Hewlett Packard Enterprise (HPE) reports mixed first quarter results, beating adjusted EPS expectations but missing on revenue –– the company reporting $6.76 billion versus the $7.10 billion expected. CEO Antonio Neri tells Yahoo Finance the revenue shortfall stems from tough competitors, network slowdown, and constrained AI supply. Despite these challenges, Neri stresses that HPE continues to drive "very strong profitability, up 200 basis points year over year."

On AI, Neri notes enterprise adoption requires robust data center capabilities that the enterprise space currently lacks. To this end, HPE aims to build out AI-optimized infrastructure. In the meantime, the company plans to "offer alternatives" to meet customer needs within AI's limitations.

As AI adoption advances, Neri sees HPE's technology becoming critical to running complex AI systems at scale.

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Editor's note: This article was written by Angel Smith

Video Transcript

BRIAN SOZZI: HPE shares in focus after some sales results and overall results that may have surprised a few investors. Let's get right to HPE CEO Antonio Neri. Antonio, always nice to see you. I think a lot of focus today is on the double digit revenue drop. Explain to investors what happened in the quarter. And then what did you see towards the end of the quarter?

ANTONIO NERI: Well, good morning, Brian. Thanks for having me. There is a lot to be proud about this quarter, although it was mixed in the sense that we beat our own profitability expectations. We continue to drive that recurring revenue, which was up another 41%. And obviously, we beat the EPS. But our total revenue was below our expectation. It was driven by three key factors, I would say.

Number one, let's remind ourselves we have tough competitors. Because last year this time of the quarter, we had to ship all that backlog. And therefore, we had that tough compare this time around. But I think people understand that.

But really, the two key drivers of the kind of softening on the revenue were the networking slowdown in the market, which is consistent with our peers. And then second is the fact that AI, although is strong, we don't have enough supply.

And part of that revenue we shipped in the quarter actually went to the deferred revenue. And that's going to be the case going forward. Because as enterprises ramp, particularly on the inferencing aspect, they cannot afford these large systems. They have to pay as you go. So that's why you have that dynamic.