Q3 2025 Hewlett Packard Enterprise Co Earnings Call
<unk> the D to ask questions to ask a question you May Press Star then one on your Touchtone phone to withdraw your question. Please press Star then two.
Please note that today's event is being recorded.
I would now like to turn the conference over to Paul Glazer head of Investor Relations. Please go ahead Sir.
Good afternoon, I am Paul Glazer head of Investor Relations for Hewlett Packard Enterprise I would like to welcome you to our fiscal 2025 third quarter earnings Conference call with Antonio Neri, Hpe's, President and Chief Executive Officer, and Marie Myers, Hp's Chief Financial Officer.
Speaker #1: Good afternoon and welcome to the fiscal 2025 third 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.
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.
Speaker #1: After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then one on your touchtone phone.
Elements of the financial information referenced on this call are forward looking and are based on our best view of the world and our businesses as we see them today.
Speaker #1: To withdraw your question, please press star, then two. Please note, this event is being recorded. I would now like to turn the conference over to Paul Glaser, head of Investor Relations.
<unk> 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.
Speaker #1: Please go ahead, sir.
Speaker #2: Good afternoon. I am Paul Glaser, head of investor relations for Hewlett Packard Enterprise. I would like to welcome you to our fiscal 2025 third quarter earnings conference call with Antonio Neri, HPE's president and chief executive officer, and Marie Myers, HPE's chief financial officer.
Ended July 31 2025.
Speaker #2: 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.
For more detailed information please see the disclaimers on the earnings materials relating to forward looking statements that involve risks uncertainties and assumptions. Please refer to hpe's filings with the SEC for a discussion of these risks.
Speaker #2: 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 the world and our businesses as we see them today.
For financial information, we are expressed 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.
Speaker #2: 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 ended July 31, 2025.
Over a year basis and adjusted to exclude the impact of currency Antonio Marie will reference our earnings presentation in their prepared comments.
Finally, I would like to clarify that in the discussion today any mention of HPE intelligent edge, we will refer to hp's prior business segment and networking will refer to the combination of intelligent edge and juniper networks.
Speaker #2: For more detailed information, please see the disclaimers on the earnings materials relating to forward-looking statements that involve risks, uncertainties, and assumptions. Please refer to HPE's filings with the SEC for a discussion of these risks.
With that let me turn it over to Antonio.
Thank you Paul good afternoon, everyone.
Speaker #2: For financial information expressed 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.
Q3 will deliver solid results and completed a major milestone closing out our acquisition of Juniper networks together with Juniper. We will also liberate our momentum our girls are pleased strategic business pillars network and cloud and AI building, a stronger leaner more profitable HPE.
Speaker #2: Throughout this conference call, all revenue growth rates, unless noted otherwise, are presented on a year-over-year basis and adjusted to exclude the impact of currency.
In Q3, H B achieved record breaking revenue with and without Juniper.
Revenue was $9 $1 billion up 18% year over year fueled by strong momentum across AI networking and hybrid cloud.
Speaker #2: Antonio and Marie will reference our earnings presentation in their prepared comments. Finally, I would like to clarify that in the discussion today, any mention of HPE Intelligent Edge will refer to HPE's prior business segment, and networking will refer to the combination of Intelligent Edge and Juniper Networks.
We grew revenues year over year across our three largest business segments.
Demand was broad based across our products and services, we increased sequential operating profit dollars and server hybrid cloud and both the intelligent edge and the new combined networking segment.
Speaker #2: With that, let me turn it over to Antonio.
Speaker #3: Thank you, Paul. Good afternoon, everyone. In Q3, we delivered solid results and completed a major milestone, closing our acquisition of Juniper Networks. Together with Juniper, we will accelerate our momentum across our three strategic business pillars: networking, cloud, and AI, building a stronger, leaner, and more profitable HPE.
We also grew operating profit dollars at financial services on a year over year basis.
The new combined move toward can segment accounted for nearly 50% of Hps non-GAAP consolidated operating profit.
We also improved sequential operating profit margins and server and hybrid cloud.
Speaker #3: In Q3, HPE achieved record-breaking revenue, both with and without Juniper. Revenue was $9.1 billion, up 18% year-over-year, fueled by strong momentum across AI, networking, and hybrid cloud.
Our improved profitability flow through to non-GAAP diluted.
Per share of 44 cents for.
Free cash flow will somehow the $19 million as with significantly lower our inventory driven by higher <unk>.
Speaker #3: We grew revenues year-over-year across our three largest business segments. Demand was broad-based across our products and services. We increased sequential operating profit dollars in server, hybrid cloud, and both Intelligent Edge and the new combined networking segment.
