Hewlett Packard Enterprise Company (NYSE:HPE) Q3 2018 Earnings Conference Call - Final Transcript

Aug 28, 2018 • 05:00 pm ET

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Hewlett Packard Enterprise Company (NYSE:HPE) Q3 2018 Earnings Conference Call - Final Transcript

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Executive
Antonio Neri

are executing well. And it is showing up in our results. After a strong first half, we continue to see solid growth with revenue $6.2 billion, which is up 3% year-over-year or up 5% year-over-year excluding the Tier 1 segment. The operating margin expanded 270 basis points to 10.6% from a greater mix of Gen10, improved pricing, and savings from HPE Next. We're also gaining share in higher margin high growth segments like software-defined infrastructure, high performance compute and mission critical systems. In compute, ISO score grew 10% year-over-year, due to continued market demand, and as for the rate of mix with Gen10, a better options attach, which help drive improved average unit pricing. This is more than offsetting the decline in Tier 1 commodity server sales, as we intentionally exit that type of business. Our hyperconverged segment, which now includes appliances, infrastructure, and our composable offerings grew over 130% year-over-year, and has reached an annual run rate of more than $1 billion. HPE Synergy delivered record revenue and now has more than 1,600 customers.

Finally, high performance compute is another area of strength. Revenue was up 9% year-over-year, and we continue to be the market leader with roughly 35% market share. And we have strong momentum across both public and increasingly private sector deployments. For example, in Q3, we announced a new development in a longstanding relationship with the US Department of Energy to build a new supercomputer for the National Renewable Energy Laboratory. The new system named Eagle will run detailed models that simulate complex processes to advance early research and development of renewable energy technologies across fields, including vehicle, wind power and data sciences. Outside of compute, storage revenue grew 1% year-over-year, even though with tough second half compares. At the same time, we saw 70% growth in big data storage. We expect improved organic growth in Q4, as we drive increased sales productivity, and as our latest storage offerings gain customer attraction. For example, in July we expanded our offering of HPE InfoSight across our 3PAR portfolio, which now enables intelligent all flash storage for our customers. HPE InfoSight is our artificial intelligence platform that helps our customers operate more efficiently in an autonomous data center. We also introduced the next generation of our HPE Nimble Storage platform that enhances the protection of our customers investments and incorporates our store more guarantee, which provides customers with a significant upfront and long-term financial advantage by offering the industry's first guarantee of storage efficiency. We continue to strengthen our HPE Pointnext services business, and we see significant opportunity as we execute those services led go-to-market strategy.

In Q3, HPE Pointnext revenue was down 1% year-over-year, but overall orders grew 4%. More importantly, our most profitable operational services business grew 1% with orders up 8%. This growth is largely due to strong improvement in our services intensity as we shift our focus in more value-added offerings, high growth in HPE GreenLake, and some larger deals. Advisory and Professional Services