HPE0-V15 benefits - HPE ATP - Hybrid IT Solutions Updated: 2024

HP solution providers sold or influenced the sale of about $1 billion in storage products in 2002 and accounted for almost 75 percent of the company's storage sales for the year, said Dan Vertrees, vice president of enterprise partners, Americas region, at HP.

Under the new Partners in Excellence program launched at the conference, authorized HP storage solution providers can sell 121 software SKUs that normally require certification and can qualify for a 6 percent rebate through the end of the year.

These partners have to become certified by June 30 or risk losing the rebate after that date, but they can benefit immediately from sales of the 121 additional products, said Ed Burke, HP's director of partner storage sales. "We are giving them the benefit of the doubt now," he said.

Gary Hazard, vice president of Atrion, a Hillsborough, N.J.-based certified HP partner, said at the conference he sees no risk of new competition from noncertified partners. He added that the certification process is a barrier to partners that are not committed to HP's software.

"Also, selling such software is a six-month sales cycle," Hazard said, adding that it is unlikely that noncertified partners would close a deal quickly enough to qualify for the rebate.

Solution providers at the conference applauded when Vertrees also went on to remind them that when they register new business deals, they can get a business bonus for related orders placed within six months of the initial deal.

Some solution providers were surprised they had not heard about the program, which was buried in a flurry of November Partner One announcements, but said they appreciate its flexibility.

Rich Baldwin, president and CEO of Nth Generation Computing, San Diego, said his company was unaware of the incentive. "That's a huge difference for us," he said.

Hazard concurred. "Instead of registering a $20,000 to $25,000 cluster, we can go in deep and wide for six months," he said.

The company also gave its partners a sneak peak at the EVA 3000 storage array, nicknamed "EVA Light." Intended as a lower-cost entry point to the EVA line, the EVA 3000 is expected to be unveiled in mid-April and have a capacity of up to 55 hard drives, HP sources said.

Summary

Readers may find my previous coverage from August 2023 via this link. My previous rating was a buy as I believed Hewlett Packard Enterprise (NYSE:HPE) would continue to execute just as it did previously, driving growth and taking advantage of the secular tailwind in demand for more high-performance computing [HPC] and AI. My previous expectations played out in the accurate quarter’s performance, where HPC and AI continued to see strong growth.

I am reiterating my buy rating for HPE as the long-term growth outlook remains bright for HPE. While growth is likely to be muted in the near term due to backlog digestion, which I see as a temporal issue, the thing to note is that underlying demand has not weakened. The demand for HPC and AI remains strong, and demand for storage and compute is stabilizing or recovering.

Financials / Valuation

HPE 4Q23 results on 29^th November 2023. 4Q23 performance was in line with consensus expectations. HPE reported revenue of $7.4 billion vs. consensus of $7.4 billion, led by stronger demand for HPC and AI solutions. By segment, compute revenue was down 31% y/y, while HPC and AI revenues were up 37% y/y, Storage revenues were down 13% y/y, and Intelligent Edge revenues were up +41% y/y. Both gross and EBIT margins tracked slightly lower than expected, at 34.8% vs. 35.1% and 9.7% vs. 10.1%. EPS tracked to $0.52 vs. consensus estimate of $0.50, with better non-operating income driving the beat. On a full year basis, HPE reported total revenue of $29.13 billion, growing 2.2% vs FY22, and net income came in at ~$2.3 billion, translating to a margin of 8%. FY23 revenue did not meet my previous expectations, which I attribute to the weakness in traditional compute.

Generally, I am still optimistic on the long-term growth, it is just that I am wrong at the timing of recovery in the near-term. I originally thought that FY23 was going to be the year of recovery, but given that growth is likely to slow down due to backlog digestion in Compute (which is ~50% of total revenue), I revised my growth assumption for FY24 to reflect this. My stance is that customers need to reorder eventually after the backlog depletes, and I expect this to happen in FY25, which will drive growth acceleration to a mid-single digit percentage. My FY24 net income assumption is based on management FY24 EPS guidance, which suggests an improvement in net margin. HPE management has a pretty good track record in meeting its guidance, where over the past 7 years, it has always meet guidance except for 2 occasions (2Q22 and 3Q22). I expect the margin to stay flat in FY25. Overall, I believe HPE is performing well, but from a valuation perspective, it should continue to trade at a discount to peers like SAP, Oracle, IBM, and NetApp because of its weaker growth profile and lower margin. Historically, HPE has traded at a 40% discount to these peers on average. Peers, on average, are trading at ~15x forward PE, and applying a 40% discount equates to ~8x forward PE. As such, I model HPE using 8x forward PE.

Comments

While the stock price movement has been choppy, I thought HPE as a business was doing quite well. With $3.6 billion in server orders, including accelerated processing units [APUs], placed with HPE in FY23, the growth outlook is still looking good. In fact, this is an increase of $600 million since the Securities Analyst Meeting [SAM]. Since these orders include GPU-based orders, I am even more convinced that HPE is riding the HPC and AI demand tailwinds. Another interesting development that indicates a potential turnaround in traditional computing demand is that, in the fourth quarter, management noticed a rise in demand for traditional compute AI servers. The demand was driven by the fact that more enterprise customers are looking for turnkey solutions. For context, in FY23 and 4Q23, APUs accounted for 25% and 32% of HPE's total server orders, respectively; supercomputers accounted for less than 10% of APU orders. From a math standpoint, this means growth can accelerate from here as supercomputers become a larger piece of the pie. I am positive that the demand for high-performance PCs will only grow from here as the world continues to leverage more AI powers to function. Note that management's long-term growth guide is double-digit percentage growth. In FY24, they expect revenue growth in HPC and AI to be above their expected trend. The only constraint to growth is the supply of GPUs, so that is something to take note of. While this is a concern from a volume perspective, the negating factor is that pricing is likely to go up if the supply deficit is huge, which HPE can pass through to customers.