Conversion through revenue and strong supply chain execution.
We continue to transform our business through catalyst the structural cost saving program, we announced last quarter, including enhancing operational efficiency simplifying our portfolio adopted AI and optimizing our workforce.
Speaker #3: We also grew operating profit dollars in financial services on a year-over-year basis. The new combined networking segment accounted for nearly 50% of HPE's non-GAAP consolidated operating profit.
In Q3 customers continued to demonstrate strong demand for our AI portfolio, we nearly doubled our AI order sequentially, driven by sovereign and opportunities up approximately 250%.
Speaker #3: We also improved sequential operating profit margins in server and hybrid cloud. Our improved profitability flowed through to two non-GAAP diluted net margins per share of $0.44.
Cumulative orders since Q1 2023 for sovereign and enterprise now account for more than 50% of total AI systems net over others.
Speaker #3: Free cash flow was $799 million as we significantly lowered our inventory driven by higher AI backlog conversion to revenue and strong supply chain execution.
We exited the quarter with a record backlog of $3 $7 billion.
But he will provide more details on the quarter and our Q4 fiscal year 2025 guide, but first I would like to provide key Q3 highlights across our business segments.
Speaker #3: We continue to transform our business through catalyst, the structural cost-saving program we announced last quarter, including enhancing operational efficiency, simplifying our portfolio, adopting AI, and optimizing our workforce.
I am incredibly pleased that we closed the juniper acquisition in July integration is progressing well.
I've been spending time with Rami and the new combined networking leadership team, which is world class.
Speaker #3: In Q3, customers continued to demonstrate strong demand for our AI portfolio. We nearly doubled our AI orders sequentially, driven by sovereign opportunities, up approximately 250%.
Going forward, we will refer to the combination of our HPE intelligence and.
And juniper.
New HP networking segment.
Speaker #3: Cumulative orders since Q1 2023 for sovereign and enterprise now account for more than 50% of total AI systems net orders. We exited the quarter with record AI backlog at $3.7 billion.
Our vision for this segment is clear to build the best network and business, providing customers with a modern and secure and AI driven networking portfolio.
Rami and I will discuss our networking strategy in more detail.
Speaker #3: Marie will provide more details on the quarter and our Q4 fiscal year 2025 guide, but first, I would like to provide key Q3 highlights across our business segments.
Caught me Securities Analyst meeting in October.
On the demand front, then it's working market recovery continues.
Price, we continue to see robust demand in capsules and branch driven by their wire and wireless refresh chassis in data center switching why five seven a month is ramping with orders up triple digits sequentially.
Speaker #3: I am incredibly pleased that we closed the Juniper acquisition in July. Integration is progressing well. I have been spending time with Rami and the new combined networking leadership team, which is world-class.
In cloud, we see strong demand for networking for AI.
Speaker #3: Going forward, we will refer to the combination of our HPE Intelligent Edge segment and Juniper, as our new HPE networking segment. Our vision for this segment is clear.
Similarly in data center switching and Juniper P T X routing.
Revenue of $1.7 million increased 54% year over year, driven by strong performances in both intelligent edge and juniper.
Speaker #3: To build the best networking business, providing customers with a modern, secure, and AI-driven networking portfolio. Rami and I will discuss our networking strategy in more detail at our upcoming securities analyst meeting in October.
Intelligent edge revenue increased 11% year over year, and 8% quarter over quarter.
We generated double digit year over year revenue growth encompassing branch data center switching Alto method, one and services.
Speaker #3: On the demand front, the networking market recovery continues. In enterprise, we continue to see robust demand in campus and branch, driven by the wider and wireless refresh chassis and data center switching.
We also grew sassy and security revenue. These strong results contributed to sustained momentum in networking SaaS and support services.
Speaker #3: Wi-Fi 7 demand is ramping, with orders up triple digits sequentially. In cloud, we see strong demand for networking for AI, particularly in data center switching and Juniper PTX routing.
Operating profit for the networking segment was $360 million up 43% year over year benefiting from one month of Juniper results in operating profit dollars of expansion in intelligent edge.
Speaker #3: Revenue of $1.7 billion increased 54% year-over-year, driven by strong performances in both Intelligent Edge and Juniper. Intelligent Edge revenue increased 11% year-over-year and 8% quarter-over-quarter.
Network and innovation is also the right thing across the entire network and portfolio.
Just last week, we introduced a new mist agenda native innovations for campus and branch data center switching and automate they've won.
These complement the new agenda mesh technology for Omar HP, Aruba networking portfolio that we announced alongside Green Lake intelligence of the HP discover in June.
