, above guidance. Net earnings reached $868 million. The company’s Edge business, which includes some compute, galloped ahead by 18 percent. Storage and HPC sales dipped, but storage delivered a 15.9 percent margin.
For the full year, revenue of $28.5 billion represented three percent growth and net earnings were $3.4 billion.
Even employee engagement is up: Neri said HPE “achieved one of the highest employee engagement scores in the history of our company, up 20 points over the last five years
“Our culture has attracted some of the brightest, most innovative talent in tech,” he said. And they’re all wanted: no mention of layoffs was made in the earnings call or supporting material for investors, although Neri said workforce reductions in 2020 mean the company is now “rightsized”.
The CEO added that the company’s performance reflects HPE’s solid strategy developed across his tenure
“Obviously, we had an outstanding quarter, an exceptionally well-executed quarter for us with record-breaking results across key performance metrics,” he said in closing remarks on the earnings call. “But when you reflect back, and this is my 20th quarter as the CEO reporting earnings, this is a combination of many things we have done over the last few years. It's not just a onetime thing. When I think about that, first and foremost, we have a clear strategy. We have been executing and accelerating and is winning in the market and is winning with customers.:
HPE is also executing better, he said.
Neri re-stated the guidance [PDF] HPE offered at October analyst event: revenue growth of between two and four percent, and operating profit growth of approximately four to five percent.
“We feel pretty good about our ability to deliver and potentially even exceed those numbers we give for the full year,” he concluded. ®