“Customers are discovering new ways to use AI, adding to our already robust pipeline and creating even more runway for our broader AI offerings,” HPE CEO Antonio Neri said as the company released fiscal third-quarter financial results. “Enterprise interest in generative AI is very high, and although adoption is still in the early stages, it is accelerating.”

Hewlett Packard Enterprise CEO Antonio Neri told investors on Wednesday that AI momentum is picking up, with orders for AI systems rising sequentially from $1.6 billion in the most recent quarter to a cumulative $6.2 billion since the first quarter of fiscal 2023.
“Our momentum in AI is very clear,” Neri said. “Customer demand for HPE AI systems has grown sequentially, with opportunities growing in both enterprise and sovereign AI cloud as customers explore more use cases.”
Total orders for AI systems are up by about $3.5 billion compared to last year, Neri said.
For the third fiscal quarter ended July 31, HPE converted nearly $1.3 billion of orders into AI systems revenue, an increase of nearly 40 percent from the previous quarter.
“Customers are discovering new ways to use AI, adding to our already robust pipeline and creating even more runway for our broader AI offerings,” Neri said. “Enterprise interest in generative AI is very high, and while adoption is still in the early stages, it is accelerating. Customers tell us they see the possibilities and are building business cases.”
In fact, HPE sees use cases across a number of enterprise sectors, from healthcare to financial services and manufacturing, Neri said. As the use cases “mature,” those customers are looking for help from HPE and its partners to guide implementation across the enterprise, Neri said.
HPE is about to get a major boost to its AI efforts, with this week marking the formal general release of its breakthrough HPE Private Cloud AI turnkey offering, developed in conjunction with AI kingpin Nvidia as part of the new “NVIDIA AI Computing by HPE” portfolio.
“With three clicks and deployment in less than 30 seconds, HPE Private Cloud AI dramatically simplifies DevOps, ITOps, and FinOps for enterprise customers, allowing them to easily deploy and scale their products.” [AI] “We have an environment where we can protect our environment,” he said.
In an interview CRN Ahead of the conference call, Neri said AI “momentum” remains “very strong” with service providers and generative AI leading the way with large language model builders.
Neri said it’s growing in terms of enterprise adoption, with 15 percent of total orders for AI systems now coming from enterprises. “That’s not even the case with the HPE private cloud AI that’s in the market, which just became available,” he said.
HPE is receiving “positive” AI signals from enterprise customers, with more than 80 percent of enterprises now experimenting with GenAI initiatives, said Mary Myers, HPE executive vice president and CFO.
“This supports our view that favorable trends in customer numbers will continue,” he said. “Our enterprise AI pipeline more than doubled sequentially this quarter.”
Neri said CRN He has “tremendous optimism and excitement” about AI’s growth potential. “Clients are now maturing their business models and becoming more confident in their ability to use this technology,” he said.
Regarding sovereign cloud sales, Neri said there is “a lot of interest,” but these deals take time to close because “the design and procurement process is lengthy” and government and venture capital approvals lead to a longer sales cycle.
In addition to the AI ​​momentum, HPE server sales in the quarter grew 35 percent to $4.3 billion compared to the same quarter last year, while operating margins stood at 10.8 percent, up 70 basis points year over year, but declined 20 basis points sequentially.
HPE server sales through partners increased 27 percent, Neri said.
Myers said AI systems revenue now makes up 30 percent of total systems revenue, up from just 10 percent in the year-ago quarter.
CR Houdyshell, CEO of Advijex, a Fulcrum IT Partners company and a top HPE partner that has invested heavily in hybrid AI and on-premises pay-per-use cloud consumption, said he expects his HPE sales to grow at least double-digits this year, driven by strong sales in both AI infrastructure and on-premises consumption with HPE GreenLake.
Houdyshell praised Jerome Boucher, HPE’s vice president and general manager of high performance computing and AI solutions for North America, for helping advance the strategic partnership with Advijex with respect to HPE AI infrastructure and software.
“These AI infrastructure deals are a lot of heavy work,” he said. “These deals are tough. These are six-month sales cycles. It requires a collective effort with the help of channel-committed sales leaders like Jerome Boucher. Margins are currently low. The important thing is to stay committed to the AI ​​strategy and make the investments necessary to achieve long-term AI benefits.”
Houdyshell said the key to success in advancing AI solutions with partners is to establish AI credibility with both OEMs and customers. “Once you establish that credibility, the big sales will happen,” he said.
Advizax, at number 115 2024 CRN Solutions Provider 500OEMs, including HPE and Dell Technologies, have collectively booked about $60 million in AI infrastructure and software deals this year, Houdyshell said.
“We’re seeing top-line growth with both HPE and Dell as a result of AI and on-premises pay-per-use cloud consumption,” he said.
Houdyshell said a big differentiator at Advijex in driving AI and consumption sales has been the hiring earlier this year of Steve Kuker, a sales veteran with 11 years at Advijex, to the new position of vice president and general manager for high-performance computing and AI.
“Steve Cooker is just focusing on AI and consumption with AI,” he said. “We have a strong sales funnel. The challenge for us is whether we can fulfill enough of them to make this another special year.”
Overall, for its third fiscal quarter, HPE reported non-GAAP earnings of 50 cents per share — two cents above the high end of its guidance — and sales grew 10 percent to $7.7 billion, which was at the high end of HPE guidance.
HPE shares fell 36 cents, or 2 per cent, to $18.41 in after-hours trading.
HPE’s non-GAAP gross margin in the quarter was 31.8 percent, a decline of 410 basis points compared to last year, due to a “lower mix of intelligent edge revenue and a higher mix of AI server revenue,” Myers said.
“We balanced gross margin pressures by executing strong cost controls and maintaining pricing discipline in a competitive AI server market,” Myers said.
Myers said HPE non-GAAP operating expenses declined 7 percent year over year, despite a “seasonal increase” in marketing spending associated with the annual HPE Discover event.
Myers said HPE expects to “balance gross margin pressure from higher mix of AI systems with continued operating discipline” and plans to come in at the low end of operating profit growth guidance of zero to 2 percent.
Neri said HPE is “very pleased” with the services associated with the AI ​​systems. “I believe it will continue to grow as we move into the enterprise segment of the market,” he said. “That segment of the market comes with much richer services — day zero, day one and day two services.”
Neri said most of the AI ​​services are maintenance-related, which is recognized over the contract term. “I’m positive on gross margin growth as we recognize revenue and more services as we start selling HPE private cloud in the enterprise space,” he said.
Overall, the IT demand environment improved in the quarter, Neri said. “We saw sequential and year-over-year order growth, but with some geographic variation,” he added. “Demand was strong in North America, Asia Pacific, Japan and India, while demand remained subdued in Europe and the Middle East. We are aggressively pursuing the opportunity presented by improved market conditions and are well positioned in a competitive and dynamic environment to end our fiscal year.”