2026 first quarter Hewlett Packard Enterprise earnings conference call all participants will be in a listen only mode should you need assistance please signal a conference specialist by pressing the star key followed by zero after today's presentation there will be an president and chief executive officer and Marie Myers HPE's chief financial officer before handing the call to Antonio let me remind you that this call is being webcast A replay of the webcast will be available shortly after the call concludes. We have posted the press release and the slide presentation accompanying the release on our HPE Investor Relations webpage. Elements of the financial information referenced on this call are forward-looking and are based on our best view of our business and the external factors affecting us as we see them today. HPE assumes no obligation and does not intend to update any such forward-looking statements. We also note that the financial information discussed on this call reflects estimates based on information available at this time and could differ materially from the amounts ultimately reported in HPE's quarterly report on Form 10-Q for the fiscal quarter into January 31, 2026. Figures used in verbal remarks are rounded for ease of discussion. For more detailed information please see our earnings materials as well as disclaimers relating to forward-looking statements that involve risks, uncertainties, and assumptions. Please refer to HPE's filings with the SEC for more detailed discussion of these risks. For financial information that we are showing on a non-GAAP basis, we have provided reconciliations to the comparable GAAP information on our website. Please refer to the tables and slide presentation accompanying today's earnings release on our website for details. Throughout this conference call all revenue growth rates unless noted otherwise are presented on a year-over-year basis. Unless otherwise noted all financial metrics and growth rates discussed today are non-GAAP and EPS refers to non-GAAP diluted net earnings per share. Certain financial information featured in the presentation today has been normalized to include Juniper Network's results as of the beginning of HPE's fiscal year 2025. Antonio and Marie will reference our earnings presentation in their prepared comments. With that, let me turn it over to Antonio.

