How are rising memory prices reflected in the profitability outlook for data center and networking? What are the assumptions for memory prices, and is supply secured for the guidance?

The guidance contemplates line of sight for necessary supply and profitability. Memory costs are expected to increase double-digits throughout 2026, following triple-digit increases between CQ4 and CQ1. HPE is securing supply, protecting margins through pricing adjustments, and managing product mix, favoring higher-margin businesses. Networking is less impacted by memory costs. “In our guide, the guide Marie just provided, we have contemplated our line of sight for the supply that we need to deliver that outlook range both on the revenue side and on the profitability side.”

With price increases due to memory costs, why isn't there more revenue growth tailwind rather than demand destruction? Is the guidance conservative, and how are customers behaving?

Demand remains very strong, with no signs of slowdown. Customers understand the price increases and are focused on getting products quickly, even if it means higher costs or different configurations. The guidance is prudent, factoring in supply limitations, but the company does not see demand destruction, only a shift in unit economics and a focus on speed. “There was no one single customer that told me, I don't want the product because now it's too expensive or higher price than I thought. All of them said, okay, I understand the price increases. What we can do to shape the demand, maybe a different configuration.”

What is driving the uptick in Networking growth expectations (mid- to high single digits)? Why is the full-year margin guide for Networking lower than Q1's 23.7%?

Networking growth is driven by strong product demand (self-driving networks, WiFi 7 adoption, data center switching, routing for AI) and successful Juniper integration. The Q1 margin beat was due to scale, pricing discipline, and early synergies. The full-year margin guide remains prudent at low 20s because the integration is still in Phase 1, with more work and synergies yet to be realized. “So the combination of data center switching and routing, which is what we call networks for AI, now we expect that to grow to $1.7 billion to $1.9 billion in cumulative orders, up from the $1.5 billion.”

HPE

Hewlett Packard Enterprise (HPE) Q1 FY26 earnings call: guidance and Q&A

Earnings call· Jan 2026 (Q1 FY26)· Information Technology· Mar 9, 2026

Source: earnings call transcript

Executive summary

Hewlett Packard Enterprise Q1 FY26 — Strong Networking Performance and Raised Outlook

HPE delivered a strong Q1 FY26, driven by robust Networking performance and disciplined execution in Cloud & AI, leading to a raised full-year outlook. The company is actively managing significant commodity cost inflation and supply tightness through agile pricing and long-term supply agreements, while GreenLake and AI deployments continue to drive strong demand. The successful integration of Juniper Networks is contributing to the positive momentum and synergy realization.

Highlights

Q1 revenue was $9.3 billion, up 18% year-over-year, reaching the high end of the outlook range.
Delivered record earnings per share of $0.65, well above the high end of the outlook.
Achieved strong Q1 free cash flow of $708 million, atypical for a Q1.
Networking segment revenue increased 152% (7% normalized) and operating margin reached 23.7%.
AI Systems backlog reached a record $5 billion, primarily composed of enterprise and sovereign orders.

Concerns

The IT market is facing sharp acceleration in supply tightness and increasing component costs, most notably in DRAM and NAND, expected to persist into 2027.
Cloud & AI full-year revenue growth outlook was lowered to mid- to high single-digit from prior mid-single-digit to low double-digit range.
Q2 operating margin is expected to be down sequentially due to annual compensation increases, marketing expenses, and commodity cost increases.
The company is monitoring developments closely regarding the Supreme Court's recent tariff decision and the highly fluid Middle East business.

Guidance & targets

Category	Target	Timeline	Confidence
Full-year FY26 Non-GAAP EPS	$2.30 to $2.50 high materiality	FY26	High
Full-year FY26 GAAP EPS	$1.02 to $1.22 high materiality	FY26	High
Full-year FY26 Networking Revenue Growth	68% to 73% reported basis, mid- to high single-digit normalized basis high materiality	FY26	High
Full-year FY26 Cloud & AI Revenue Growth	mid- to high single-digit growth high materiality	FY26	Medium
Full-year FY26 OI&E Outlook	$540 million to $590 million medium materiality	FY26	High
Full-year FY26 Free Cash Flow	at least $2 billion high materiality	FY26	High
Q2 FY26 Total Revenue	$9.6 billion to $10 billion high materiality	Q2 · FY26	High
Q2 FY26 Networking Revenue Growth	142% to 152% year-over-year on a reported basis medium materiality	Q2 · FY26	High
Q2 FY26 Non-GAAP EPS	$0.51 and $0.55 high materiality	Q2 · FY26	High
Q2 FY26 GAAP EPS	$0.09 and $0.13 high materiality	Q2 · FY26	High
Long-term FY28 Non-GAAP EPS	at least $3 high materiality	FY28	High
Long-term FY28 Free Cash Flow	more than $3.5 billion high materiality	FY28	High
Cumulative Networks for AI Orders	$1.7 billion to $1.9 billion high materiality	FY26	High

