Q4 2024 Summary
Published Feb 7, 2025, 7:58 PM UTC- Declining gross margins: HPE's gross margins decreased by 390 basis points year-over-year and 90 basis points quarter-over-quarter to 30.9%, primarily due to a lower contribution from Intelligent Edge revenue and a higher mix of lower-margin AI systems revenue, raising concerns about profitability sustainability.
- Risks in AI order pipeline: The company had to debook a large $700 million AI order due to concerns with a specific customer, highlighting potential risks and unpredictability in the AI order pipeline that could negatively impact future revenues. ,
- Dependence on pending Juniper acquisition: HPE expects that 50% of operating profit going forward will come from Juniper, indicating significant reliance on the success of the pending acquisition, which is still under DOJ review. Any delays or complications could adversely affect projected profitability improvements. ,
| Metric | YoY Change | Reason |
|---|---|---|
Total Revenue | +15% | Driven by higher server shipments and AUPs, along with improved enterprise IT spending, building on last period’s tailwinds in higher-margin offerings like Intelligent Edge; supply-chain easing also contributed to revenue acceleration. |
Operating Income (EBIT) | +37% | Benefited from revenue growth in servers and disciplined cost management; follows prior-year investments in AI and hybrid cloud offerings that are now delivering stronger margins. |
Net Income | +113% | Reflects substantial EBIT improvements and lower one-time charges versus the previous period; also gains from strategic portfolio shifts toward higher-margin businesses. |
EPS (Basic) | +108% | Mirrors the net income increase and was aided by share repurchases and lower non-operating costs; continues momentum from past quarters’ mix shift to more profitable segments. |
Intelligent Edge | -14% | Softened customer demand and lower product volumes compared to the robust gains in previous quarters; reduced AUPs in switching and wireless further pressured revenue. |
Corporate Investments & Other | -24% | Lower advisory services revenue and higher integration costs relative to last year’s acquisitions; though investments support future growth, near-term segment results declined. |
Americas | +20% | Strong recovery in enterprise orders and AI-driven server demand built on the prior year’s moderate growth; North American customers continued to invest in infrastructure modernization. |
EMEA | +8% | Modest economic recovery and incremental demand for hybrid cloud services improved on last year’s subdued levels; currency fluctuations had a slightly positive overall effect. |
Asia Pacific & Japan | +17% | Higher uptake of AI systems and traditional servers compared to the prior period; cautious but improving enterprise sentiment supported sequential growth in this region. |
| Metric | Period | Previous Guidance | Current Guidance | Change |
|---|---|---|---|---|
Revenue | Q4 2024 | $8.1B - $8.4B | no current guidance | no current guidance |
GAAP Diluted Net EPS | Q4 2024 | $0.76 - $0.81 | no current guidance | no current guidance |
Non-GAAP Diluted Net EPS | Q4 2024 | $0.52 - $0.57 | no current guidance | no current guidance |
Revenue Growth | FY 2024 | 1% - 3% | no current guidance | no current guidance |
Operating Profit Growth | FY 2024 | 0% - 2% | no current guidance | no current guidance |
OI&E | FY 2024 | $50M - $100M headwind | no current guidance | no current guidance |
Non-GAAP Diluted Net EPS | FY 2024 | $1.92 - $1.97 | no current guidance | no current guidance |
GAAP Diluted Net EPS | FY 2024 | $1.68 - $1.73 | no current guidance | no current guidance |
Free Cash Flow | FY 2024 | $1.9B | no current guidance | no current guidance |
Revenue Growth | Q1 2025 | no prior guidance | mid-teens year-over-year | no prior guidance |
GAAP Diluted Net EPS | Q1 2025 | no prior guidance | $0.31 - $0.36 | no prior guidance |
Non-GAAP Diluted Net EPS | Q1 2025 | no prior guidance | $0.47 - $0.52 | no prior guidance |
Gross Margin | Q1 2025 | no prior guidance | Expected to benefit from a more favorable revenue mix | no prior guidance |
Operating Expenses | Q1 2025 | no prior guidance | Modest sequential decrease | no prior guidance |
OI&E | Q1 2025 | no prior guidance | Positive net interest income offset by $0.02 Juniper cost | no prior guidance |
Free Cash Flow | Q1 2025 | no prior guidance | Typically consumes cash in Q1 | no prior guidance |
Servers Revenue | Q1 2025 | no prior guidance | Down quarter-over-quarter | no prior guidance |
Servers Operating Margin | Q1 2025 | no prior guidance | 10% to 11% | no prior guidance |
Hybrid Cloud Operating Margin | Q1 2025 | no prior guidance | Mid-single-digit range | no prior guidance |
Networking Revenue | Q1 2025 | no prior guidance | Flattish sequential growth | no prior guidance |
Networking Operating Margin | Q1 2025 | no prior guidance | Low 20% range | no prior guidance |