Speaker #3: We generated double-digit year-over-year revenue growth in campus and branch, data center switching, automated WAN, and services. We also grew SASE and security revenue. These strong results contributed to sustained momentum in networking SaaS and support services.
Our innovation is being not this by the market H P E and Juniper networks were both recognized again as leaders in the latest 2025, Gartner magic quadrant for enterprise wire and wireless infrastructure.
Speaker #3: Operating profit for the networking segment was $360 million, up 43% year-over-year. Benefiting from one month of Juniper results and operating profit dollars expansion in Intelligent Edge.
Customers are already taken advantage of the power of our full HB portfolio with inclusion of HPE juniper networking solutions.
Speaker #3: Networking innovation is accelerating across the entire networking portfolio. Just last week, we introduced new MIST agentic AI-native innovations for campus and branch data center switching and automated WAN.
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Early this year H b.
Multi million dollar deal with Spa, Austria group.
Retailer in Central Europe.
As far as building out a digital business services platform underpinned by Green Lake.
Speaker #3: These complement the new agentic AI mesh technology from our HPE Aruba networking portfolio, that we announced alongside GreenLake Intelligence at the HPE Discover in June.
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Stock solution is designed and implemented by HPE professional services. It will be fully managed by H B minus services and includes Aruba switches juniper firewalls, Alyssa empty storage, plus HPE clouds of software, including upfront and Morpheus.
Speaker #3: Our innovation is being noticed by the market. HPE and Juniper Networks were both recognized again as leaders in the latest 2025 Gartner Magic Quadrant for enterprise wire and wireless LAN infrastructure.
The solution will enable our cloud native and AI driven platform experience.
Speaker #3: Customers are already taking advantage of the power of our full HPE portfolio, with inclusion of HPE Juniper networking solutions. For example, early this year, HPE won a multi-million dollar deal with Spar Austria Group.
Finally, with respect to integration synergies, we are reiterating at least $600 million in cost synergies over the next three years.
In the service segment market demand is robust across our portfolio revenue of $4 $9 billion was an all time high increased 16% year over year, and 21% quarter over quarter, driven by strong conversion of orders and solid demand for traditional servers.
Speaker #3: A leading retailer in Central Europe, Spar is building out a digital business services platform underpinned by GreenLake. The full IT stack solution is designed and implemented by HPE Professional Services.
Systems revenue of $1 $6 billion was also an all time high as we completed delivery of a large GBP 200 system.
Speaker #3: It will be fully managed by HPE Managed Services and includes Aruba switches, Juniper firewalls, Alletra MP storage, plus HPE CloudOps software, including Zerto, OpsRamp, and Morpheus.
Sort of operating margin improved sequentially benefiting from the changes we made in pricing and discounting early in the year, which returned traditional server program margins to historical levels.
Speaker #3: The solution will enable a cloud-native and AI-driven platform experience. Finally, with respect to integration synergies, we are reiterating at least $600 million in cost synergies over the next three years.
This was partially offset by higher mix, including a large deal.
As we enter Q4, we continue to expect total server operating margin to be around 10% for the quarter.
Speaker #3: In the server segment, market demand is robust across our portfolio. Revenue of $4.9 billion was an all-time high, increased 16% year-over-year and 21% quarter-over-quarter, driven by strong conversion of AI orders and solid demand for traditional servers.
AI systems orders increased nearly 100% quarter over quarter, including Middle East sovereign wins and continued traction in enterprise, we have grown enterprise AI orders year over year every quarter since the beginning of fiscal 2024th.
Speaker #3: AI systems revenue of $1.6 billion was also an all-time high, as we completed delivery of a large GB200 system. Server operating margin improved sequentially, benefiting from the changes we made in pricing and discounting early in the year.
From an innovation perspective, we continue to keep pace with new accelerators technology and time to market customer demands.
Last month, we launched HPE servers with the new N V. The RPX Pro 6000, Blackwell and then be there Blackwell ultra ASO oriented computing platforms.
Speaker #3: Which returned traditional server product margins to historical levels. This was partially offset by higher AI mix, including a large deal. As we enter Q4, we continue to expect total server operating margin to be around 10% for the quarter.
Traditional servers customers are continuing to refresh aged infrastructure with more powerful richly configured servers.
As a result revenue increased double digits year over year on mix shift to HPE Gen 11 N. Gen 12 servers.
Speaker #3: AI systems orders increased nearly 100% quarter-over-quarter, including Middle East sovereign wins and continued traction in enterprise. We have grown enterprise AI orders year-over-year, every quarter, since the beginning of fiscal 2024.