Segment performance

Segment	Revenue	YoY	QoQ	Margin
Networking Strong performance driven by Juniper integration, demand in data center switching and routing, and accelerating adoption of WiFi 7. Operating margin was above guidance due to scale, pricing discipline, and early Juniper synergies. Normalized revenue growth: 7%Orders growth: low double digitsWiFi 7 access points sold: 10x increaseMist and Aruba Central cloud platforms connected devices: up 28%Data center switching normalized orders growth: mid-40%Routing normalized orders growth: mid-20%Enterprise revenue normalized growth: 2%Service provider revenue normalized growth: 20%	$2.7 billion	152%	—	23.7%
Cloud & AI Revenue declined due to timing of AI server revenue shipments, offset by traditional server growth and stable storage/Financial Services. Operating margin was better than expected due to pricing actions, cost discipline, and focus on higher-margin orders. Operating profit growth: 18% YoYServer orders growth: low double digitsAI Systems orders: $1.2 billionStorage Alletra MP orders growth: 42%	$6.3 billion	-3%	—	10.2%
Financial Services Delivered an exceptional quarter with record return on equity. Expected to be a growth engine for HPE following Juniper acquisition. Return on equity: 27%	roughly flat	—	—	—

HPE operating KPIs by quarter

HPE operating KPIs stated on its earnings calls, by fiscal quarter
KPI	Jan 2025 Q1 FY25	Oct 2025 Q4 FY25	Apr 2026 Q2 FY26	Jul 2026 Q3 FY26	Change vs prior quarter
Customers HPE GreenLake Cloud	41K+ We finished Q1 with more than 41,000 enterprises using HPE GreenLake Cloud. Source: earnings call transcript	~46K We added approximately 7,000 new customers to GreenLake, ending the year with approximately 46,000 customers. Source: earnings call transcript	~50K We exited Q2 with approximately 50,000 customers operating their IT in our GreenLake cloud, managing more than 6.7 million systems, up from 5.3 million a year ago. Source: earnings call transcript	52K In Q3, the number of GreenLake customers grew 18% to 52,000, up from 44,000 a year ago. Source: earnings call transcript	—
Annual recurring revenue (ARR)	$2.1B Our annual recurring revenue was $2.1 billion, up 46% year-over-year, driven by AI and Intelligent Edge. Source: earnings call transcript	$3.2B Total company ARR was $3.2 billion, up 62% year-over-year with the addition of Juniper. Source: earnings call transcript	—	—	+52.4%

Operating figures the company stated on at least two of the calls shown, checked against each call's transcript. Click a figure to read the sentence. A dash means it was not stated that quarter.

Orderbook & backlog

AI Systems backlog $5 billion start of Q2 FY26

Primarily composed of enterprise and sovereign orders; sales pipeline remains multiples of backlog.

Cumulative networks for AI orders $1.7 billion to $1.9 billion end of FY26

raised from $1.5 billion

Target for cumulative orders by the end of fiscal '26, driven by data center switching and routing products.

Product announcements

Product	Type	Timeline	Details
PTX Series routers	launch	in advance of Mobile World Congress
New server innovations for 5G and AI deployments	launch	in advance of Mobile World Congress

Deals & partnerships

Juniper Networks acquisition integration

Phase 1 of Juniper integration is complete, with sales integration into a single HPE networking sales organization finalized in Q1. Focus now on scaling and driving revenue synergies.

H3C transaction

Good progress on previously announced H3C transactions, which remain on track to conclude in the first half of calendar 2026.

Risks & headwinds

Commodity supply tightness and increasing component costs well into 2027

DRAM and NAND make up over half of traditional server BOM cost; elevated prices expected to persist well into 2027.

