Hewlett Packard Enterprise Q3 Earnings Call Highlights

Record Q3 performance: HPE reported revenue of $12.2 billion, up 34% year over year, with a 40% non-GAAP gross margin, $1.11 in non-GAAP EPS and record third-quarter free cash flow of $958 million. AI demand is accelerating, but supply remains a constraint: Orders rose 42% and backlog reached a record level, while AI systems orders climbed more than 30% sequentially. Memory, NAND flash and other component shortages are limiting revenue conversion and are expected to persist into fiscal 2027. HPE raised its outlook: The company increased its fiscal 2026 EPS and free-cash-flow targets and now expects fiscal 2027 revenue growth of 13% to 17%, EPS of $4.40 to $4.60 and free cash flow of at least $5 billion, supported by networking, AI infrastructure, an Oracle collaboration and a new hyperscaler server deal.

Hewlett Packard Enterprise NYSE: HPE reported record fiscal 2026 third-quarter results, citing accelerating demand for AI infrastructure, continued networking momentum and disciplined pricing. The company also raised its fiscal 2026 outlook and updated its fiscal 2027 growth framework as orders outpaced revenue and backlog reached a record level. Revenue for the quarter totaled $12.2 billion, up 34% from a year earlier and above the high end of the company’s guidance range. HPE reported a record non-GAAP gross margin of 40%, non-GAAP operating profit of $2 billion and non-GAAP diluted earnings per share of $1.11. GAAP EPS was $1.06. Free cash flow reached $958 million, HPE’s highest third-quarter result, while operating cash flow was $1.6 billion. Chief Executive Officer Antonio Neri said the company exceeded its financial commitments across revenue, gross margin, operating profit and earnings per share.

HPE said normalized order growth was 42% year over year, led by demand for traditional servers, AI systems and networking products. The company said it booked more orders than in any prior quarter, producing a record backlog. However, management said supply constraints continue to limit its ability to convert demand into revenue. Neri cited constraints involving DDR5 and DDR4 memory, NAND flash and other components affected by wafer capacity. HPE is seeking to address the situation through increased purchase commitments, multiyear supplier agreements, alternative product configurations and closer demand planning with customers. Chief Financial Officer Marie Myers said inventory ended the quarter at $11.8 billion, reflecting higher commodity costs and targeted purchases intended to support rising orders and backlog. HPE’s cash conversion cycle improved by one day sequentially, helped by collections and billing timing, although higher inventory partially offset those gains. Management said supply availability should improve enough to support higher revenue conversion in the fourth quarter, while remaining a constraint into fiscal 2027.

Networking revenue was $2.9 billion, up 10% on a normalized basis, while orders increased 36%. Myers said orders grew about 3.5 times faster than revenue, with supply constraints and shipment timing limiting data center networking revenue conversion. Networks for AI orders reached a ...