| Metric | Period | Guidance | Actual | Performance |
|---|---|---|---|---|
Revenue | Q4 2024 | $8.1B to $8.4B | $8.458B | Beat |
GAAP Diluted Net EPS (Q4) | Q4 2024 | $0.76 to $0.81 | $1.01 | Beat |
GAAP Diluted Net EPS (FY) | FY 2024 | $1.68 to $1.73 | 1.93 (sum of Q1: 0.29, Q2: 0.24, Q3: 0.39, Q4: 1.01) | Beat |
| Topic | Previous Mentions | Current Period | Trend |
|---|---|---|---|
Growing AI systems pipeline and backlog | Consistently emphasized as a key growth driver in prior quarters (backlog from $3.1B in Q2 to $3.4B in Q3 and about $3B+ in Q1), with pipeline multiples of backlog and rapid enterprise AI growth. | AI backlog remains above $3.5B, aided by enterprise AI demand and strong co-engineered solutions with NVIDIA; net new orders remained robust despite a $700M de-booking. | Consistently growing |
Recurring margin pressure from AI server mix | Previously noted margin headwinds from growing AI server revenue; HPE acknowledged pressures in Q3 (down 130 bps QoQ), Q2, and slight references in Q1. | Gross margin declined 90 bps QoQ partly due to the higher AI systems mix, though profit dollars grew. | Ongoing margin headwinds |
Intelligent Edge segment performance & margins | Saw year-over-year declines and margin compression in Q3 (22.4% margin), Q2 (21.8%), and a dip in Q1 (though then at 29.4% YoY jump). Demand softening was noted, but the company expects mid-20% margins to resume. | $1.1B in revenue, down 20% YoY but flat QoQ; operating margin at 24.4%, up QoQ due to OpEx control. Order trends improved for the third consecutive quarter. | Gradual recovery after a trough |
Hybrid Cloud (Private Cloud, Alletra, GreenLake) | In Q3, strong Private Cloud AI interest, Alletra expansion, and GreenLake ARR up 39% YoY; Q2 and Q1 also highlighted Alletra transitions and GreenLake’s pivotal role. | Hybrid Cloud revenue up 18% YoY, Alletra MP is the fastest-ramping storage product, and GreenLake ARR grew 48% YoY. First Private Cloud AI orders also noted. | Continued strong expansion |
Pending acquisition of Juniper Networks | Q3 guidance suggested closing by end of 2024/early 2025; seen as accretive to margin; Q2 and Q1 calls highlighted strategic synergy and market expansion. | Deal pending DOJ review, expected to close early 2025; strategic rationale includes completing HPE’s networking portfolio. | Progressing toward closure |
Subscription-based revenue recognition delays | Q3 referenced delayed revenue from ratable software, but minimal mention in Q2 or Q1 aside from general GreenLake comments. | Mentioned more deferred revenue in storage & Hybrid Cloud due to higher software mix (e.g., Alletra MP), which lengthens the timeline for P&L impact. | Recurring, moderate impact |
Conservative full-year guidance | In Q3, tightened full-year guide but did not explicitly call it conservative; Q2 commentary indicated prudent approach on guidance despite strong beats. | No explicit comment on conservatism; Q1 FY25 guide given, though they wait on Juniper deal close. Acknowledged AI order lumpiness but remain confident in growth. | No major shift in Q4 |
Dependence on NVIDIA for AI accelerators | Prior quarters underscored NVIDIA’s dominant position in AI designs (Q2 noted improved GPU availability; Q1 showed strong NVIDIA pipeline but also some flexibility with other vendors). | Continues to co-engineer with NVIDIA (e.g., H100, upcoming Blackwell), but no direct statement of dependence; AI systems backlog includes NVIDIA GPU-based orders. | Consistent partnership |
Working capital & FCF conversion challenges | Q3 noted timing and seasonality; Q2 highlighted inventory and payables; Q1 also showed some typical early-year cash consumption. | Strong free cash flow in Q4 ($1.5B) and record $2.3B for FY24. No major challenges mentioned; CCC at negative 12 days. | Improved from prior quarters |
Data center space, power, and cooling | Q2 and Q1 calls highlighted constraints in data center power/cooling as a factor limiting AI system installations and revenue timing. | Not specifically mentioned in Q4 [no data]. | Not mentioned in Q4 |
Traditional server demand recovery | Q3 also indicated signs of recovery; Q2 saw improved demand and success in Gen11 transition; Q1 mentioned demand stabilized with Gen11 shift. | Sequential growth for a fourth quarter; Gen11 servers account for over two-thirds of core compute revenue. | Ongoing recovery |
Potential lumpiness & competitive risks in AI | In Q3, Q2, and Q1, they repeatedly cited AI deal variability and competition, emphasizing selective pursuit of profitable deals. | Highlighted lumpiness in AI deals (booked $1.2B but debooked $700M) amid a competitive market; remain disciplined on pricing. | Continues to be a cautionary factor |
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$700 Million De-booked AI Order
Q: Why did you debook the $700 million AI order?
