(Bloomberg) — Hewlett Packard Enterprise Co. said its revenue beat analysts’ expectations on strong sales growth of servers for artificial intelligence, sending the company’s shares up 17% in after-hours trading.
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The company said in a statement on Tuesday that second-quarter revenue rose 3.3 percent to $7.2 billion. Wall Street had expected $6.82 billion, down 2 percent from a year earlier, according to data compiled by Bloomberg. Profit, excluding some items, came to 42 cents a share for the period ended April 30. Analysts' average estimate was 39 cents.
The strong performance was driven by the company's server business, which had revenue of $3.87 billion, compared with the $3.45 billion that analysts had expected on average. The company said revenue from AI systems doubled from the first quarter to more than $900 million. CEO Antonio Neri said in an interview that the increase in AI systems revenue was due to higher demand and improved availability of high-performance semiconductors from Nvidia.
The company's shares closed at $17.60 on the New York market and rose to a record high of $20.90 in after-hours trading. Server industry peers Dell Technologies Inc. and Supermicro Computer Inc. have seen their stock prices rise 77% and 171%, respectively, this year thanks to their AI server businesses, while HPE shares are up just 3.7%.
“I think the market is starting to realize this,” Neri said of HPE's AI server business. “After today's announcement, I think the market will understand even more.”
HPE's current backlog for AI systems is $3.1 billion, Chief Financial Officer Marie Myers said on an earnings conference call. Dell said last week it has a $3.8 billion backlog for AI servers.
The company said it now expects sales of $7.4 billion to $7.8 billion for the quarter ending in July, compared with the $7.45 billion that analysts on average expected. Excluding some items, it said it expected earnings per share of 43 cents to 48 cents, beating the 46 cents expected.
HPE raised its fiscal year revenue outlook to a 1% to 3% increase from a previous forecast of flat to 2% growth. The company said earnings would be about $1.90 a share, at the midpoint of the range, up from its February forecast of about $1.87 a share.
“The expansion of AI servers is finally coming to fruition,” wrote Woo Jin-ho, an analyst at Bloomberg Intelligence. But the full-year outlook is disappointing given the expansion of its AI business, suggesting other business lines such as networking are dragging down performance, he said.
HPE's Intelligent Edge, which includes its networking business, reported second-quarter revenue of $1.09 billion, well above the average estimate of $1.25 billion. In January, HPE agreed to acquire Juniper Networks for $14 billion to broaden its networking offerings. Neri said he expects customer demand to improve as the year progresses.
(Updates server backlog in sixth paragraph.)
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