During the quarter, we expanded the Gen 12 compute portfolio to include the latest AMD fifth generation epic processors.
The new servers include support for HP computer Ops management with AI driven lifecycle management.
Speaker #3: From an innovation perspective, we continue to keep pace with new accelerators technology and time-to-market customer demands. Last month, we launched HPE servers with the new NVIDIA RTX Pro 6000 Blackwell, and NVIDIA Blackwell Ultra accelerated computing platforms.
We expect the Gen 12 adoption to accelerate through 2026.
In Q3 will also released our next generation HP nonstop compute solutions for mission critical workloads with double the memory capacity and double the system interconnect bandwidth.
Speaker #3: In traditional servers, customers are continuing to refresh edge infrastructure with more powerful, richly configured servers. As a result, revenue increased double digits year-over-year on mixed shift to HPE Gen 11 and Gen 12 servers.
Finally hybrid cloud performance was solid revenue of $1.5 billion increased year over year for the fourth consecutive quarter.
In addition, operating profit margins were up 70 basis points and operating profit dollars increased 26% year over year.
Speaker #3: During the quarter, we expanded the Gen 12 compute portfolio to include the latest AMD 5th generation EPYC processors. The new servers include support for HPE Compute Ops Management with AI-driven lifecycle management.
A R increased 75% compared to Q3 in 2024th with inclusion of one month of Juniper results.
On an organic basis, a I R increased 40% in line with our guidance of 35% to 45% CAGR.
In storage, we saw robust growth in our IP product portfolio.
H B E L F N b storage revenue increased triple digits year over year.
We have now shipped more than 5000, I'll, let Brett M. P are raised to date.
We continue to successfully migrate our customer installed base.
While gaining new customer logos, resulting in a one point share gain in the most recently released IDC <unk> report.
Finally, hybrid cloud performance was solid, with revenue of $1.5 billion, increased year-over-year for the fourth consecutive quarter.
In private cloud, we continue to ramp sales of our enterprise AI factory solutions.
In addition operating profit margins were up 70 basis points and operating profit dollars increased 26% year-over-year.
During Q3, we added twice the number of new private cloud AI customers compared to Q2 with particular interest in our developer configuration.
Are increased 75% compared to Q3 2024 with inclusion of 1 month of juniper results.
Software is a core differentiator for our Greeley cloud and for a private cloud portfolio, which is a key contributor to our AI our growth.
On an organic basis, we are up 40%, in line with our guidance of 35% to 45% CAGR.
In June we announced our new HPE hybrid cloud ops suite software, bringing together of Morpheus VM essentials of Trump and circle to assist customers from hybrid cloud orchestration and virtualization and observe ability to continuous data protection.
In storage. We saw robust growth in our IP product portfolio.
HPE, Alletra MP storage revenue increased triple digits year-over-year.
We are now shipped more than 5,000 Electra MP arrays to date.
We continue to successfully migrate our customers to base.
Our cloud software revenue in the quarter increased strong double digits year over year.
At discover Las Vegas, we unveiled Green Lake intelligence, our framework for deploying AI agents across cloud and infrastructure to simplify customers' hybrid idea operations.
While gaining new customer logos, we achieved a 1-point share gain in the most recently released IDC market share report.
In private cloud, we continue to ramp cells of our enterprise AI Factory Solutions.
We also expanded our agenda AI capabilities in all Trump networking and storage.
Innovations like these continue to attract new customers, who are getting like cloud in Q3, we added approximately 2000, new customers, bringing our getting like cloud customer count to approximately 44000.
During Q3, we added twice the number of new private Cloud and AI customers compared to Q2, with particular interest in our developer configuration.
Software is a core differentiator for a GreenLake cloud and for our private cloud portfolio, which is a key contributor to our AI-driven growth.
In closing as we look ahead I am excited for the H beans next chapter the completion of our Juniper acquisition position us to win in networking as the market enters a new era of it and business transformation, where AI cloud and networking converge.
In June, we announced our new hpe hybrid Cloud, Ops Suite, software, bring it together, Morpheus via Essentials of trump and zero to assist customers from hybrid Cloud, orchestration, virtualization, and observability to continuous data protection.
We launched a new brand for H B to reflect this potential the brand is modern expresses what our technology and talent make possible and reinforces our relevance with our customers our vision for the company is clear.
Our cloud software revenue in the quarter increased strong double digits year-over-year.
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Lead in the AI era through a modern secure cloud native and AI, driven networking portfolio that accelerates our profitable growth.
We also expanded our agentic, AI capabilities in Oprah, networking and Storage.
We're focused on executing with position to capitalize on the growing opportunities in the market to deliver strong value to our customers and our shareholders I look forward to providing more details about our strategy and our long term value creation framework.
