HPE Q2 sales rise was brought to you by the letters A and I

Shipments of servers used for artificial intelligence jump more than 100% to $900M, share price up double digits

Two magical letters, A and I, helped lift Hewlett Packard Enterprise's share price by as much as 15 percent in after-hours trading following a ramp in orders for systems to train and run customers' AI models.

For HPE's Q2 of fiscal 2024, ended April 30, revenue edged up 3.3 percent year-on-year to $7.204 billion (beating analysts' consensus of $6.8 billion), and it was the Server division that brought home the bacon, growing 18 percent to $3.9 billion.

HPE boss Antonio Neri said on a conference call with analysts that the results were "driven by AI systems revenue more than doubling from our first quarter. I am very optimistic about where we're headed. AI demand continues to accelerate with cumulative AI systems orders reaching $4.6 billion this quarter."

"AI is creating growing demand across our portfolio, and we see significant opportunities across customer and business segments."

Dell last week revealed that it too was benefiting from demand for systems to run AI software, shipping $1.7 billion worth of so-called AI servers in the quarter, up by more than 100 percent on the prior three months.

HPE shipped $900 million of AI servers with an operating profit of 11 percent, CFO Marie Myers said.

Neri said this was "helped by supply chain conversion through improved GPU availability. Our lead time to deliver Nvidia H100 solutions is now between six and 12 weeks, depending on order size and complexity. We expect this will provide a lift to our revenues in the second half of the year."

"Enterprise orders now comprise more than 15 percent of our cumulative AI systems orders, with the number of Enterprise AI customers nearly tripling year-over-year. As these engagements continue to progress from exploration and discovery phase, we anticipate additional acceleration in enterprise AI systems orders through the end of the fiscal year."

Neri described HPE's "pipeline" as "robust," though warned that "large AI orders can cause fluctuations during the quarter." He said AI system demand, along with "continued adoption" of Greenlake and "ongoing improvement in the traditional infrastructure market, including servers, storage, and networking," all bode well. So well, in fact, that HPE upped revenue forecast for the second half of this fiscal year.

For the full year, HPE is now forecasting growth of 1 to 3 percent on fiscal 2023, up from the flat to 2 percent growth previously estimated.

The number of customers using HPE's GreenLake to consume its tech as a service grew 9 percent in the quarter to 34,000 and annualized recurring revenue jumped 39 percent to $15 billion.

Not all went according to plan over the course of HPE's Q2. The Hybrid Cloud business unit declined 8.3 percent to $1.256 billion, and Intelligent Edge was down 19 percent to $1.086 billion.

Myers said of the shrinking units: "The demand environment remains soft and large enterprises have yet to return to the market in force. However, we do see some green shoots that give us confidence that networking will transition to modest sequential growth beyond Q2, as we had expected."

Financial Services gained $9 million in revenue to $867 million, and group-wide profit before tax was $426 million, down from $473 million.

Yet given the direction of travel for the business, The Reg suspects Neri and his C-suite generals will spend more time smiling about the areas that did well than frowning about those that didn't.

Sumitha Pillay, analyst at Megabuyte, said: "This is a positive set of results from HPE, picking itself up from the broader macro-economic headwinds (softened demand for networking, tight availability of GPUs, customer and channel indigestion) suffered in the prior quarter.

"It looks like the focus, as it is for other global OEMs at the moment, is to capitalize on the wave of demand for AI and AI enablement to mitigate pressure on other parts of the tech stack." ®

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