HPE projects revenue above estimates, focuses on higher-margin networking orders
Figurines with computers and smartphones are seen in front of Hewlett Packard Enterprise logo in this illustration taken, February 19, 2024. REUTERS/Dado Ruvic/Illustration
March 9 : Hewlett Packard Enterprise forecast second-quarter revenue above Wall Street estimates on Monday, betting on growing demand for its networking equipment as the company prioritizes more higher-margin orders.
The company, which also provides artificial intelligence-optimized servers equipped with Nvidia's chips, raised its fiscal 2026 forecasts for adjusted earnings per share and networking segment revenue growth.
The companies that develop AI servers such as HPE, Dell and Super Micro Computer, typically face margin pressures due to costly production and a quick transition to more powerful chips in a highly competitive market.
"Given supply dynamics, our strategy for the remainder of the year prioritizes higher-margin product orders, which may have an impact on our AI systems revenue growth," CFO Marie Myers said on a post-earnings call.
Big Tech firms like Alphabet, Microsoft, Amazon and Meta are expected to spend at least $630 billion to build AI infrastructure this year, which would boost demand for server and data center equipment.
"Demand for our products and solutions was strong, with orders increasing double digits year over year across all segments," HPE CEO Antonio Neri said in a statement.
Shares of the company rose around 1.3 per cent in extended trading on Monday. The stock has fallen around 9 per cent so far this year, underperforming rival Dell's 16.4 per cent gains.
HPE jostles with Dell and Super Micro Computer in a highly competitive market as they navigate surging memory chip costs due to the buildout of AI infrastructure, forcing companies to increase prices in a bid to offset cost pressures.
HPE has adopted a more flexible approach by shortening quoting cycles and retaining the ability to adjust pricing between the time of the order and shipment to account for rising costs, Neri said.
The company acknowledged that it does not have enough supply to meet current demand, triggering it to focus on higher-margin orders as rising memory chip costs are expected to squeeze the industry through 2027.
HPE said its AI backlog exceeded $5 billion in the first quarter, with enterprise and sovereign customers representing 64 per cent of the cumulative order mix.
The company expects quarterly revenue to be between $9.6 billion and $10.0 billion, above the analysts' average estimate of $9.58 billion, according to data compiled by LSEG.
Revenue rose around 18 per cent to $9.30 billion for the quarter ended January 31, missing estimates of $9.33 billion. Its adjusted EPS of 65 cents exceeded estimates of 59 cents.
HPE raised its fiscal 2026 adjusted EPS forecast to $2.30 to $2.50, compared with its prior expectations of $2.25 to $2.45.
The company also raised its annual revenue growth expectations for the networking segment to 68 per cent to 73 per cent. The networking unit, which includes newly acquired Juniper Networks, mainly consists of products and services that connect servers, data centers and other devices to networks and software applications.