Thank you, Paul. Good afternoon, everyone. HPE started fiscal 26 with a strong first quarter, delivering revenue growth at the high end of our outlook range and record earnings per share, driven by a strong performance in networking and a disciplined execution in cloud and AI. Our Q1 results give us the confidence to raise our fiscal 26 outlook, which Marie will cover later in the call. Q1 revenue was $9.3 billion, up 18%. We delivered record earnings per share of $0.65, well above the high end of our outlook, with strong Q1 free cash flow of $708 million. dollars. Orders significantly outpace revenues, fueled by strong customer demand. We saw strong product orders across networking, servers, and storage, driven by ongoing AI deployment, on-premises infrastructure modernization, and some customer pull-ins due to ongoing commodity shortages and price increases. GreenLake remains a critical differentiator for our software and services portfolio, delivering strong order bookings, customer adoption, and AIR growth. Phase one of our Juniper integration is complete. We remain on track to achieve our fiscal 26 synergy targets. As we move to our second phase, we are focused on building a new networking market leader by aggressively executing our strategic product and software roadmap while driving revenue synergies through our go-to-market scale. We are excited about what comes next for our customers and our shareholders. Before I provide our business segment highlights, I want to address how we are navigating the commodity shortages and inflationary cost environment impacting the industry. The IT market is facing a sharp acceleration in supply tightness and increasing component costs, most notably in DRAM and NAND. We expect elevated prices to persist well into 2027. We are taking a series of distinct actions to address the current industry dynamics. First, we are focused on securing supply. We have expanded our long-term multi-year agreements with our key silicon and memory partners to secure the capacity needed to meet customer demand. Second, we are protecting our margins. We have adopted an agile pricing posture with price adjustments across the entire portfolio with shorter quote commitment cycles. We have amended our quoting terms with the right to reprice existing orders for commodity cost increases between quoting and shipment. And third, we are proactively communicating with customers partners and channel partners, providing lead time and cost visibility, along with alternative configuration recommendations to share demand. DRAM and NAND now make up over half of the bill of material cost of a traditional server, and the share will continue to rise as component costs increases. As a result, we expect higher average unit prices in both our server and storage products. Networking is more insulated with memory comprising a significantly smaller portion of the bill of materials. Given the supply dynamics our fiscal 26 strategy prioritizes higher margin product orders which have an impact on our AI system to revenue growth rate for the year. Moving on to our Q1 results as communicated that security analysts meeting last October we have streamlined our financial reporting structure into to two primary segments. Our networking segment combines Juniper networks with our historical intelligent edge business, while the cloud and AI segment includes server, hybrid cloud and financial services. I am incredibly pleased with our Q1 networking segment performance and with the excellent progress we have made in integrated Juniper networks. Our strategy is paying off. We deliver strong revenue growth at the high end of our guidance with orders growing faster than revenue. The networking segment now represents nearly 30% of our HPE's total revenues and more than half of our total operating profits. Networking revenue increased 152% and 7% on a normalized basis with orders up low double digits driven by strength in wireless data center switching and routing products with strategic wins and demand strength across the world. In campus and branch, customers are adopting our self-driving AI ops networking strategy and solutions. Normalized orders increased by high single digits. The Y57 transition is ramping quickly. We saw more than 10 times increase in Y57 access points sold with devices connected to both our MIST and Aruba central cloud platforms up 28%. In data center switching, orders increased mid 40% on a normalized basis, driven by strong momentum in AI data centers and ongoing data center modernization efforts. AI data center builders and operators at scale appreciate our speed of execution, high-touch support and innovative congestion management capabilities. Our demand for our routing products was very strong, with orders increasing mid 20% on normalized basis HP now has the most competitive routing portfolio spanning data center interconnect AI on-ramp and edge use cases our recently introduced MX 301 router series is off to a great start with strong demand across all customer verticals driven by a strong order demand momentum in data center switching and routing products we are now targeting 1.7 to 1.9 billion dollars in cumulative networks for AI orders by the end of fiscal 26. Our new combined networking R&D team continue to drive bold innovation. We showcased our leading networking capabilities last month at the Milano Cortina 2026 Winter Olympic Games delivering the connectivity and security for Atlas to access real-time performance data for broadcasters to stream video and for fans to connect with the Olympic I experienced the IT operations firsthand at the Games where our HP experts were there with the Milano Cortina Olympic Committee IT staff working to ensure everything performed at world-class levels. The Olympics serves as a powerful case study for other customers to see the value of our full-stack AI-native networking solutions and the power of a new combined networking portfolio. In advance of Mobile World Congress, we announced our expanded vision for service providers as they modernized their infrastructure to take advantage of our AI with advancements across our networking servers and software portfolios. We introduced a powerful new line of routers, the new high density compact modular PTX series. These routers will enable service providers to modernize their core networking run infrastructure to address the rise in data traffic demands driven by AI data center interconnect and inferencing scaling. We also announced new server innovations to speed 5G and AI deployments, enhance security, and streamline automation from the edge through the core network. work. These solutions enable telecom operators to manage twice the amount of network traffic on a single server with the latest network security innovations. Finally, I am pleased to announce that we have completed our networking sales integration in Q1 by merging our Juniper and Aruba sales teams into a single HPE networking sales organization. Our focus now is to scale the organization while continuing to improve our overall sales productivity. With the sales portion of the integration behind us we are well positioned and energized for the years ahead enabled by a best-in-class networking portfolio. HP now owns the entire networking technology stack with the talent and go-to-market scale to create a new networking industry leader. We will continue to focus on our networking priorities including driving increased adoption of our highly differentiated AI ops self-driving networks to capture share and profitability in campus and branch. Tapping into the large networks for AI investments that are happening in our industry with our world-class data center switching and routing offerings and claiming market leadership in key areas where the network and security are converging. Moving on to cloud and AI segment, revenue declined 3% with and operating margin dollars up 18%, driven by pricing and cost discipline. We expect average unit server and storage pricing to continue to increase as the year progresses. Q1 server orders grew low double digits, driven by higher demand for traditional servers, as customers expand AI deployments, modernize infrastructure, and accelerate orders due to industry supply challenges. Traditional server strength was partially offset by the timing of HPC and AI systems orders. We entered a Q2 with a record AI systems backlog of five billion dollars primarily composed of enterprise and sovereign orders and our sales pipeline remains multiples of our backlog. We are seeing more enterprises adopting agentic AI into the company's business workflows. Siemens Energy, one of the world's leading global energy technology companies, has recently selected HPE to provide infrastructure services to help engineers design and service gas turbines which include AI inferencing. In storage, we remain focused on executing our shift to our own IP portfolio strategy. Our storage Aletra MP products had another strong quarter, with Q1 orders up 42%, marking our fifth consecutive quarter of double-digit year-over-year growth, driven by the install-based block transition and the accelerated adoption of our object-based platform. GreenLake continues to be a significant differentiator for HPE. If you want, we approached 50,000 customers on our GreenLake cloud platform. Our AIR is on track to reach our $3.5 billion target by the end of fiscal 26, driven by strong subscription services across networking, storage, and cloud software and services. Our unique portfolio cloud management software, AIOps, and our platform-based services underpin in our hybrid cloud offerings, drawing significant customer interest and building a strong sales pipeline. RVM Essentials virtualization revenue grew sequentially for the third consecutive quarter, with high double-digit new logos growth year over year, driven by the escalating cost of legacy virtualization software. Our private cloud AI orders increased for the fourth consecutive quarter, supported by a substantial number of new customer wins across both enterprise and service providers. Lastly, HPEFS delivered an exceptional quarter with record return on equity. During these high commodity cost cycles, HPEFS is a strategic advantage enabling customers to maximize the value of their current IT infrastructure and provide access to certified pre-owned technology. And finally, we continue to make excellent progress in our catalyst modernization and cost programs. We see great returns in deploying AI across our enterprise and remain on track to deliver our committed fiscal 26 savings targets. In closing, we had a great start of our fiscal year. We delivered a strong first quarter performance while achieving our Juniper integration and catalyst synergies commitments. While the industry is currently experiencing significant commodity supply and cost headwinds, we are raising our networking revenue, earnings per share, and free cash flow outlook for fiscal 26. And we remain committed to our long-term fiscal 2028 targets, including at least $3 in earnings per share and more than $3.5 billion in free cash flow. We are well positioned to navigate today's market dynamics while aggressively pursuing our strategic priorities, including building a new networking industry leader. I will now turn it over to Marie to walk through our Q1 financial details and our new Fiscal 26 outlook.

