“The (AI enterprise) market is moving from proof of concepts into deployments inclusive of inferencing,” said Neri. “Customers now are deploying a variety of AI models including agentic approaches to workflows… That to me is a vote of confidence and encouragement. And that motion is perfectly aligned to the channel versus the large language models and the service provider segment.”
Hewlett Packard Enterprise CEO Antonio Neri in an interview with CRN urged partners to capitalize on the “massive opportunities” with HPE Private Cloud AI and infrastructure refreshes around Gen12 server and Alletra MP storage.
HPE Private Cloud AI, which helped drive enterprise AI orders up 40 percent in the quarter, packs more margin punch with better services attach for partners and is a “testament” to HPE’s strong AI portfolio, said Neri.
“The (AI enterprise) market is moving from proof of concepts into deployments inclusive of inferencing,” said Neri. “Customers now are deploying a variety of AI models including agentic approaches to workflows… That to me is a vote of confidence and encouragement. And that motion is perfectly aligned to the channel versus the large language models and the service provider segment.”
As for the opportunity around Gen12, which was announced last month, Neri said partners need to get behind the server transition to Gen12. “Sell Gen10 quickly and then shift to Gen11 and Gen12,” he said. “That is a big opportunity because the Gen12 value proposition is very strong.”
In fact, Neri said, a single Gen12 server can replace up to seven Gen10 servers at a cost savings of 65 percent.
Finally with regard to Alletra MP, which grew triple-digits during the quarter, Neri urged partners to move customers off the installed base of Nimble and Primera and go after new logos. “Clearly the platform is getting tremendous momentum,” he said.
Neri’s comments came with HPE announcing plans to reduce its workforce by five percent with layoffs of 2,500 employees over the next 12 to 18 months with another 500 positions eliminated through attrition. The $350 million cost reduction program comes with HPE grappling with server margin operating pressure and the impact of tariffs.
“These decisions are hard to make,” said Neri. “We have a unique culture and we will treat every reduction with compassion and respect. But we have got to strengthen our financial profile as I think about the next 12 to 18 months. Also in preparation for the Juniper (Networks) deal, which will drive at least an incremental $450 million in synergies.”
Below is an excerpt of the interview with Neri.
What was the overall company performance in the quarter?
We had a solid quarter. We delivered on our (revenue and earnings) commitments. We had very, very strong year over year revenue growth of 17 percent. We delivered on our commitments for EPS of 49 cents, which was at the midpoint of the guidance. Then we had double-digit year-over-year orders growth across all our products. So that’s very strong.
When you look at the intelligent edge, Aruba was up double-digits year over year in orders growth. Alletra MP was up triple-digits year over year in orders growth. Servers were up double-digits year over year in orders growth. GreenLake ARR (Annualized Revenue Run Rate) was up 46 percent year over year. We now have 41,000 customers on the (GreenLake) platform. We added 2,000 new customers on the platform.
So from a demand perspective, the quarter was very strong. From a revenue perspective it was a very strong quarter with 17 percent growth. Profit was right in line with our guidance.
I am not happy with some of the issues we found in our server operating margins. When we provided guidance for the year we guided only one quarter because we were expecting the Juniper acquisition to close at the end of Q1. That didn’t happen. We only guided for one quarter. We had a terrific Q4 and we said at the time we were expecting some pressure on server operating margins because of seasonality, (product) mix and revenue conversion.
That operating margin was further pressured by three issues of which a couple were in our control. Issue number one was higher discounting. Clearly the market is very competitive. It is true in traditional servers and in AI. That further compounded our server operating margins. Number two near the end of the quarter we realized that the valuation of our inventory was higher than the cost we built into our pricing. So we had incremental pressure because our cost was not aligned fully to the valuation of the inventory. Now that has been corrected. That has to do timing and fluctuation of commodities.Number three was the higher than anticipated AI inventory because of the fast transition of GPUs from Hopper to Blackwell. What that means is when you look at the segmentation of AI you have service providers and model builders that lead with time to market with the latest technologies. In Q1 we booked $1.6 billion of new AI orders which was up double digit year over year and we doubled the order bookings sequentially. But 17 percent of that was (Nvidia) Blackwell (GPUs).
In the enterprise, we had great momentum, great momentum. In fact, the channel did a great job. We had a partner Comline that is already selling HPE Private Cloud AI. But those are smaller value (deals) and it will take longer to consume the (Nvidia) Hopper inventory in that transition. That’s why working capital was not as efficient and therefore had an impact in our operating margin and free cash flow.
The three issues involving pricing and cost have already been corrected. But it takes one to two quarters to see it. We expect to exit Q4 with normal kind of range of profitability.
You add on top of that the tariffs. The market reaction to (our results) is more on the guidance and that guidance now includes the tariffs. The best view analysis that we have on the net impact of the tariffs, which was enacted two days ago. So our guidance now covers the mix, the recovery on server operating margins and the further impact of the tariffs.
We guided for the full year because now we also have the delay on the Juniper (acquisition). The Juniper deal we now expect to close that in 2025, which is at least eight months later. Now we have a trial date, which is July 9. As you know we are disappointed with the filing of the suit (by the U.S. Department of Justice). I think the market analysis by the DOJ is completely flawed. We think we have a compelling strong case and we think we can win in court. So we have to see that through.
Demand is strong. Q1 was solid but obviously the server margins were pressured.
How did channel partners perform during the quarter?
I’m very proud and pleased with the partners’ performance. There is a number of quarters here that we have been up to the right in terms of revenue growth and orders growth.