Innovations like this continue to attract new customers to our GreenLake Cloud. In Q3, we added approximately 2,000 new customers, bringing our GreenLake Cloud customer count to approximately 44,000.
Securities Analyst meeting on October 15.
New York Stock Exchange I would like now to turn it over to Marie to provide more insights into our quarterly results and full fiscal year Guide Marty.
In closing, as we look ahead, I am excited for HP's next chapter, the completion of our Juniper acquisition, which positions us to win in networking as the market enters a new era of IT and business transformation, where AI, cloud, and networking converge.
We launched a new brand for HP to reflect this potential.
Thank you Antonio and good afternoon.
I'm pleased with our performance this quarter, while navigating and evolving market environment.
The brand is Modern Expresses, what our technology and talent make possible, and reinforces our relevance with our customers.
Regarding our results first all segments of that business performed well as the business has moved past the pricing and discounting issues. We reported earlier this year in compute.
To lead in the AI era through a modern, secure, cloud-native, and AI-driven networking portfolio that accelerates our profitable growth.
Hybrid cloud posted its fourth consecutive quarter of year over year top line growth and operating margin expansion and revenue growth in our intelligent edge business is improving as the networking market recovery continues.
Second I'm pleased that we completed our acquisition of Juniper, which will shift our revenue mix towards our higher growth higher margin networking business.
We continue to expect the acquisition to be accretive to our non-GAAP results in year, one enhancing our profitability as we capture synergies and drive new market opportunities without increased scale.
We are focused on executing with precision to capitalize on the growing opportunities in the market to deliver strong value to our customers and our shareholders. I look forward to providing more details about our strategy and long-term value creation framework at our Securities and Exchange Commission meeting on October 15th. I would like now to turn it over to Murray to provide more insights into our quarterly results and full fiscal year guidance. Murray.
And finally, we made solid progress on our cost reduction initiatives announced last quarter.
Thank you, Antonio, and good afternoon. I'm pleased with our performance this quarter while navigating and evolving market conditions.
Looking forward to sharing more about the next chapter that company at our security Analyst meeting next month.
Regarding our results first, all segments of our business performed well. Our server business has moved past the pricing and discounting issues. We reported earlier this year in compute,
Let's talk about the details of the quarter.
Third quarter revenue of $9.1 billion, which included Jennifer was up 18% year over year and quarter over quarter and up 11%, excluding juniper revenue of $480 million.
Hybrid Cloud hosted its fourth consecutive quarter of year-over-year topline growth and operating margin expansion in revenue. Growth in our Intelligent Edge business is improving as the networking market recovery continues.
Excluding share of the total revenue of $8 $7 billion exceeded the high end of our outlook range.
Second, I'm pleased that we completed our acquisition of Juniper, which will shift our revenue mix towards a higher growth, higher margin networking business.
<unk> was strong this quarter and we did not see material demand pull in.
Our reported annualized recurring revenue run rate was $3.1 billion, including $519 million contributed by Juniper.
When you took the acquisition to be active to our non-GAAP results in Year 1 and enhancing our profitability, as we capture synergies and drive new market opportunities with our increased scale.
Reported a I R was up 75% year over year or up 40% excluding juniper.
And finally, we made solid progress on our cost reduction initiatives announced last quarter.
Software and so this is a L R, including juniper doubled year over year as the mix of this high margin revenue improved sequentially by 640 basis points to over 81%.
I'm looking forward to sharing more about the next chapter of our company and our security analysts meeting next month.
Let's talk about the details of the quarter.
Including the non-GAAP gross margin was 29, 9% down 190 basis points year over year, and up 50 basis points quarter over quarter.
In the third quarter, revenue of $9.1 billion, which included Juniper, was up 18% year-over-year and quarter-over-quarter, and up 11% excluding Juniper revenue of $480 million.
Our year over year basis gross margin was impacted by an unfavorable mix within server networking and hybrid cloud, which more than offset the beneficial margin contribution the one month of chamber.
Excluding Europa, total revenue of $8.7 billion exceeded the high end of our outlook range.
Demand was strong this quarter, and we did not see material demand pull-in.
Excluding jet at the gross margin was 28, 3%.
A reported annualized recurring revenue run rate was $3.1 billion, including $590 million contributed by Juniper.
non-GAAP operating expense, including Jennifer it's a percentage of revenue was flat sequentially and declined 40 basis points year over year, reflecting strong revenue performance and disciplined cost management, partially upset by variable compensation.
Reported a revenue rate (RR) was up 75% year-over-year or up 40% excluding Juniper.