Mitigation:Securing supply through expanded long-term multiyear agreements; agile pricing posture with price adjustments and shorter quote commitment cycles; amended quoting terms with right to reprice existing orders; proactive communication with customers and channel partners.

Impact of Supreme Court's recent tariff decision

Not quantified, greater clarity needed to fully assess potential business impact.

Mitigation:Monitoring developments closely.

Fluid business environment in the Middle East

Not quantified.

Mitigation:Closely monitoring business; guidance reflects best estimates and mitigation measures.

Impact on AI Systems revenue growth rate FY26

Lowering full year Cloud & AI revenue growth to mid- to high single-digit from prior mid-single-digit to low double-digit range.

Mitigation:Strategy prioritizes higher-margin product orders.

Q&A highlights

Will current environment drive more customers to GreenLake? Were there pull-ins or push-outs due to price increases?

GreenLake adoption is expected to increase due to its flexible subscription model, with HPE Financial Services playing a key strategic role. Demand remains very strong with no push-outs, as customers prioritize speed of product delivery over price increases, often accepting higher costs or alternative configurations.

“All of them said, okay, I understand the price increases. What we can do to shape the demand, maybe a different configuration. Some may take a lower-end configuration to get the product, but it was all about speed to get the product, not the price.”

asked by Ruplu Bhattacharya · answered by Antonio Neri

3 min read 6 chapters

Detailed narrative

Commodity Headwinds and Mitigation Strategy

The IT market is experiencing significant supply tightness and escalating component costs, particularly for DRAM and NAND, which now constitute over half of a traditional server's bill of materials. These elevated prices are expected to persist into 2027. HPE is addressing this by securing supply through expanded long-term multiyear agreements with key partners, implementing agile pricing with shorter quote commitment cycles, and reserving the right to reprice existing orders for commodity cost increases.

The company is also proactively communicating with customers and channel partners to provide visibility and offer alternative configurations.

Juniper Integration and Networking Momentum

Phase 1 of the Juniper Networks integration is complete, with the company on track to achieve fiscal '26 synergy targets. The Networking segment, combining Juniper and Intelligent Edge, now represents nearly 30% of HPE's total revenues and over half of its operating profits.

The segment saw 152% revenue growth (7% normalized) and low double-digit order growth, driven by strong demand in wireless, data center switching (mid-40% normalized order growth), and routing products (mid-20% normalized order growth). The sales integration of Juniper and Aruba teams was completed in Q1, forming a unified HPE networking sales organization.

GreenLake and Subscription Services Growth

GreenLake remains a critical differentiator, with the platform approaching 50,000 customers in Q1. The company is on track to reach its $3.5 billion ARR target by the end of fiscal '26, fueled by strong subscription services across networking, storage, and cloud software.

GreenLake's elastic consumption model and HPE Financial Services' strategic role are enabling customers to manage costs and maximize IT infrastructure value, especially during high commodity cost cycles.

AI Systems Backlog and Enterprise Adoption

HPE entered Q2 with a record AI Systems backlog of $5 billion, primarily comprising enterprise and sovereign orders, with the sales pipeline remaining multiples of this backlog. The company is observing increased enterprise adoption of agentic AI into business workflows and a rapid growth in AI inferencing, which aligns well with its portfolio.

The strategy prioritizes higher-margin product orders, which may impact the AI Systems revenue growth rate for the year, with shipments expected to ramp in the back half of FY26.

Catalyst Modernization and Cost Programs

HPE continues to make excellent progress on its Catalyst modernization and cost programs, which are tracking to plan and contributing to higher profitability. These initiatives are delivering meaningful cost savings by automating critical operational capabilities and deploying AI at scale across the enterprise.

Examples include using generative AI to target a 90% reduction in search time for engineers and leveraging AI-optimized recommendations to achieve 30% faster quote cycles, enhancing efficiency and customer experience.

HPE Financial Services Performance

HPE Financial Services (HPE FS) delivered an exceptional quarter with a record return on equity of 27%. During periods of high commodity costs, HPE FS provides a strategic advantage by enabling customers to maximize the value of their current IT infrastructure and access certified preowned technology.

The company anticipates networking to become a significant growth engine for HPE FS following the Juniper acquisition, capitalizing on the broader portfolio.

Summary of the company's earnings call; see how call summaries are prepared. Not investment advice.