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Introduction & Market Context
Hewlett Packard Enterprise (NYSE:HPE) released its Q2 FY25 earnings presentation on June 3, 2025, reporting revenue growth across all business segments while facing margin pressure and cash flow challenges. The company’s stock closed at $17.34, up 1.96% on the day, with minimal movement in after-hours trading, suggesting investors had largely anticipated the mixed results.
HPE delivered total revenue of $7.6 billion, representing a 7% year-over-year increase, while experiencing a sequential decline of 3% from the previous quarter. The company continues to emphasize its AI strategy and cloud services as key growth drivers, with significant momentum in both areas despite broader financial challenges.
Quarterly Performance Highlights
HPE reported solid performance across its business segments in Q2 FY25, with all segments showing year-over-year revenue growth. However, the company faced margin pressure and reported negative cash flow for the quarter.
As shown in the following summary of HPE’s Q2 FY25 results:
The company’s financial results reflect both strengths and challenges. While revenue grew 7% year-over-year to $7.6 billion, non-GAAP gross margin declined 3.7 percentage points from the prior year to 29.4%. Non-GAAP operating profit fell 10% year-over-year to $613 million, representing an 8% operating margin.
The detailed financial summary reveals the extent of HPE’s profitability challenges:
Segment performance varied significantly, with Intelligent Edge delivering the strongest operating margin at 23.6%, while Server and Hybrid Cloud segments showed lower profitability at 5.9% and 5.4% respectively. All segments achieved year-over-year revenue growth, with Hybrid Cloud leading at 15%.
The segment breakdown illustrates the varying performance across HPE’s business units:
AI and Cloud Growth Strategy
HPE’s strategic focus on AI systems continues to gain momentum, with the company signing $1.1 billion of net new AI systems orders in Q2, bringing the cumulative total to $9.3 billion. Notably, one-third of AI systems orders came from enterprise customers, indicating broader market adoption beyond hyperscalers.
The company converted more than $1 billion into AI systems revenue during the quarter, demonstrating its ability to monetize its AI order backlog. The following chart illustrates the growth trajectory of HPE’s AI business:
Similarly, HPE’s GreenLake cloud platform continues to show strong growth, with customer count reaching approximately 42,000 and generating over $2.2 billion in annualized revenue run-rate (ARR), up 47% year-over-year. This performance underscores the success of HPE’s as-a-service strategy.
The GreenLake growth metrics demonstrate the platform’s expanding customer base and revenue contribution:
Financial Challenges
Despite revenue growth, HPE faced significant financial challenges in Q2 FY25. The company reported a GAAP diluted net loss per share of ($0.82), down $1.06 from the prior-year period, while non-GAAP diluted net earnings per share came in at $0.38.
Cash flow presented a particular challenge, with cash flow used in operations of ($461) million and free cash flow of ($847) million for the quarter. The negative cash flow represents a significant deterioration from the prior year period.
The following chart illustrates HPE’s cash flow trends and shareholder returns:
Despite these quarterly challenges, HPE maintains that it expects to generate approximately $1 billion in free cash flow for the full fiscal year 2025, suggesting anticipated improvement in the second half of the year.
The company’s balance sheet remains relatively healthy, with the operating company maintaining a net cash position of $5.2 billion, consisting of $11.2 billion in cash and $6 billion in debt:
Strategic Initiatives
HPE continues to strengthen its partnership with NVIDIA (NASDAQ:NVDA), expanding their collaboration on AI solutions. The companies have announced multiple joint initiatives over the past two years, including the recent introduction of enterprise AI solutions for training, tuning, and inferencing.
The timeline of HPE’s expanding partnership with NVIDIA demonstrates the strategic importance of this collaboration:
Additionally, HPE is accelerating innovation in networking and hybrid cloud, with several new product introductions in recent months. These include the industry’s most advanced private cloud portfolio powered by HPE Morpheus VM Essentials and expanded networking solutions for AI with the new HPE Aruba Networking CX 10K distributed services switch.
The company also expects to close its acquisition of Juniper Networks (NYSE:JNPR) by the end of fiscal year 2025, which should further strengthen its networking portfolio.
Forward-Looking Statements
Looking ahead, HPE provided guidance for Q3 FY25 and reaffirmed its full-year outlook. For Q3, the company expects revenue between $8.2 billion and $8.5 billion, with non-GAAP diluted net earnings per share between $0.40 and $0.45.
For the full fiscal year 2025, HPE projects revenue growth of 7-9% in constant currency, non-GAAP operating profit growth between -7% and 0%, and non-GAAP diluted net earnings per share between $1.78 and $1.90.
The detailed outlook provides visibility into HPE’s expectations for the remainder of the fiscal year:
While HPE faces near-term challenges with margins and cash flow, the company’s continued revenue growth across segments and strong momentum in strategic areas like AI and cloud services suggest potential for improved performance in the second half of the fiscal year. The successful execution of its cost reduction program and the anticipated Juniper Networks acquisition will be critical factors in determining whether HPE can achieve its full-year financial targets.
Full presentation:
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