Aside from HPC and AI, HPE is also seeing continued momentum in Intelligent Edge. The long-term goals of low double-digit revenue growth and mid-twenties EBIT margins were significantly surpassed by the segment's 40% y/y growth in revenue and 29.5% EBIT margins. However, I would exercise caution when extrapolating this growth, as client digestion of previously placed orders is likely to keep demand for core products (like switching and wireless) soft in the coming quarters. In FY24, management anticipates that Intelligent Edge will see growth that is slightly lower than in FY23. While this is a major decline from the 42% in FY23, I think viewing growth on a 2-year stack basis makes more sense. Assuming FY24 were to grow at 2 to 3% (low single digits), 2-year stack growth is still 40+% in FY24. Not only is Intelligent Edge seeing stabilization, but storage demand is as well. With three straight quarters of stable demand (revenue stable at over $1 billion and growing sequentially, albeit modestly), demand seems to be stabilizing, even though storage revenue fell 15% year over year in 4Q23. I think the outlook for Storage revenue is bright, as HPE should continue to benefit from the mix shift towards HPE Alletra, which is showing tremendous growth of more than 50% y/y. While I am not confident about the near-term volatility of Storage demand, I am confident that long-term Storage demand will continue to grow as the growing demand for AI will drive increased demand for Storage. More AI usage leads to more data, which leads to more storage.

As for traditional Compute, I have quite a balanced view of it after the 4Q23 performance. While revenue was down 31%, the reason appears to be temporal rather than structural. Customers consuming earlier orders resulted in fewer new orders, and converting orders from their backlog more quickly than anticipated was the main cause of the growth slowdown. As customers continue to run down their backlogs, they eventually need to order more. I believe the cycle is already showing signs of turning, as HPE has seen two quarters of sequential improvement in demand in units and stable pricing in 2H23.

Risk & Conclusion

Device sales could fall short of projections if corporate IT expenditures and data center capital expenditures are lower than anticipated. In addition, the recovery in traditional computing might take longer than I expected, which could cause slowdowns in growth.

Summarizing this post, I reiterate my buy rating on HPE. The sustained demand for HPC, AI, and the stabilization in storage and Intelligent Edge are all positive. I've revised my FY24 growth assumptions, foreseeing a rebound in FY25 post-backlog depletion. Notably, the $3.6 billion server orders and the recovering demand for traditional compute AI servers indicate that HPE is benefiting from the secular tailwind for more computing powers.

Haim Levit, senior vice president and general manager at HP Industrial Print, has seen a wide range of trends this year that look likely to continue into 2024 - not least sustainability, automation, and an ever-predominant balancing act between supply vs demand.

What you need to know

• A Windows bug installed the HP Smart app onto some PCs without permission.

• The issue also renamed printers to be listed as HP devices, even if they were made by a different brand.

• Microsoft released the Printer Metadata Troubleshooter Tool to fix the issue on affected PCs, though it requires you to use Command Prompt.

Earlier this month, a peculiar bug installed the HP Smart app onto PCs without permission. Windows added the app to computers without any HP devices connected or printer drivers installed. The same bug also renamed printers, regardless of brand, to be listed as HP printers.

Microsoft confirmed the issue and promised a fix. That fix is now here, though it's in a different form than many Windows bug fixes. Rather than a Windows update rolling out with a fix, Microsoft has made a separate tool available that will uninstall the HP Smart app and fix the names of your printers.

Specifically, the Microsoft Printer Metadata Troubleshooter Tool will restore the model information and icons of your printer and remove the "HP LaserJet M101-M106" model information (unless that's the exact model of printer you have). The tool will also uninstall the HP Smart app if that app should not have been installed on your PC.

Microsoft outlines how to use the tool in a support document:

• When it is run by enterprise administrators, correcting printers for all users and sessions on a system requires running the tool as the Local System account. Tools such as PsExec or Windows Task Scheduler can run commands as Local System.

• When it is run by users managing their own printers, this tool must be run using administrative credentials. The following are recommended steps to execute the file and confirm it worked:

  • Click Start, type cmd, right-click Command Prompt, and then select Run as Administrator.

  • In the opened command prompt, type cd /d “[path_to_downloaded_tool]” and then press Enter.

  • Type the name of the file appropriate for your device from the list below (for instance PrintMetadataTroubleshooterX86.exe) and then press Enter.

• The tool will return the message Troubleshooter completed successfully on devices where incorrect printer information was found/fixed. Or, it will return the message Troubleshooter not applicable since metadata package not found on devices that are not affected.

A strange bug gets a strange fix

The bug Microsoft just fixed is rather strange. Windows PCs without an HP printer or any HP device connected installed the HP Smart app, seemingly at random. The issue would also rename printers, regardless of their brand, to be listed as HP printers. Many were upset by the bug, since it meant software appeared on their PC without permission. The issue also locked some users out of advanced printer features, since their printer had been mislabeled.

The fix for Windows installing an app without permission is to make people obtain and install another tool. The Microsoft Printer Metadata Troubleshooter Tool takes up very little space, the entire obtain is 877.7 KB. But still, it's somewhat ironic that you have to obtain something and install it to fix a bug that downloaded and installed an app without permission.

Even with the tool installed, applying the fix requires using Command Prompt as an administrator. Tech savvy users will be fine entering code into Command Prompt, but many people have never used Command Prompt. More importantly, people shouldn't have to use Command Prompt and a separate tool to fix a Windows bug.

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