We will continue to manage costs rigorously as we target efficiencies through catalysts complemented by at least $600 billion at expected juniper related cost synergies over the next three years with 200 million expected to be realized next year.
Software and services AARR, including Juniper, doubled year-over-year as the mix of this higher-margin revenue improved sequentially by 640 basis points to over 81%.
Excluding the non-GAAP operating expense as a percentage of revenue was 22% down 160 basis points year over year and down 120 basis points sequentially driven by strong cost discipline as we grew revenue faster than expenses.
Including shoulder, non-GAAP gross margin was 29.9%, down 190 basis points quarter over quarter.
At a year-over-year basis, gross margin was impacted by a favorable mix within server networking and hybrid cloud, which more than offset the beneficial margin contribution from the month of June.
non-GAAP operating margin, including Juniper was eight 5% down 150 basis points year over year, primarily due to lower gross margins, partially offset by cost management.
Including Juniper, gross margin was 28.3%.
The 50 basis point sequential improvement was primarily due to the inclusion of <unk> results.
Non-GAAP operating expense, including Juniper, as a percentage of revenue was flat sequentially and declined 40 basis points year-over-year, reflecting strong revenue performance and disciplined cost management, partially offset by variable compensation.
Excluding <unk> operating margin was eight 1% down 190 basis points year over year, but up 10 basis points sequentially.
During the quarter, we generated free cash flow of $719 million, including approximately $200 million of deal related costs and higher net interest expense, partially offset by improved inventory management.
We will continue to manage costs rigorously as we target efficiencies through Catalyst, complemented by at least $600 billion in expected cost synergies over the next 3 years, with $200 million expected to be realized next year.
non-GAAP diluted net earnings per share of 44 cents was toward the high end of our guided range of 40 to 45 cents.
Excluding Juniper non-GAAP operating expense, as a percentage of revenue was 20.2%, down 160 basis points year-over-year and at 120 basis points sequentially, driven by strong cost discipline. As we grew revenue faster than expenses.
Our non-GAAP diluted net EPS includes a one cent net impact attributable to consolidated one month of <unk> results and the impact of net interest costs related to the acquisition.
Long Gap. Operating margin, including Judo, was 8.5%, down 150 basis points year-over-year, primarily due to lower gross margins, partially offset by cost management.
Q3, GAAP diluted net earnings per share was 21 cents below our guidance of 24 cents to <unk> 29 cents.
The 50 basis point sequential improvement was primarily due to the inclusion of Judo's results.
In terms of these results non-GAAP diluted net earnings per share excludes $326 million in net costs, primarily due to juniper related acquisition costs stock based compensation expense.
Excluding Juniper, operating margin was 8.1%, down 190 basis points year-over-year, but up 10 basis points sequentially.
Motivation of intangible assets and acquisition disposition and other charges, partially offset by adjustments for taxes gains and litigation settlement and other adjustments.
Recently, $200 million of deal-related costs and higher net interest expense were partially offset by improved inventory management.
Now, let's turn to our segment results.
Starting with networking.
Non-GAAP diluted earnings per share of 44 cents was toward the high end of our guided range of 40 to 45 cents.
As previously mentioned, we closed our acquisition of Juniper on July 2nd So our Q3 earnings report includes only one month of <unk> results.
A non-GAAP diluted net EPS includes a $0.01 net impact attributable to consolidating one month of Juniper's results and the impact of net interest costs related to the acquisition.
Q4 networking results will include a first full quarter of consolidated juniper financials.
We will provide more details regarding our near term and longer term strategy and outlook for our networking business at our security analyst meeting next month.
Q3 gap diluted net earnings per share was 21 cents below our guidance of 24 cents to 29 cents.
Networking revenue for the quarter was $1 $7 billion up 54% year over year up 48% sequentially and up 11% year over year, excluding juniper.
In terms of these results, non-GAAP diluted earnings per share excludes $326 million in net costs, primarily due to Juniper-related acquisition costs, stock-based compensation expense, amortization of intangible assets, and acquisition disposition and other charges.
Partially offset by a justice for taxes gained from litigation settlement and other adjustments.
Strong networking revenue growth was driven by the ongoing recovery in the networking market and consolidation of <unk> results for the month of July.
Now, let's turn to our segment results.
Starting with networking.
While it's early days, we are pleased without order growth and revenue performance, we generated across the combined networking business.
As previously mentioned, we closed our acquisition of Juniper on July 2nd. So our Q3 earnings report includes only one month of Juniper's results.
Reported orders grew strong double digits year over year, including double digit growth in both campus switching and the SMB markets.
