Company Profile
Spun out from HP
Hewlett-Packard Enterprise (ticker: HPE) was formerly the enterprise product division of HP. In November 2015, it was split from Hewlett-Packard (ticker: HPQ), and the two companies became independent companies. The companies were listed separately.
IPO
On November 2, the day after the spin-off, HPE’s shares were listed on the New York Stock Exchange.
Main business
HPE Technology’s main business is to provide computer hardware manufacturing and software services to enterprise customers for cloud and server, network communications, enterprise storage and other equipment.
In contrast, HP Computer’s main business is general personal computers and consumer electronic devices such as laser printers. Readers who want to know more about Hewlett-Packard Computers can refer to my introduction to this company in 3-1 of my book “The Rules of Super Growth Stocks Investing“.
Introduction to HPE
Content in my book
In my book “The Rules of Super Growth Stocks Investing“, in order to explain the differences and valuations between personal consumption companies and enterprise companies, I also took Hewlett-Packard and Hewlett Packard Enterprise in 3-2 of the book. If HP had not separated from HPE, which is responsible for the enterprise market and servers in the group, in 2015, the company’s market value would have been dragged down. This was the main consideration for the spin-off at that time.
Posts on my blog
In my blog, I have written two posts focusing on HP:
- “How does HP make money? The pros and cons of investing in HP“
- “Is Buffett no longer hold for long haul? TSMC, HP, and US Bancorp cases study“
Acquisitions and spinoffs
Spinoffs
In May 2016, Hewlett Packard Enterprise (HPE) spun off its enterprise services division (HP Services) and merged with Computer Sciences Corp. (CSC), a computer system consulting company. This includes Electronic Data Systems (EDS), which HP acquired in 2008 for $13.9 billion.
In February 2017, the new company after the merger of CSC and HPE Enterprise Services was named DXC Technology (ticker: DXC).
Mergers and Acquisitions
- In August 2016, HPE acquired Silicon Graphics International (SGI), which is known for its high-performance computing capabilities.
- In January 2017, HPE Technologies acquired data management platform SimpliVity for US$650 million.
- In March 2017, HPE Technologies acquired flash storage provider Nimble Storage.
- In May 2019, HPE Technology acquired Cray, an American supercomputer system provider.
- In July 2021, HPE Technologies acquired Zerto, a provider of integrated disaster recovery, data protection and cloud mobility solutions for IT resiliency.
- In January 2024, Hewlett Packard Enterprise announced that it would acquire Juniper Networks (JNPR) for US$14 billion. However, this transaction is currently under investigation by the British antitrust regulator to assess the potential risks caused by the transaction. Competition issues.
Aruba Network
On May 19, 2015, HP completed the acquisition of Aruba Networks before splitting from HPE Technologies. Aruba is the main “edge” computing and wired and wireless communications business division of Hewlett Packard Enterprise Technology, covering all of the company’s network and security-related businesses. Aruba’s products include network switches, access points, hotspots and wireless controllers.
HPE’s main business units
- Smart Edge (10% of revenue) – Offers platforms designed for network security, including Aruba Networks and Silver Peak Systems.
- HPC and MCS (11% of revenue)—High-performance computing and mission-critical systems, including HP Labs.
- Computing (44% of revenue) – core server business.
- Storage (17% of revenue) – Core storage business, including the acquired Zerto.
- HPE Financial Services (12% of revenue) – Provides financing services to HPE customers and partners.
- A&PS (accounting for 4% of revenue) – provides enterprise consulting and professional services through “HPE Pointnext”.
- Corporate investments (2% of revenue) – includes HPE’s venture capital arm and communications technology group.
Operating performance
Performance in Q1 2024
HPE’s first-quarter revenue (ended April 30) was US$7.2 billion, a 3% increase from the same period last year. Adjusted earnings per share were $0.42, a decrease of 19% compared with the same period last year.
Growth in HPE’s server business also offset declines in its smart edge and hybrid cloud businesses, both of which faced tougher challenges compared with the previous year. However, the AI-driven shift from higher-margin smart edge revenue to lower-margin server revenue reduced gross margin. This pressure is exacerbated by an unfavorable mix of lower margins in the hybrid cloud business.
Benefit from artificial intelligence
HPE’s server sales grew significantly in the first quarter of 2024 as more companies upgrade servers to handle more demanding AI work. CEO said: As we capitalize on growth opportunities in artificial intelligence, we are also seeing signs of recovery in the traditional and cloud infrastructure markets.
The CEO pointed out that corporate capital expenditures on artificial intelligence are good for the company’s business. He said: We have deep expertise in designing, manufacturing and operating artificial intelligence systems at scale, driving the cumulative orders for artificial intelligence systems to grow to US$4.6 billion, of which enterprise artificial intelligence orders account for more than 15%. He went on to say that the company is seeing stronger order conversion from AI. This, coupled with “prudent cost control and higher-than-expected free cash flow,” lays the foundation for future success.
Outlook
Following the strong results, management raised full-year guidance and now expects revenue growth in the 1% to 3% range, while also raising earnings per share guidance to $1.85 to $1.95 from $1.82 to $1.95.
Capital market performance
Share price performance
As of July 8, the stock price has increased by 22.95% in the past year. From 2024 to July 8, the company’s stock price increased by 23.39%.
Valuation
The forward price-to-earnings ratio is just 11 times.
Dividend
The forward cash dividend yield is 2.7%.
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