Thank you Antonio and good afternoon everyone. I'm pleased with our performance this quarter as we delivered on our commitments with strong profitability across the board. Q1 was a strong start to fiscal 2026, reinforcing our confidence in our strategy and demonstrating our ability to execute in a dynamic environment. We exceeded expectations on net earnings and free cash flow while continuing to invest with discipline for long-term value creation. This quarter was defined by three themes. First, strong operating discipline and favourable mix drove operating margins above our outlook in both networking and cloud and AI. Second, overall demand strengthened sequentially with orders exceeding revenue and backlog building, reflecting customer investment and data centre modernisation and anticipation of component cost increases. And third, catalyst savings and Juniper-related cost synergies are tracking to plan, contributing to higher profitability. Now, let me walk you through the details of our Q1 performance. Revenue was $9.3 billion, up 18%, driven primarily by the inclusion of Juniper networks and down 4% sequentially, reflecting typical seasonality and lower AI systems revenue as expected. Gross margin improved sequentially to 36.6% driven by continued pricing discipline and a favourable mix towards networking, which helped to offset higher commodity costs, particularly in memory. Operating margin was better than expected at 12.7%. Margin strength in both networking and cloud and AI reflected our conscious pivot to focus on higher margin more profitable components of our business operating expenses also declined five percent sequentially consistent with our outlook driven by strong cost discipline for the quarter eps was a record 65 cents exceeding the high end of our guidance range gap eps was 31 cents i'm particularly pleased with our strong free cash flow of 708 million a notable outcome as q1 typically represents a seasonal cash flow outflow free cash flow growth is a core pillar of our strategic framework for value creation and the results underscore the progress we've made on improving our working capital management and profitability now let's turn to our segment results networking was again the standout performer and the primary driver of a higher growth and margin profile revenue of 2.7 billion was up 7 percent on a normalized basis in line with our expectations our expanded portfolio enabled hpe to capture strong demand in data center switching and routing order growth exceeded revenue and as antonio mentioned we now expect cumulative networks for ai orders to reach a range of 1.7 to 1.9 billion by fiscal year-end 26. As we announced at our securities analyst meeting, under our new reporting structure that began in Q1, we are now reporting our network segment revenue under two different views, product and customer. Within our product categories, data center networking and routing delivered 31% and 10% normalized growth, respectively, reflecting strong networks for AI demand. campus and branch grew 2% fueled by accelerating adoption of Wi-Fi 7 while security declined 5% on a customer vertical basis enterprise revenue was up 2% on a normalized basis and service provider revenue was up 20% strength in service provider customers reflects investments in high performance data center fabrics routing capacity and interconnect to support both AI training and inference. Networking operating margin was 23.7%, slightly above our guidance, supported by scale, pricing discipline and early juniper synergies. Our actions are helping to offset higher component costs while supporting our margin performance. We are improving our execution, capturing operational efficiencies and driving cost synergies as we work through the next phase of our integration. We successfully completed sales day one in Q1, marking an important milestone in integrating our HPE and Juniper sales organisations. Moving to cloud and AI, which includes our server, storage and financial services businesses. Q1 revenue totals $6.3 billion, down 3%, consistent with our outlook. This performance primarily reflects timing of AI server revenue shipments, offset by growth in the traditional server business and stable performance in storage and financial services as antonio mentioned in the face of higher commodity costs we have taken decisive actions to protect margins we implemented dram related price increases starting in november 2025 shortened quote commitment cycles and are more tightly coordinated across our supply chain pricing and sales organizations in addition we are actively steering demand towards lower memory configurations were appropriate particularly across enterprise deployments with our strategy in place we are dynamically passing through memory and component cost inflation while protecting our margins and preserving profitability these actions coupled with strong cost discipline resulted in a better than expected operating margin of 10.2 percent with operating profit up four percent sequentially and 18 percent year over year server revenue declined three percent in line with expectations as strong aup growth and traditional server was more than offset by the timing of ai shipments despite the pricing actions we implemented we saw continued strong demand albeit inclusive of some pull-ins aimed at avoiding the impact of rising component costs ai systems orders of 1.2 billion were largely enterprise driven consistent with our strategy to focus on higher profitability the mix of enterprise and sovereign has increased as a percentage of our cumulative orders since q1 23. our ai server pipeline remains multiples of our backlog we continue to expect ai demand and revenue to remain uneven this year primarily due to some larger sovereign orders characterized by extended lead times with AI shipments expected to ramp in the back half of the year. Moving to storage, which includes our storage, private cloud, and GreenLake software solutions revenue was up 1%. We continue to migrate customers to Electra MP, which grew orders and revenue strong double digits year over year. We also continue to see strengthen our private cloud offerings as a reminder we are exiting our third party non-ip business to drive greater profitability we have reclassified this revenue with prior periods adjusted accordingly lastly financial service revenue growth was roughly flat and generated an all-time high in return on equity of 27 percent in addition we are seeing incremental demand for networking following the acquisition of Juniper. Going forward, we expect networking to be a growth engine for HPFS as we capitalise on our broader portfolio. This quarter's results reflect strong progress across our Catalyst initiatives and Juniper synergies with both tracking to plan. These initiatives increase productivity, capture efficiencies and unlock operating leverage that drives sustained