6 takeaways from HPE's bumper Q1, as supply chain woes ease

HPE executives riffed on a range of topics in Q1 earnings call, from ChatGPT to the improved supply chain backdrop

HPE last night unveiled a 12 per cent annual revenue hike for its fiscal 2023 Q1 ending 31 January 2023.

On the earnings call (transcribed by Seeking Alpha here), HPE executives riffed on a range of topics, from the easing supply chain backdrop to ChatGPT and HPE's M&A strategy. Here we round up six key takeaways.

1) Q1 revenue bonanza

HPE smashed the high end of its Q1 revenue outlook by recording revenues of $7.8bn.

That's a 12 per cent rise on the previous year's Q1 and the highest Q1 tally it has recorded since 2016.

Intelligent Edge and High Performance Computing & Artificial Intelligence were the star performers, growing 25 and 34 per cent to $1.1bn apiece, respectively.

Compute revenue grew 14 per cent to $3.5bn, while storage revenue rose five per cent to $1.2bn.

In constant currencies, HPE's Q1 growth was even higher, at 18 per cent.

2) Supply chain woes easing

The unexpected Q1 bonanza was driven partly by an easing in the supply chain issues that have dogged HPE and the wider industry for the last year.

Delivery times across HPE's portfolio are now "almost back to pre-pandemic levels", CFO Tarek Robbiati said.

"We benefited from improvements in the supply environment, particularly in our Compute segment. This allowed us to execute against our order book, which our customers greatly appreciated," he added.

HPE CEO Antonio Neri (pictured above) agreed that supply chain challenges "continue to ease" but warned that he does not anticipate all shortages coming to an end.

"Our order book at the start of Q1 was larger than it was a year ago. And as we exit the quarter, it is more than twice the size of normalised historical levels," he said.

3) HPE in the mood for more M&A

HPE will continue to be "opportunistic" in considering strategic acquisitions, Neri declared as he talked up HPE's latest acquisition of cloud security provider access security - which was also announced yesterday.

While this latest acquisition will bolster HPE's SASE solutions, HPE's purchase of Athonet the previous week will strengthen its private networking prowess. Earlier in the first quarter, HPE also purchased technology from two companies that enhance its cloud computing and AI offerings, Neri added.

"We will continue to assess organic and inorganic investments that improve our competitive position in growth markets while driving higher level of recurring revenue and profitability," Neri said.

4) HPE bullish on ChatGPT and AI opportunity

HPE said the emergence of large language models such as ChatGPT and BART will play into its hands.

Some of these run on HPE's systems, Robbiati stressed, admitting that the trend has "prompted many questions from our customer base".

"We believe AI at scale is a high-growth market and then the building and refinement of AI models will require unique computational capabilities that our Cray supercomputers and HPI solutions are extremely well positioned to enable," he said.

"We intend to invest organically and inorganically as listed by our acquisition of Pachyderm to fully grasp this opportunity."

5) As-a-Service hits $1bn mark

HPE's as-a-Service business (which includes its GreenLake consumption offering) surpassed $1bn in annual recurring revenue (ARR) in Q1, which Robbiati billed as "an important milestone". ARR growth accelerated from 25 per cent in Q4 2022 to 31 per cent in Q1 2023.

"We expect further acceleration through fiscal year 2023 as improving supply allows us to expedite delivery of as-a-service solutions to our customers," Robbiati added.

Although as-a-service orders declined 20 per cent in Q1, HPE stressed that it had racked up 136 per cent order growth in the same quarter a year ago - making it a "difficult compare".

"We are comfortable with our robust pipeline of as-a-Service business," Robbiati said.

6) HPE bullish for 2023

Buoyed by its large order book and the improving supply environment, HPE is confident it can beat its previous fiscal 2023 growth target of two to four per cent.

Although HPE's fiscal 2023 performance is likely to be more weighted towards the first half than normal, Robbiati was bullish for the year ahead.

"Given the strong Q1 performance, momentum and substantial order book we continue to have, we are lifting our full year guidance accordingly. We are now targeting five to seven per cent revenue growth adjusted for currency, which is at the midpoint, twice our prior revenue growth guidance," he said.