Our Q4 networking results will include our first full quarter of consolidated Juniper financials.
Excluding juniper intelligent edge orders grew mid teens percent year over year.
We will provide more details regarding our near-term and longer-term strategy and outlook for our networking business at our security analysts meeting next month.
Demand in Q3 with strong sell out increased sequentially and year over year.
Networking operating margin was 28% down 160 basis points year over year.
This is inclusive of a 22.7 operating margin from H P. He's former intelligent edge business at 15, 8% operating margin from junipers networking business.
Networking revenue for the quarter was $1.7 billion, up 54% year-over-year, up 48% sequentially, and up 11% year-over-year excluding Juniper.
Strong networking revenue growth was driven by the ongoing recovery in the networking market and the consolidation of Juniper's results for the month of July.
Excluding juniper operating margin was down 90 basis points sequentially, primarily due to variable compensation and product related costs.
While it's early days, we are pleased with our order growth and revenue performance we generated across the combined networking business.
Service revenue was $4 $9 billion up 16% year over year and up 21% sequentially above the high end of that guidance range.
Reported orders grew strong double digits year-over-year, including double-digit growth in both campus switching and the SMB markets.
The quarter over quarter revenue increase was driven largely by a double digit increase in AI assistance revenue due to a large a ideal we shipped in the quarter.
Excluding Jennifer's Intelligent Edge orders, grew a mid-teens percent year-over-year.
In Q3, it was strong as sunlight, increasing sequentially and year-over-year.
Old method by higher E P.
Well mix shift in core compute.
In margin was 20.8%, down 160 basis points year-over-year.
In traditional server revenue increased sequentially driven by volume increases in A&P strength supported by the continued shift to Gen 11 service augmented by early yet improving sales of our agenda 12 service.
This is inclusive of a 22.7% operating margin from HPE's former Intelligent Edge business and a 15.8% operating margin from Juniper's networking business.
In AI assistance, we signed $2.1 billion in net new orders driven by robust growth in sovereign net new orders, which increased by triple digits, both year over year and sequentially, while enterprise net new orders were also up year over year together.
Excluding Juniper, operating margin was down 90 basis points sequentially, primarily due to variable compensation and product-related costs.
Server revenue was $4.9 billion, up 16% year-over-year and up 21% sequentially, above the high end of our guidance range.
Enterprise and sovereign constitute greater than 50% of that cumulative AI orders since Q1 'twenty three.
We generated $1 $6 billion of revenue during the quarter up 25% year over year and up 57% sequentially driven by the previously disclosed large AI system that we shipped in the quarter.
A quarter of a quarter revenue. The increase was driven largely by a double-digit increase in AI systems revenue due to a large ideal. We shipped in the quarter, augmented by higher AUP from a favorable mix shift in core compute.
We finished Q3 without pipeline at multiples of about $3 $7 billion ending backlog.
So the operating margin of six 4% was consistent with our outlook.
In traditional server revenue, increased sequentially, driven by volume increases and AUP strength supported by the continued shift to Gen 11 servers, augmented by early yet improving sales of our Gen 12 servers.
Imagine performance improves sequentially benefiting from the changes we made in pricing and discounting earlier in the year, which returned traditional server product margins to historical levels.
This was partially offset by higher <unk> mix.
Mix, including a large deal and AI inventory.
In AI systems, we signed $2.1 billion in net new orders, driven by robust growth in Sovereign. Net new orders increased by triple digits both year-over-year and sequentially, while Enterprise net new orders were also up year-over-year.
Moving to hybrid cloud revenue was $1.5 billion up 11% year over year, the fourth consecutive quarter of double digit growth.
Price and Sovereign constitute greater than 50% of our cumulative AI orders since Q1 2023.
Sequentially revenue increased 1% consistent with that outlook.
In storage our H.
P E. Electra N P platform continues to drive robust growth achieving triple digit year over year revenue growth for the third consecutive quarter, while high double digit margins expanded sequentially again.
We generated $1.6 billion in revenue during the quarter, up 25% year-over-year and up 57% sequentially, driven by the previously disclosed large AI system that we shipped in the quarter.
We finished Q3 with our pipeline at multiples of our $3.7 billion ending backlog.
In Q3, new logos were up more than 350 sequentially and grew over 70% year over year.
The server operating margin of 6.4% was consistent with our outlook.
In private cloud revenue grew strong double digits year over year as we see continued growth in our pipeline for P. C. A eye with a number of new enterprise customers doubled quarter over quarter.
Earlier in the year, which returned traditional server product margins to historical levels.
This was partially offset by a higher AI mix, including a large deal and AI inventory.