profitability. Our relentless execution in both drove strong profitability and keeps us on track to generate at least $3 in EPS and more than $3.5 billion in free cash flow by FY28. Our Catalyst initiative is delivering meaningful cost savings by automating critical operational capabilities. Across our global operations, we are aggressively deploying AI at scale to improve speed, cost, and customer experience driving measurable and accelerating results as we continue to expand deployment for example we are using generative ai to surface technical insights targeting a 90 reduction in search time for engineers and enabling faster higher quality service resolution in addition we are leveraging ai optimized recommendations to simplify configuration workflows and improve accuracy we are targeting 30 faster quote cycles enabling customers to move from design to order with less friction we have also made solid progress against our juniper synergy plan we have driven key structural actions including the achievement of our sales day one milestone our networking sales team is now operating on a unified approach to engaging customers supported by harmonized fiscal 26 sales compensation plans that sharpen our go-to-market focus and execution to drive toward our growth outlook for the year in addition we're making good progress on integrating corporate related functions to drive significant savings across our networking business including optimizing our supply chain strategy real estate footprint and marketing expenses turning to free cash flow we delivered strong operating cash flow of 1.2 billion and free cash flow of 708 million in q1 reinforcing our disciplined approach to financial management generating robust free cash flow and successfully integrating juniper remain top priorities as we execute a fiscal 2026 strategy q1 benefited from a typical seasonality which drove a five-day improvement in our cash conversion cycle from last quarter this was driven by an increase in days payable due to higher purchases to secure supply for future shipments and a slight decrease in days receivable due to favorable buildings linearity and strong juniper collections largely offset by an increase in days of inventory due to higher purchases inventory ended the quarter at 6.9 billion down year over year but up sequentially for assurance of supply purposes given industry-wide supply chain constraints particularly in memory and we saw our purchase commitments increase sequentially we continue to demonstrate our commitment to a balanced capital allocation strategy during the quarter we returned 190 million through dividend to common shareholders and an additional 158 million via share repurchases we improved our perform a net leverage ratio from 3.1 times after closing the Juniper acquisition to 2.6, primarily due to a healthy cash position, a lower debt balance and improved profitability. We continue to make good progress on our previously announced H3C transactions, which remain on track to conclude in the first half of calendar 2026. Before we get into the details of our guidance, let me briefly address the macro environment, which continues to be highly dynamic and uncertain. First, as Antonio noted, we are seeing unprecedented supply tightness and a rapidly rising component costs. We are taking decisive actions to mitigate these pressures and protect profitability. Second, following the Supreme Court's recent tariff decision, we continue to monitor developments closely with greater clarity on tariff outcomes needed to fully assess the potential business impact. And third, we are closely monitoring our business in the Middle East, which remains highly fluid. Our guidance reflects our best estimates as of today, the net impact of the macro environment and our mitigation measures. We are confident in our ability to adapt as the environment evolves. For FY26, we are raising our EPS outlook range by $0.05 to $2.30 to $2.50. cents we are also raising our gap eps by 40 cents to one dollar and two cents to one dollar and 22 cents we are making the following updates to our outlook we are raising our full year networking revenue growth to 68 percent to 73 percent on a reported basis or mid to high single digit growth on a normalized basis driven by our strength in data center networking and routing businesses We are lowering our full-year cloud and AI revenue growth to mid to high single-digit growth from our prior mid-single-digit to low double-digit range. As Antonio noted, given supply dynamics, our strategy for the remainder of the year prioritises higher margin product orders, which may have an impact on our AI system's revenue growth. We are lowering our OI&E outlook to a range of $540 to $590 million from approximately $650 million previously, reflecting lower net interest expense. Lastly, we are increasing our free cash flow outlook to at least $2 billion, up from our prior range of $1.7 to $2 billion. We are maintaining our outlook for the remaining guidance metrics provided last quarter, which you can find in our earnings presentation. And from a modelling perspective, for the second half of the year, we expect Q3 to constitute our largest AI revenue quarter. Also, we expect profitability to be weighted towards Q4, consistent with our historical linearity. For Q2, we expect total revenue will be between $9.6 to $10 billion, driven by strong demand. And for networking, we expect revenue to grow 142% to 152% year-over-year on a reported basis or at the high end of our updated FY26 normalized target growth range. This growth is driven by strength in our backlog. We expect revenue performance and synergy realization to help offset the impact of inflationary component costs while driving an operating margin rate in line with our full year guidance. In cloud and AI we expect a sequential increase in our AI server revenue but still expect the majority of AI deals to ship in the second half of the year. Given the mixed shift towards AI server and higher commodity costs quarter over quarter, we expect operating margins for cloud and AI to be near the midpoint of our FY26 target range. On a consolidated basis, we expect Q2 total operating expense to increase sequentially driven by annual compensation increases and marketing expense. Combined with commodity cost increases, we expect our operating margin rate to be down quarter over quarter by more than typical seasonality. Consequently, we expect EPS between $0.51 and $0.55 and GAAP EPS between $0.09 and $0.13. In closing, our Q1 results reflect disciplined execution, improving profitability and strong momentum in core business, even as we navigate unprecedented commodity inflation and macro uncertainty. We remain focused on integrating Juniper and accelerating our transformation and operational efficiency to drive sustainable long-term value. With that, I'll turn the call back to the operator to begin Q&A.

