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Shares ticked up a couple of percent yesterday on news that HPE had reported solid Q2 FY25 results with 6% revenue growth to $7.6bn, demonstrating resilience across all its product segments despite the tough macro conditions. The standout metric was ARR growth of 46% to $2.2bn, reflecting successful transition to subscription-based models.
However, margin pressure remains a worry with gross margins declining 370 basis points YoY to 29.4%. The Server segment, while growing 6%, saw operating margins fall to 5.9% from 11.0% previously, indicating pricing pressure in competitive AI/HPC markets. Conversely, Hybrid Cloud showed strong momentum with 13% revenue growth and operating margins expanding to 5.4% from 1.0%.
However, cash flow deteriorated, with free cash flow turning negative at -$847m versus positive territory last year, reflecting higher working capital requirements and greater investment.
Management's FY25 guidance suggests continued revenue momentum (7-9% constant currency growth) but acknowledges margin headwinds with operating profit growth expected to be flat to -7%. The $1bn free cash flow target indicates confidence in normalising working capital.
Things have moved on from Q1 (HPE shares dip on outlook) with HPE's portfolio diversification paying dividends, but delivering a recovery in margins will be critical for improved investor confidence.
Posted by: Marc Hardwick at 09:08
Tags:
results
infrastructure