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    HPE
    Earnings call· Jan 2026(Q1 FY26)

    Hewlett Packard Enterprise Q1 FY26 earnings call HPE

    Mar 9, 2026 Source

    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

    5

    • 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

    4

    • 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

    13
    CategoryTargetConfidence
    Full-year FY26 Non-GAAP EPS
    $2.30 to $2.50
    high materiality
    High
    Full-year FY26 GAAP EPS
    $1.02 to $1.22
    high materiality
    High
    Full-year FY26 Networking Revenue Growth
    68% to 73% reported basis, mid- to high single-digit normalized basis
    high materiality
    High
    Full-year FY26 Cloud & AI Revenue Growth
    mid- to high single-digit growth
    high materiality
    Medium
    Full-year FY26 OI&E Outlook
    $540 million to $590 million
    medium materiality
    High
    Full-year FY26 Free Cash Flow
    at least $2 billion
    high materiality
    High
    Q2 FY26 Total Revenue
    $9.6 billion to $10 billion
    high materiality
    High
    Q2 FY26 Networking Revenue Growth
    142% to 152% year-over-year on a reported basis
    medium materiality
    High
    Q2 FY26 Non-GAAP EPS
    $0.51 and $0.55
    high materiality
    High
    Q2 FY26 GAAP EPS
    $0.09 and $0.13
    high materiality
    High
    Long-term FY28 Non-GAAP EPS
    at least $3
    high materiality
    High
    Long-term FY28 Free Cash Flow
    more than $3.5 billion
    high materiality
    High
    Cumulative Networks for AI Orders
    $1.7 billion to $1.9 billion
    high materiality
    High

    Segment performance

    3
    SegmentRevenueYoYQoQMargin
    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 billion152%—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———

    Operational metrics

    18
    Q1 Revenue
    $9.3 billionup 18%
    Q1 FY26

    At the high end of outlook range.

    Q1 Non-GAAP EPS
    $0.65record
    Q1 FY26

    Well above the high end of outlook.

    Q1 Gross Margin
    36.6%improved sequentially
    Q1 FY26

    Driven by continued pricing discipline and favorable mix towards networking, offsetting higher commodity costs.

    Q1 Operating Margin
    12.7%better than expected
    Q1 FY26

    Reflected conscious pivot to focus on higher-margin components of the business.

    Q1 Operating Expenses
    down 5%sequentially
    Q1 FY26

    Consistent with outlook, driven by strong cost discipline.

    Q1 GAAP EPS
    $0.31
    Q1 FY26

    Reported GAAP EPS.

    GreenLake Customers
    approaching 50,000
    Q1 FY26

    Number of customers on the GreenLake cloud platform.

    GreenLake ARR Target
    $3.5 billion
    FY26

    On track to reach target by end of fiscal '26.

    VM Essentials virtualization revenue
    grew sequentially3rd consecutive quarter
    Q1 FY26

    Driven by escalating cost of legacy virtualization software.

    VM Essentials new logos growth
    high double-digitYoY
    Q1 FY26

    Driven by escalating cost of legacy virtualization software.

    Private Cloud AI orders
    increased4th consecutive quarter
    Q1 FY26

    Supported by new customer wins across enterprise and service providers.

    Cash Conversion Cycle
    5-day improvementfrom last quarter
    Q1 FY26

    Driven by increase in days payable and decrease in days receivable, offset by increase in days of inventory.

    Inventory
    $6.9 billiondown YoY, up sequentially
    Q1 FY26

    Increased sequentially for assurance of supply given industry-wide supply chain constraints.

    Dividends Paid
    $190 million
    Q1 FY26

    Returned to common shareholders.

    Share Repurchases
    $158 million
    Q1 FY26

    Executed via share repurchases.

    Pro forma net leverage ratio
    2.6xdown from 3.1x
    Q1 FY26

    Improved from after closing Juniper acquisition, due to healthy cash position, lower debt, and improved profitability.

    Generative AI search time reduction target
    90%
    ongoing

    Target for engineers using generative AI to surface technical insights.

    AI-optimized recommendations quote cycle improvement target
    30% faster
    ongoing

    Target for improving configuration workflows and accuracy.

    Industry KPIs

    9
    MetricValueDetails
    Capital return FCF$190 millionUSD
    Unit shipments ASP10x increaseaccess points
    Gross margin drivers36.6%%
    Company specific kpisgrew sequentially
    Services peripheral attach$3.5 billionUSD
    Long term supply agreementsexpanded
    Component supply constraintsDRAM and NAND
    Ai server orders revenue backlog$5 billionUSD
    Revenue mix by end market segmentnearly 30%%

    Orderbook & backlog

    2
    AI Systems backlog$5 billionstart 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 billionend 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

    2
    ProductTypeDetails
    PTX Series routerslaunch
    New server innovations for 5G and AI deploymentslaunch

    Deals & partnerships

    2
    Juniper Networksacquisition 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.

    H3Ctransaction

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

    Risks & headwinds

    4
    Commodity supply tightness and increasing component costswell 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 rateFY26

    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

    7

    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 read6 chapters

    Detailed Narrative

    01

    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.

    02

    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.

    03

    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.

    04

    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.

    05

    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.

    06

    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.

    AI-generated summary of the company’s earnings call. Not investment advice.