Thank you. We will now begin the question and answer session. To ask a question, you may press star, then one on your touchtone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star and then two. In the interest of time, please let me yourself to one question. The first question will come from Wamsi Mohan with Bank of America. Please go ahead.

Hi, thanks for taking the question. It's Ruklu filling in for Wamsi today. Antonio, do you think the current environment is or will drive more customers to use HPE GreenLake? And you mentioned some pull-ins. Which areas were those in and likewise did you see any pushouts or lower demand as you raise prices in response to the component cost increases?

Yeah, no, thank you for the question. So obviously GreenLake, the cloud, gives customers the flexibility to adopt an elastic model through our subscription services, including our green light flags, which includes, you know, the consumption infrastructure on a demand basis. And this is where our HP Financial Services plays a key strategic role. And as you saw from our results, HPFS had a very, very strong quarter with a return on equity over 20%. And during these cycles, the ability to offer pre-certified, pre-owned certified products is very, very strategic. So the answer is yes, we should expect an ongoing adoption, not different by the way that we saw during the pandemic. So that's very important. We also announced some unique programs with HPFS as well for financing during this transition time. As for demand, no, demand is very strong. Demand is very, very, very strong. There is no push-out. Last week I was in Europe where I met with many customers at Mobile World Congress, then I went to the U.K., and all of them understand the environment related to inflationary cost, and all of them ask how we can get the product faster.

So reality is that demand is strong, whether it's driven by the projects or deploying AI. obviously concern about the cost inflationary cost but zero impact on demand at this point in time operator next question please the next question will come from Catherine Murphy with Goldman Sachs please go ahead thank you for the question to ask a quick one on memory pricing can you talk about how rising memory prices are reflected in the outlook for profitability in both your traditional data center business and then networking for fiscal 26 and if could quantify what you're assuming for memory prices throughout the year that would be helpful and then to ask my follow-up in terms of securing supply

do you have sufficient supply secured to meet the midpoint of the fiscal 26 guidance thank you very much well thank you Catherine I will start a bit Marie if you want to add anything let me know in our guide the guide Marie just provided we have contemplated our line of sight for the supply that we need to deliver that out to a range both on the revenue side and on the profitability side so when we provide outlooks is because we have line of sight on our ability to go execute that so that's point number one point number two on the memory cost increases we will continue to see that throughout 2026 today against our order backlog and the demand momentum we see we don't have enough supply to meet all the customer demand but as I said earlier we have line of sight for that outlook we provided and look you will see the reports from the industry analysts the reality is that between CQ4 and CQ1 you have enough from the industry triple digits increase in pricing and we continue to expect double digits as we go forward and this is one of the things we did very well in Q1, as Marie commented earlier, is that we took action of pricing early. We actually increased prices in November, and then in December, and then in January, and we have done it multiple times. And that's why our focus is first, securing supply to meet the customer demand. We have the supply to deliver the outlook. Second is obviously protect our margins, and we're doing that to pricing and to, you know, managing the mix. We are, of course, favoring the high-margin businesses. Networking uses less memory, but it's a critical component of our demand shaping, and then obviously traditional servers. And then in AI, we focus on really enterprise-first and sovereign following that.

Yeah, maybe I'll just add that in terms of the guide and how we thought about the memory pricing. As you know, we raised our guide, actually, so we expanded, we rose at 5 cents, so $2.30 to $2.50. A comment about networking, a comment about cloud and AI. From a networking perspective, one thing to bear in mind is that some of the revenue and synergies that we've had as part of the programs we announced do help to offset some of those inflationary costs on networking. So just bear that in mind. And then as you think about cloud and AI, you know, we're really focused on prioritizing those higher margin orders. So, you know, that's how we're managing it in each business. And all of that is reflected in our guide. And obviously, look, it's a, you know, it's a prudent guide. and if we can do better, we absolutely will.

Very good. Thank you, Catherine. All right, operator, next question.

The next question will come from Simon Leopold with Raymond James. Please go ahead.

Thank you very much for taking the question. I wanted to see if you could talk about the topic around demand elasticity because I would think with IT equipment that with you raising prices to pass off the higher memory costs, We would see some more of a tailwind for your revenue growth rather than demand disruption. Could you help us understand what respect to this is conservatism in your view versus how customers are behaving towards accepting the higher price points?

