Hewlett Packard Enterprise Q1 Earnings Call Highlights

Hewlett Packard Enterprise (NYSE:HPE) opened fiscal 2026 with what executives described as a strong first quarter, driven by outperformance in its networking business and disciplined execution in cloud and AI despite a tightening component supply environment. Management said results and demand trends supported an increase to full-year fiscal 2026 guidance for earnings per share and free cash flow, while also updating segment revenue expectations to reflect its strategy and the current commodity backdrop.

First-quarter results, demand, and cash flow

For the fiscal first quarter, HPE reported revenue of $9.3 billion, up 18% year over year, and record non-GAAP diluted EPS of $0.65, which management said was “well above the high end” of its outlook range. Free cash flow was $708 million, which CFO Marie Myers highlighted as notable because the first quarter is typically a seasonal cash flow outflow for the company.

Myers said gross margin improved sequentially to 36.6%, aided by pricing discipline and a more favorable mix toward networking, which helped offset higher commodity costs “particularly in memory.” Operating margin came in at 12.7%, above expectations, while operating expenses declined 5% sequentially due to cost discipline. GAAP EPS was $0.31.

Both CEO Antonio Neri and Myers emphasized that orders exceeded revenue in the quarter, building backlog as customers invested in data center modernization and, in some cases, accelerated purchases ahead of expected component cost increases.

Commodity shortages and pricing actions

Executives repeatedly returned to industry-wide supply tightness and rising component costs, most notably DRAM and NAND. Neri said the company expects elevated prices to persist “well into 2027,” adding that memory now represents more than half of the bill of materials cost of a traditional server and is expected to rise further as costs increase.

HPE outlined several actions to manage the environment:

• Securing supply: HPE said it expanded long-term, multi-year agreements with key silicon and memory partners to secure capacity.
• Protecting margins through pricing: The company adopted “agile pricing” with shorter quote commitment cycles and amended quoting terms to allow repricing of existing orders for commodity cost increases between quoting and shipment.
• Demand shaping and communication: HPE said it is proactively communicating with customers and channel partners on lead times and costs and recommending alternative configurations where needed.

During Q&A, Neri said customers he met in Europe understood price increases and were primarily focused on obtaining products faster. He said HPE had seen “zero impact on demand at this point in time,” though the company acknowledged it is steering demand toward lower-memory configurations where appropriate and prioritizing higher-margin orders. Myers added the company implemented DRAM-related price increases beginning in November 2025 and raised prices multiple times through January.

Networking momentum and Juniper integration

HPE said its new reporting structure now has two primary segments: networking (combining Juniper Networks with HPE’s historical Intelligent Edge business) and cloud and AI (servers, hybrid cloud, and financial services). Neri said networking has grown to nearly 30% of total revenue and “more than half” of total operating profits.

Networking revenue rose 152% on a reported basis and 7% on a normalized basis, with orders up “low double digits,” driven by strength in wireless, data center switching, and routing. Myers reported networking revenue of $2.7 billion, up 7% normalized, and operating margin of 23.7%, slightly above guidance, supported by scale, pricing discipline, and early Juniper synergies.

On product trends, Myers said data center networking and routing delivered 31% and 10% normalized growth, respectively, while campus and branch grew 2% and security declined 5%. On a customer basis, she said enterprise revenue grew 2% normalized and service provider revenue rose 20%, reflecting investments in high-performance data center fabrics and routing capacity to support AI training and inference.

Neri also highlighted a rapid ramp in Wi-Fi 7, saying the company sold more than 10 times the number of Wi-Fi 7 access points compared with a year earlier, and said devices connected to Mist and Aruba Central cloud platforms increased 28%.

HPE raised its cumulative “networks for AI” order target to $1.7 billion to $1.9 billion by the end of fiscal 2026, up from $1.5 billion previously. In response to analyst questions, Neri said the increased target reflects both existing customers expanding deployments and new wins across service providers and “neo clouds,” as well as cross-selling benefits from HPE’s broader go-to-market capabilities. He said the pipeline is “very, very strong,” though the company did not provide a further breakdown between switching and routing within that target.

On integration, HPE said phase one of Juniper integration is complete and it remains on track to achieve fiscal 2026 synergy targets. Neri said the company completed its networking sales integration in the first quarter by merging Juniper and Aruba sales teams into a single HPE networking sales organization.

Cloud and AI: mixed revenue, profitability, and AI backlog

In the cloud and AI segment, revenue fell 3% to $6.3 billion, which management attributed primarily to the timing of AI server revenue shipments, partially offset by growth in traditional servers and stable storage and financial services performance. Operating margin in the segment was 10.2%, above expectations, with operating profit up 18% year over year, helped by pricing actions and cost discipline.

HPE said server orders grew low double digits, supported by traditional server demand tied to AI deployments and infrastructure modernization. However, management said AI demand and revenue are expected to remain uneven due to some large sovereign deals with extended lead times, with shipments expected to ramp in the back half of the year. HPE ended the quarter with a record AI systems backlog of $5 billion and said its sales pipeline remains “multiples” of that backlog. Myers said AI systems orders in the quarter were $1.2 billion and “largely enterprise-driven.”

In storage, the company said it continues shifting to its own IP portfolio strategy. Neri said Storage Alletra MP orders rose 42% year over year, the fifth consecutive quarter of double-digit growth, while Myers said storage revenue (including private cloud and GreenLake software solutions) was up 1%.

GreenLake was cited as a key differentiator. Neri said HPE approached 50,000 customers on the GreenLake cloud platform in the quarter and reiterated its expectation that annualized revenue run-rate (ARR) is on track to reach $3.5 billion by the end of fiscal 2026. He also said VM Essentials virtualization revenue grew sequentially for a third straight quarter, with high double-digit new logo growth year over year, and that private cloud AI orders increased for a fourth consecutive quarter.

Updated guidance and key modeling points

For fiscal 2026, HPE raised its non-GAAP EPS outlook by $0.05 to a range of $2.30 to $2.50. The company also increased GAAP EPS guidance by $0.40 to $1.02 to $1.22 and lifted its free cash flow outlook to at least $2 billion, up from a prior range of $1.7 billion to $2 billion.

Myers said HPE raised full-year networking revenue growth guidance to 68% to 73% reported, or mid- to high-single-digit growth on a normalized basis. At the same time, the company lowered its full-year cloud and AI revenue growth outlook to mid- to high-single-digit growth, citing a strategy that prioritizes higher-margin product orders amid supply dynamics, which management said may affect the AI systems revenue growth rate for the year.

For the fiscal second quarter, HPE guided to revenue of $9.6 billion to $10.0 billion and non-GAAP EPS of $0.51 to $0.55 (GAAP EPS of $0.09 to $0.13). Myers said the company expects Q3 to be its largest AI revenue quarter, while profitability is expected to be weighted toward Q4.

Executives also flagged macro uncertainties, including the impact of component inflation, monitoring developments following a recent Supreme Court tariff decision, and a “highly fluid” situation in the Middle East, noting that guidance reflects the company’s best estimates and mitigation measures as of the call.

About Hewlett Packard Enterprise (NYSE:HPE)

Hewlett Packard Enterprise (HPE) is an enterprise technology company that designs, develops and sells IT infrastructure, software and services for business and government customers. Its core offerings span servers, storage, networking, and related software, together with consulting, integration and support services aimed at modernizing and managing enterprise IT environments. HPE’s product portfolio includes systems for traditional data centers as well as solutions for high-performance computing, edge computing and telecommunications infrastructure.

A major focus for HPE is hybrid cloud and consumption-based IT.