Overview of Hewlett Packard Enterprise’s Financial Performance

Hewlett Packard Enterprise (HPE) reported solid financial results for fiscal year 2024, with net revenue increasing 3.4% year-over-year to $30.1 billion. This growth was driven by higher average unit prices (AUPs) in the Server segment, though partially offset by lower volume and product mix effects in the Intelligent Edge segment.

Gross profit margin declined 2.3 percentage points to 32.8%, primarily due to the revenue decline in Intelligent Edge and a higher mix of lower margin products in Server. However, operating profit margin remained relatively flat at 7.3%, as the company was able to offset the gross margin pressure through disciplined cost and expense management.

Net earnings attributable to HPE increased 27.4% to $2.6 billion, or $1.93 per diluted share. This strong bottom-line performance was aided by a $733 million gain on the sale of a 30% equity stake in the H3C subsidiary.

Annualized Revenue Run-rate (ARR) Growth

A key highlight was the continued strong momentum in HPE’s pivot to as-a-service (aaS) offerings, with ARR increasing 49% year-over-year to $1.9 billion. This was driven by growth across the Hybrid Cloud, Server and Intelligent Edge segments, as the company expanded its customer base and range of aaS solutions.

The mix of ARR is becoming more software-rich as HPE builds out its HPE GreenLake cloud platform, which is improving the company’s margin profile. HPE plans to continue investing aggressively in HPE GreenLake to provide a true cloud experience and operating model for customers.

Capital Returns to Shareholders

Returning capital to shareholders remains an important part of HPE’s capital allocation framework. During fiscal 2024, the company repurchased $150 million of its common stock. As of the end of the fiscal year, HPE had approximately $0.8 billion remaining under its current share repurchase authorization.

The company’s cash, cash equivalents and restricted cash balance increased significantly to $15.1 billion as of October 31, 2024, up from $4.6 billion a year earlier. This strong liquidity position provides HPE with ample flexibility to fund operations, strategic investments, and the pending acquisition of Juniper Networks.

Trends and Uncertainties

HPE faced a mixed macroeconomic environment during fiscal 2024, with uneven demand across its portfolio. Certain customers took longer to work through prior orders and adopted a more conservative approach to discretionary IT spending, particularly impacting the company’s hardware offerings. However, demand remained strong for cloud-based, software-defined, and AI-enabled solutions.

Supply chain constraints, especially for components like graphics processing units (GPUs), have eased, though HPE continues to experience higher inventory levels as customers transition to newer GPU generations. The company also faced rising input costs and a competitive pricing environment, which it aims to mitigate through disciplined cost and pricing management.

Other notable developments included the pending $14 billion acquisition of Juniper Networks, which is expected to be funded through a combination of debt, equity, and cash on hand. Additionally, the company divested 30% of its H3C subsidiary for $2.1 billion in pre-tax proceeds, and announced plans to sell its Communications Technology Group business.

Segment Performance

The Server segment was a standout, with revenue increasing 12.8% due to higher AUPs, though earnings from operations declined 0.7% as higher product costs offset the revenue growth.

Hybrid Cloud revenue decreased 1.9%, as lower AUPs offset an increase in unit volume. Earnings from operations in this segment increased 5.6%, as the company managed costs effectively.

Intelligent Edge revenue declined 15.7%, driven by lower volume and product mix effects in the switching and wireless LAN product lines. Earnings from operations decreased 17.0%, though the segment maintained a strong 24.6% operating margin.

Financial Services revenue grew 0.9%, with earnings from operations increasing 12.5% as the business benefited from higher finance income in a rising interest rate environment.

The Corporate Investments and Other segment, which includes the Advisory and Professional Services business, saw revenue increase 2.9% and a 67.5% improvement in operating loss, as the company executed on cost optimization initiatives.

Liquidity and Capital Resources

HPE ended the fiscal year with a strong liquidity position, including $15.1 billion in cash, cash equivalents and restricted cash. This provides the company ample flexibility to fund operations, strategic investments, and the pending Juniper Networks acquisition.

Net cash provided by operating activities was $4.3 billion, a slight decrease from the prior year. Free cash flow increased to $2.3 billion, up from $2.2 billion, driven by lower net capital expenditures.

The company’s total debt increased to $18.2 billion, up from $12.4 billion a year earlier, primarily due to the issuance of $9.0 billion in senior unsecured notes and $1.5 billion of preferred stock to help fund the Juniper Networks acquisition. HPE also entered into $12.0 billion in senior unsecured delayed draw term loan facilities, which can be used for the Juniper transaction.

Outlook and Strategic Priorities

Looking ahead, HPE expects the mixed macroeconomic environment to largely continue, though ease slightly, which may limit near-term revenue growth. The company remains focused on strengthening its core server and storage offerings, expanding its HPE GreenLake cloud platform, and investing in high-growth areas like artificial intelligence, edge computing, and data security.

Through disciplined cost management, pricing actions, and the transition to more recurring revenue streams, HPE aims to maintain its operating profit margin profile. The pending acquisition of Juniper Networks is expected to further enhance the company’s edge-to-cloud portfolio and capabilities, positioning it for long-term success in a rapidly evolving technology landscape.

Overall, Hewlett Packard Enterprise delivered a solid financial performance in fiscal 2024, demonstrating the resilience of its business model and the success of its strategic pivot to as-a-service offerings. The company’s strong liquidity, cost discipline, and focus on high-growth market segments provide a solid foundation for continued value creation for shareholders.