Well, thank you, Simon. I think I should divide that question in two parts. One is the demand side, and I can tell you the demand continues to be very, very strong. There are no signs of slowdown at this point in time. Obviously there is a question of unit and average unit price as we go forward. But the reality is that with the density of the servers and the ability to process more data to the servers, customers are finding the right balance there. But the demand is very, very strong. On the ability to fulfill the demand which translates into revenue, again, Maria and I put that in the guidance, you know, and she just commented, you know, prudent in many ways. But look, we don't have enough supply for all the demand we are seeing and the backlog we have. However, in our guide, we factor the supply needed to deliver that outlook. And it's going to be interesting as we navigate the next few months, but I just said earlier, Simon, I met with a lot of customers, a lot of customers in Europe. 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 may be 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 and maybe I'll just add, Simon, that, you know, of course, you know, there's going to be some impact

from the increased pricing and on units, and that's really what we see more so in the second half of the year, just to follow up on what Antonio said. But I'd just clarify for cloud and AI, probably similar to many others out there, we are expecting growth, particularly for our traditional service, server business on a net basis. So just remember that we did guide cloud and AI to mid to high single digits from a revenue growth perspective as well.

And let's not forget some other part, when we sell traditional servers, obviously it's healthy from the services attached perspective, which it may doesn't generate in-period revenue or 2026 revenue, but it's very important for 27, 28, and 29.

Simon, operator, next question, please.

The next question will come from Amit Daryanani with Evercore ISI. Please go ahead.

Good afternoon, thanks for getting my question. I guess maybe I'll stay away from memory since everyone's asking about that and asking about networking a little bit. It's nice to see you folks taking up the networking growth expectations for the year to mid to high single digits. Antonio, I'm hoping you can just talk a little bit more on what's driving this uptick. Is it AI? Is it campus? Is it something with Juniper's routing business on scale across? I'd love to just understand what's driving this uptick here.

And then maybe just related to networking, you folks did nearly 24% operating margins in Q1, which is ahead of what you folks were initially expecting what do you think is resulting in the guide for the full year to be low 20% why are you assuming a degradation those margins given you still have some more synergies ahead of you versus not so just touch on networking a bit that would be great thank you so I will answer the first part and then Marie can talk about the margins for networking I think it's two parts I mean one is demand for our products I mean very clear I mean we have a world-class portfolio with additional Juniper and the combination with Aruba and so campus and branch you know our value is a differentiation is in the self-driving networks I saw that at the Olympics I have to tell you was very impressive to see how the teams were operating using AI to manage a very complex network over multiple locations in Italy with different event taking place in a massive amount of scale but the the CIO told me I'm doing this with less than 20 people which was remarkable remarkable and our team was very small just enabling them to understand how to use these AI technologies and it went flawless so that's an example so we grew high single digits in the campus and branch Wi-Fi 7 there I don't know if you caught it ten times we sold ten times more access points on the Wi-Fi 7 than a year ago and obviously is driven by the experience we can provide but then on the data center side on the AI build out you know we had a tremendous order intake with data center switching which is the QFX fabric mid 40 percent so that's a remarkable amount of order intake and then routing which generally tends to be a much lower growth and in the past was obviously aligned with the telcos now it's all aligned to data center interconnect and AI on ramp grew mid 20 percent 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 to 1.9 in cumulative orders up from the 1.5 and the question there is our ability to convert all of that as we go forward because of the supply constraints, but demand continues to be very strong. And then look, the amount of innovation, I'll give you an example of a breakthrough innovation. The new PTX router, which is half the size of a rack, can manage 16,000,000,000 concurrent sessions. Think about if London and New York, all the population, will watch a Netflix movie at the same time. that router will be able to handle it. So think about the power of connecting data center with that level of innovation. So we have an amazing product at the right time with the right talent. And then the second part of the confidence to raise the guidance is the fact that the Juniper integration is on track. I think, you know, eight months in, the team has done a remarkable job. We onboarded almost 10,000 employees. We announced the strategy. We announced the products. We introduced many, many products. and we completed the self-integration of the workforce. So now we are focused on driving revenue synergies across the entire portfolio because we believe there is more opportunity there as we integrate the networking product with the rest of the stack.

And just to sort of add on on the margins, it's obviously really pleased with the results that we had in Q1, 23.7, so it was above our guide in terms of the operating margin and it was a combination of reasons due to the scale that you're starting to see in the business that Antonio referred to. You know, we had good pricing discipline and early Juniper synergies that came through. Now, what I would just add to sort of bear in mind, as Antonio mentioned, we're just through phase one of the integration itself. So we've sort of got sales day one, but there's still more to do at this point in time. So it is the prudent thing to do at this point to keep our range, which is the low 20%. And honestly, if we can do better, as we've demonstrated, we absolutely will, Armin. Thank you.

Thank you, Amit. Operator, next question, please.

The next question will come from Eric Woodring with Morgan Stanley. Please go ahead.

Great, guys. Thank you very much for taking my questions. I want to maybe touch back on the demand environment and maybe, Marie, if we look back over the last five years, revenue has typically declined from January into the April quarter by about 3%. for legacy HPE and similar trends for Juniper, you're guiding to 5% sequential revenue growth in the April quarter. And in response to one of the earlier questions, Antonio mentioned customers very active or trying to get product faster, just supply risk. And so I guess my question is, shouldn't we classify that as pull forward or how do you maybe delineate between strong demand that has longevity through the year and some of these customers just trying to get product quickly because of the risk of supply in the second half.