A: We debooked a large $700 million order due to concerns with a specific customer. Maintaining strong controls and risk management is paramount, so we decided it was prudent to debook and focus on other areas of the business. This was not due to competition or double ordering. -
Gross Margin Decline Causes
Q: What's driving the gross margin decline, and can you offset it?
A: Gross margin decreased to 30.9% due to a lower contribution from Intelligent Edge revenue—the lowest for the entire year—and a higher contribution from lower-margin AI systems in servers. Despite this, we grew gross profit dollars both year-over-year and quarter-over-quarter. We expect gross margin to improve modestly going forward, driven by an improved business mix, particularly with growth in Intelligent Edge. In the longer term, future acquisitions are expected to positively impact both gross and operating margins. Additionally, higher-margin opportunities in AI, especially in sovereign and enterprise sectors, will contribute to profitability. -
AI Pipeline Growth and Composition
Q: How is the AI pipeline shaping up amid backlog dips?
A: Our AI pipeline is a multiple of the current backlog of over $3.5 billion. While hyperscalers and Tier 2/3 providers remain significant drivers, we're pleased to see the enterprise AI pipeline growing steadily with hundreds of customers and varied deal sizes. After making our co-engineered solution with NVIDIA available in September, we've already collected orders and closed deals in enterprise AI. -
AI Business Metrics and Profitability
Q: How do you approach AI margins, and did the de-book affect competitiveness?
A: The de-booked order was not due to competition; we had concerns with a specific customer and deemed it prudent to debook due to risk considerations. Regarding AI margins, we have a disciplined framework for pricing and cost management to pursue profitable growth. We balance gross margin pressures with cost control and strategic buys. Over time, we expect improving profitability as the market shifts toward sovereign and enterprise sectors where we see services attach. -
Blackwell Platform Shipments
Q: When will you ship Blackwell platform configurations in volume?
A: We expect to ship Blackwell platform systems in volume in 2025, particularly in the first half. Service providers, hyperscalers, and model builders will lead with this latest technology during the transition. In the enterprise space, adoption will typically lag by one or two generations, focusing more on deployment simplicity and time to value rather than the newest GPUs. -
Hybrid Cloud Strong Performance
Q: Was there anything unusual in the Hybrid Cloud revenue jump?
A: We're pleased with Hybrid Cloud's strong performance, with revenue up almost 18% year-over-year and 22% quarter-over-quarter, driven by both Private Cloud and the rapid adoption of HPE Alletra MP Storage. Alletra MP is one of the fastest-growing products in our history, already on a $1 billion annualized basis. There were no unusually large deals; this growth reflects the culmination of sustained efforts and customer adoption of our solutions. -
Intelligent Edge Growth and Outlook
Q: Intelligent Edge revenue growth seems limited; what's the outlook?
A: We've seen the third consecutive quarter of order growth in Intelligent Edge, but revenue appears flattish because accelerated growth areas are subscription-based, such as SD-WAN with SSE and HPE GreenLake Aruba Central services. Customers are placing orders for future quarters related to Wi-Fi 7. While campus switching hasn't fully rebounded, data center networking with intelligent features has achieved double-digit growth. We're optimistic about networking being a significant growth area for HPE in '25 and '26. -
Traditional Servers Defying Seasonality
Q: Traditional servers are flattish to slightly up next quarter; why?
A: Yes, despite typical seasonality, we expect traditional servers to be flattish to slightly up due to ongoing momentum. We've experienced strong growth in traditional compute, particularly Gen11 systems, which comprise about two-thirds of the mix so far. These higher configurations are driving richer average unit prices and higher structural margins. We're also maintaining pricing discipline and successfully passing on commodity costs. -
AI Services Revenue Growth
Q: Are AI services a growing percentage of orders and revenue?
A: Yes, our AI services orders increased quarter-over-quarter. Customers seek services across day 0 (defining use cases and ROI), day 1 (design and implementation), and day 2 (operations). HPE is uniquely positioned to deliver across these phases. Partnerships with firms like Deloitte enhance our offerings, allowing us to provide business process-oriented solutions. We expect continued improvement in services, contributing positively to gross margins. -
IT Spending Outlook for '25
Q: Has anything changed in the IT spending outlook heading into '25?
A: The macro environment has improved compared to a year ago. Customers are focusing more on AI, hybrid models, and data-intensive workloads. Cybersecurity remains a priority. Spending varies by geography. There's a modernization cycle in servers, with attention on sustainability and efficiency. Networking needs to catch up to AI demands, presenting opportunities for us to drive the next wave of innovation. -
Operational Expense Control
Q: What's driving OpEx controls, and how low can you take OpEx?
A: We've been diligently managing discretionary costs throughout '24 and are now moving into enhancing productivity. We're utilizing generative AI internally, including in finance, to drive efficiency. In a company as large as HPE, there's significant opportunity for further cost reductions. We're balancing gross margin pressures with cost control, strategic buys, and maintaining pricing discipline, which all contribute to our ability to offset margin headwinds.