HPE records flat revenues for third 2022 quarter

Growth in Intelligent Edge and HPC was not enough to offset flat or negative revenues in compute, storage, and other divisions as HPE published results for its third 2022 quarter.

Revenue generated in the three months ended July 31 was $6.95 billion, up just 1 percent year-on-year and beating last quarter’s outlook. Compute declined 3 percent to $3 billion, while storage was down 2 percent to $1.15 billion. HPC and AI grew 12 percent to $830 million and the Intelligent Edge leaped 8 percent to $941 million. Financial services brought in $817 million, down 3 percent, and Corporate Investments generated $300 million, down 10 percent.

Net profit came in at $409 million, up 4.3 percent.

President and CEO Antonio Neri put a gloss on the numbers, saying: “Our continued innovation and focus on execution resulted in revenue and profit growth, which are particularly noteworthy in such a dynamic market. Our growth in recurring revenue this fiscal year is evidence of customers’ strong response to our HPE GreenLake platform.”

EVP and CFO Tarek Robbiati emphasized GreenLake subscription services in his statement: “We executed well in Q3, delivering revenue above our guidance while growing backlog sequentially to another record level. We are also pleased with the expansion of our gross margins despite the inflationary headwinds and challenged supply environment. We are driving operating leverage expansion through strong pricing discipline and shifting our mix towards higher-margin, software-rich offerings through the HPE GreenLake platform.”

The GreenLake scheme has an exabyte of data under management and customers connect more than 2 million devices to it.

Overall HPE said it generated the results during a period of ongoing supply chain constraints and unfavorable foreign exchange rates – about 55 percent of HPE’s revenues are denominated in non-US dollar currencies. Its backlog, now at a record level, is growing and customer demand is strong with few order cancellations. HPE said it sees early signs of supply chain challenges easing in the near term.

Financial summary

  • Gross margin: 34.5 percent; the same as a year ago
  • Diluted EPS: $0.31, up 7 percent annually
  • Cash flow from operations: $1.3 billion, $124 million more than a year ago
  • Free cash flow: $587 million, up $61 million on the year 

Total as-a-service orders rose 39 percent year-on-year. The ARR (annualized revenue run rate) was impressive, rising 22 percent on the year to $858 million. HPE shifted its mix to higher-margin products in the quarter to maintain profits. For example, compute operating profit margin was 13.3 percent, which compares nicely to the year-ago 11.2 percent, and HPE is convinced it has the most profitable server business in the industry.

However, the storage operating profit margin declined from 15.1 percent 12 months ago to 14.7 percent. HPE noted there was double-digit revenue growth in HPE-owned storage products, including Nimble and hyperconverged. There was a record backlog in storage, which is tracking to the fastest fiscal 2022 ARR growth among HPE’s business segments at 44 percent.

HPE’s storage revenue performance compares poorly to that of NetApp and Dell. NetApp reported revenue growth of  9 percent to $1.59 billion earlier in August. Dell saw a 6.3 percent rise in its storage revenues in its latest quarter to $4.33 billion.

We expect Pure and Nutanix to announce their latest results later today and that will then give us more information about the state of the storage market.

HPE’s outlook for its final quarter of fiscal 2022 is for revenues of at least $7.3 billion. They were $7.35 billion a year ago.