Thanks so much.

Well, I may be starting. So, look, I think we are redefining our seasonality here a little bit, right? You know, you saw that in Q1 a little bit with our free cash flow and efficiency of the working capital now having Juniper and the work we have done with Maria and the team. But Q2, obviously, you start seeing the benefits of having Juniper and the strong momentum in the network for AI, which obviously is helping as well. I think it's a reflection that we have been taking large amounts of orders now for a number of quarters, and therefore the ability to convert that orders moves through the process. But, you know, that range is actually in line to what we had in our original guidance that we provided of them in terms of the year, seasonality, and then the back half, we're going to have the AI systems conversion coming through the process. So, look, there is, of course, demand pull-in from some customers, but there is also a lot of demand used for deployment, deployment of AI, and I look at two key metrics in enterprise, particularly one is adoption of AI in the business workflow, we see the adoption of agentic AI. Many European customers want to do that on-prem, very clear. And GreenLake Disconnected is a big, big... And number two is the growing in... Portion of AI is growing very, very rapidly. And that aligns really nice with our portfolio, particularly with Juniper and servers. I've met many of the telcos. They are really focused on the AI inferencing, and many of them also are going to play a sovereign role because they have the trust from the government to become the AI cloud in many of these countries where they are going to build some of the gigafactories. But in general, I will say, you know, driven by the demands of AI, driven by the demands of modernizing their infrastructure for data, and then deploying AI on-premise is going to play a role for us, in addition to networks for AI to build large-scale data centers.

Just to sort of reinforce what Antonio said, Eric, I mean, at this point, I mean, it sort of uses a guidepost that normal seasonality won't really apply to this year. And I think it's a combination of both the deal itself, the timing when we close that, plus all the component dynamics. I think what would be important to put in your models is that cloud and AI revenue is going to be pretty much weighted to the second half. And that's really due to what I think is said in the last call, which is more the timing of some of those service shipments. And, you know, frankly, you know, we factored all these dynamics into the guide that we put forward today.

That's right. Thank you, Eric. Next question, please.

The next question will come from George Nodder with Wolf Research. Please go ahead.

Hi, guys. Thanks a lot. I just wanted to come back to a question earlier. I didn't hear the answer. Did you guys give us the assumption for full year revenue associated with pull forwards and how much incremental might you get this year also based on higher pricing associated with memory? I'm just trying to sort of break down the impacts here in terms of their constituent pieces.

Now, look, George, I mean, at this point in time, we haven't quantified the pull forwards. You know, I think we gave clarification on our revenue ranges, which for both businesses were actually in the mid to high single digits for the year. So that's the way I'd be anchoring your model.

The next question will come from Simic Chatterjee with J.P. Morgan. Please go ahead.

Hi. Thanks for taking my question. Antonio, if I can ask you to drill down a bit into the networks for AI or those that you're referencing, which you're raising today, the 1.7 to 1.9, is that really just expansion with the existing customers on that front, or are there any specific sort of wins with maybe hyposcale customers that sort of are helping you in relation to those orders? Just curious about sort of the drivers there, and as we look at that target, how should we think about the mix between data center networking related to routing in your definition of networks for AI?

Yeah, Samick, it's a combination of, you know, existing customer buying more, but then also getting new customers on a footprint. And so it's a combination of service providers, NeoClouds, and also now we start seeing the benefits of getting access to our server go-to-market because we are actually making entrances or introductions to those customers and be able to have those conversations in a more integrated way. So that's what we see today. And the pipeline is very, very strong, which gives us the confidence to raise the outlook to 1.7, 1.9 billion. But it's a combination of both, existing customers and new customers as we go forward. In terms of the order, we don't provide that level of guidance at this time.

The next question will come from Aaron Rakers with Wells Fargo. Please go ahead.

Yeah, thanks for taking the question. Kind of just going back to a lot of the other questions. You know, I'm curious. I mean, we all talk about memory pricing, but there's also been a lot of discussion around just tightness on server CPUs and just the demand of stripping supply. So I'm curious, you know, Antonio, how would you characterize the lead times that you're seeing on traditional servers today relative to what they were let's say three months six months ago and and I think in your preamble you alluded to like you've changed some of the dynamics around order order contractual you know things pricing etc can you just walk us through again what what exactly you changed to kind of you know pass through pricing and maybe provide some stickiness to the orders that you're seeing yeah sure on the CPU side less constraint but constraint and there you You know, because of our very diversified CPU portfolio, obviously, we have one of the broadest CPU set of platforms with a ProLiant business.