Also I’m pleased with the number of partners that are doing business with us after COVID and the supply chain challenges from four and five years ago. We recovered from that.
To give you a specific number now: 1,450 partners enrolled in our Partner Vantage business in Q1 alone as we build the business. So almost 1,500 partners joined the Partner Vantage program. So partner acquisition is up, orders are up and what kind of work they are doing with us is clearly evolving.
What is the guidance for the full fiscal year?
We guided to grow our revenues at least seven to 11 percent in 2025 in constant currency, with operating profit to be flat to minus one percent year over year in constant currency and (Non-GAAP diluted Net) EPS at the midpoint of 1.80.
What can partners do better to drive sales and profit growth this fiscal year?
The partner priorities should be first of all to get behind the server transition. Sell Gen10 quickly and then shift to Gen11 and Gen12. That is a big opportunity because the Gen12 value proposition is very strong.
First with one Gen12 you can replace up to 7 Gen10 (servers), 14 Gen9 servers and up to 26 Gen8 (systems). You can reduce energy (costs) by up to 65 percent (on a Gen10 server replacement).
Number two Gen12 is quantum-proof ready. Quantum could break encryption but Gen12 has the (HPE) root of trust iLO 7 next generation (which delivers additional layers of protection) and that is quantum-proof. The third piece is Gen12 has the lowest and most secure cost-per-core computing performance.
When you think about that you can modernize, you can reduce space, you can reduce power consumption. That allows to deploy the right AI architecture which is HPE Private Cloud AI. That is the second priority lead with Private Cloud AI, which is more margin, more services attach and a better solution.
The number three priority is Alletra MP which was up triple-digits year over year (in the quarter). Clearly the platform is getting tremendous momentum. So partners should take the installed base of Nimble and Primera and transition to Alletra MP and then go after new logos.
Number four is HPE VM Essentials. We are 100 percent through the channel and customers want an alternative. Together with our orchestration you can manage VMware in a new virtualization layer. That is a fantastic alternative to reduce customer’s costs.
Last is networking where we had double-digits year-over-year order growth. We introduced a number of new innovations like WiFi 7, support of three bands, more powerful inferencing capabilities through swarm learning techniques, more efficient access points to reduce energy consumption and the next generation of (Aruba) CNX subscription to GreenLake.
For me all of these are massive opportunities and then continue to lead with the GreenLake experience. We had 2,000 new customers in the quarter. Customers like the experience! It’s hybrid by design. We now have AI solutions and we will continue to add agentic AI into the story.
Was the Justice Department’s challenge to the proposed $14 billion acquisition of Juniper Networks and tariffs a factor in the job cuts?
No. As part of the Juniper deal once it closes we have committed to at least $450 million in annual gross savings over the three-year period after the close. So that’s separate. Originally we had a plan to incorporate the Juniper synergies and our own synergies into one (cost reduction) program. But because the Juniper deal is delayed and because we found opportunities to continue to drive cost synergies including our own standalone (cost synergies) to strengthen our financial profile we have decided to go ahead (with our own cost savings). That will result in 2,500 positions being eliminated together with natural attrition (500 positions) which is very low – generally speaking against industry standards- will equate to approximately five percent of the workforce of the company.
These decisions are hard to make. We have a unique culture and we will treat every reduction with compassion and respect. But we have got to strengthen our financial profile as I think about the next 12 to 18 months. Also in preparation for the Juniper deal which will drive at least an incremental $450 million in synergies.
What will be the impact on partners and R&D?
Obviously we are very committed to maintain our interactions with our partners and R&D. R&D is a big focus for us.
Are you happy with the 40 percent increase in enterprise AI orders and the adoption you are seeing with HPE Private Cloud AI (developed with Nvidia)?
It can always go faster but I would say the 40 percent year-over-year orders growth is a testament that A) we have a great set of solutions including Private Cloud AI. B) That the (AI enterprise) market is moving from proof of concepts into deployments inclusive of inferencing. Customers now are deploying a variety of AI models including agentic approaches to workflows. So it is not one versus another. That to me is a vote of confidence and encouragement. And that motion is perfectly aligned to the channel versus the large language models and the service provider segment which tends to be very direct in many ways unless you are a unique partner like WWT that may serve that customer.
That is why for us it is important that partners lead with our HPE Private Cloud AI. Also because they can attach their own services They can bring customers to their own lab and do proof of concepts. This is all positive. There is more opportunities ahead of us.
With a new Justice Department antitrust chief (Gail Slater) set to come into the Trump administration do you think you can get the DOJ to take a fresh look at the Juniper acquisition?
We hope so. We will welcome the opportunity to get with the new assistant attorney general for the antitrust division once she is confirmed and see if there is a way to resolve the matter without going through litigation. But that is not in our control.
That said, I think she is going to come in and look at all the cases. Remember we are not big tech. We are core tech. We power the core infrastructure of the United States for the Department of Defense and the Department of Energy and many of the agencies. And then remember that this (HPE-Juniper) combination is pro-competitive. It will change the dynamics of the networking market. But at the same time it will make the U.S. stronger outside the United States and advance our national security particularly with vendors like Huawei because HPE and Juniper combined will be the alternative to Huawei because of our server and storage business together with networking and our telco assets. I just came back from Barcelona a couple of days ago at Mobile World Congress (MWC), which is a very telco-oriented service provider event and all our customers are eagerly waiting for that deal to close because they see the benefits to them.
It’s great to see someone enthusiastic about their field.
The article is very informative and useful. I learned a lot from it. Keep up the good work.