We are able to steer demand, although there may be one or two SKUs more constraints than others. I'm significantly less concerned about the CPU. But if you have the CPU, you don't have the memory. You're kind of stuck in the middle, right? We're not concerned about the CPU, but there is active demand shaping to the right socket based on the type of workload the customer wants to run on it. In terms of the pricing itself, right, so look, all the terms, right, look, we have a very agile posture where basically we have significantly shortened our quoting cycles in terms of commitments, and we have reserved the right to – we quoted the time we ship it. And so the customer has always the right to cancel the order before it gets shipped. But once again, you know, when I had this discussion last week with all our European customers, they all understood that dynamic. What they want is lead time transparency, clarity of the price increase. Think about it this way. The way I say it is like, what is the memory cost and the NAND? If you quoted X, now the cost is Y. What is the difference between X and Y? So you are very transparent on what the surcharge for the increase is. And that's what we're doing. That's, you know, look, I mean, I always say, you know, quick no is better than a long yes. And fundamentally, that level of communication is super important as we navigate this environment.

Thank you, Aaron. All right, next question, please.

The next question will come from Tim Long with Barclays. Please go ahead.

I wanted to touch on kind of the campus branch business for a little bit. You know, a lot going on there as well. It's been really strong, looks like a little bit, at least on the revenue side of acceleration this quarter. But obviously the Wi-Fi 7 sounded like it was really strong. So could you talk a little bit about the offsets? Are we seeing anything different in win rates or are there just any other type of delays or push-outs? I think the orders were a little better than revenues. I'm just curious about the growth rate in that business and what you're seeing from a competitive landscape.

Sure, Tim. As I said, our campus and branch order intake was high single digits this quarter, and that's obviously on a normalized basis, right? And so we believe that customers now have the clarity which path to follow between Juniper MIST and Aruba Central. And we did a very good job laying that foundation, you know, because we now have every possible deployment capability. And in Europe, obviously, they favor more sovereign disconnected offers versus a cloud-connected offer. But when there is a cloud-connected opportunity, we lead with Juniper MIST. When there is an on-prem virtual private cloud of disconnected requirement, We live with Aruba Central, and as you recall, last December at our HP Discovery event, we launched what we call the dual-boot infrastructure with our Wi-Fi 7, and we saw a 10 times increase this quarter in access points, which means customers resonate with our AIOps self-driving network in each of the platforms. And we introduced also new AI agentic approaches to both platforms as a part of the combined innovation. So the dynamic there is that customers, obviously, they are moving forward. We announce a number of strategic deals. You know, for example, another interesting win, although it's in the sports space, you know, Atletico Madrid is going to revamp the entire venue, including the space outside the stadium, using our offerings. But that's one example. As I talked before, the entire Olympic Games run on the Juniper Mist infrastructure. But there are other ones in Europe that, in the case of Atletico Madrid or others, are using Aruba Central. So we have the ability to compete against anyone in every deployment model. And we expect this to continue as we go forward because now we have one integrated sales organization, all selling the same portfolio, and all compensated for selling the same offers. So now I'm excited about scaling this and driving revenue synergies and then sales productivity.

All right. Thank you, Tim. Operator, last question, please.

The last question will come from Asia Merchant with Citigroup. Please go ahead.

Great. Thanks for squeezing me in here, guys. Just if I can, on AI, with the majority of the backlog here in the second half, a lot of it from enterprise sovereigns just high level how should we think about you know the margins in this segment um overall for cloud and ai progressing and if you could find any color on the attach rates that you're seeing with those ai revenue backlogs in addition to the server revenues that you're recognizing thank you yes no good afternoon sire and uh in terms of just the margins for ai you know the right way to think about it in terms of the guide that we've given So, you know, I think we had obviously a very strong Q1 here for the whole segment itself.

But as I mentioned in my prepared remarks, we expect Q2 to be, you know, towards the midpoint of the range. And then throughout the year, we expect that to be back into about seven to nine. So obviously at this point in time, you know, those ranges are going to be impacted to a large extent by the shipment timing of both the deals themselves and the types of deals that we have in the quarter. So, you know, as more AI revenue in the quarter, we expect to see a little bit more pressure on the margins. So that's the way I'd be thinking about the correlation between the AI revenue and the margins themselves for cloud and AI segment. And I'd say, look, overall, we're very confident about the full year margin range for the whole segment of 7% to 9%. And the key thing for us, as you've heard us here talk about today, is really focusing on protecting those margins and taking all the actions that we need to really navigate the commodity prices that we've spoken about.

All right. Well, thanks, everyone. We will follow offline with each of you as part of the normal process. I want to thank you for joining the call. I will end where I started, which is basically we had a very strong start of fiscal year 26. You see that the combination of juniper and HPE is paying off. The networking business outperforms our own expectations. We are very excited about what's happening from an innovation and momentum perspective. Demand continues to be very strong above both segments. But we are adjusting our strategy to make sure we focus on delivering profitable growth because now we have a great portfolio. And also, we are also focusing on managing our working capital in an efficient way. And one of the things that you see, we are raising our free cash flow to at least $2 billion while we're paying out the debt. And I think, you know, we will be able to do that even despite the environment we are navigating through today. So, again, a great start. We raised our guidance, and, you know, we expect that we will deliver against this commitment like we have done in the previous quarter. So thank you again for your time.

The conference is now concluded. Thank you for attending today's presentation.