Also our VM essentials solutions closed over 120 customers in Q3 and has generated a pipeline exceeding 1000 interested customers since its launch last November.
Moving to hybrid cloud.
Revenue was $1.5 billion, up 11% year-over-year. This marks the fourth consecutive quarter of double-digit growth.
Sequentially, revenue increased by 1%, consistent with our outlook.
Hybrid cloud operating margin increased 50 basis points sequentially to five 9% and increased 70 basis points year over year, the fourth consecutive quarter that all loopy margin has expanded on a year over year basis.
In storage, our HPE Electro MP platform continues to drive robust growth, achieving triple-digit year-over-year revenue growth for the third consecutive quarter, while maintaining high double-digit margins. It expanded sequentially again.
Lastly, our financial services business generated revenue of $886 million down, 1% year over year and flat quarter over quarter.
In Q3, new logos were up more than 350 sequentially and grew over 70% year-over-year.
Financing volumes increased 2% year over year to $1.5 billion.
Q3 loss ratio was point <unk>, 7% and return on equity improved sequentially and year over year to 17, 7%.
In private cloud revenue, grew strong double digits year-over-year as we see continued growth in our pipeline for PC AI, where the number of new enterprise customers doubled quarter-over-quarter.
Operating margin of 9.9% increased 90 basis points year over year, primarily due to a higher mix of financing that is operating leases, but declined 50 basis points quarter over quarter, driven by unfavorable operating expenses, despite the higher revenues.
Also, our VM Essentials Solutions closed over 120 customers in Q3 and has generated a pipeline exceeding 1,000 interested customers since its launch last November.
Last quarter, we announced catalyst a series of initiatives designed to accelerate growth increase efficiency and make it easier to do business with H B E.
Hybrid cloud operating margin increased 50 basis points sequentially to 5.9% and increased 70 basis points year-over-year. This marks the fourth consecutive quarter that our operating margin has expanded on a year-over-year basis.
I'll starting point was an approximate 5% workforce reduction from the exit of Q1 with gross savings of at least $350 million by fiscal year 'twenty 'twenty seven.
Lastly, our financial services business generated revenue of $886 million, down 1% year-over-year and flat quarter-over-quarter.
Financing volumes increased 2% year-over-year to $1.5 billion.
We are executing well against our plan and expect to achieve our target of 20% of the total savings by fiscal year end 2025.
We are taking an AI first approach to re imagine our key workflows and have started in my own finance organization, leveraging AI to increase productivity.
Our Q3 loss ratio was 7%, and return on equity improved sequentially and year-over-year to 17.7%.
Turning to cash flow and capital allocation.
We generated $1.3 billion of operating cash flow in the quarter and free cash flow was a positive $719 million a significant improvement sequentially as expected.
Operating margin of 9.9% increased 90 basis points year-over-year, primarily due to a high mix of financing versus operating leases, but declined 50 basis points quarter-over-quarter, driven by unfavorable operating expenses despite the higher revenues.
At the end of fiscal Q3 inventory totaled $7.2 billion down $933 million sequentially. Excluding July and then should it be inventory of approximately $1 billion Q3, ending Standalone H P inventory was $6 $2 billion down $1.9 billion sequentially would you.
Last quarter, we announced Catalyst, a series of initiatives designed to accelerate growth and make it easier to do business with HPE.
Our starting point was an approximate 5% workforce reduction from the exit of Q1, with gross savings of at least $350 million by fiscal year 2027.
Inventory levels has been a key priority and we exited Q3 with that balance near a normalized level.
We are executing well against our plan and expect to achieve our target of 20% of the total savings by the end of fiscal year 2025.
Oh Q3 cash conversion cycle was positive 35 days up nine days from last quarter.
We are taking an AI-first approach to reimagine our key workflows and have started in my own financial organization, leveraging AI to increase productivity.
Inclusion of Juniper unfavorably impacted our CCC calculation this quarter as it includes only one month of junipers revenue and cost of sales results business. The consolidation of Europe is July ending balances.
Turning to cash flow and capital allocation.
This timing issue obscure supposed to progress we made improving S. E T C and the positive contribution from working capital the business generated on a sequential basis when excluding juniper.
We generated $1.3 billion of operating cash flow in the quarter, and free cash flow was a positive $790 million, a significant improvement sequentially as expected.
We expect our C. D C will improve in Q4 with a full quarter's consolidation of Judah. This financials as we expect the amount of free cash flow, we generate it increased sequentially consistent with typical seasonality.
At the end of fiscal Q3, inventory totaled $7.2 billion, down $933 million sequentially, excluding July-ending durability inventory of approximately $1 billion. Q3 ending standalone HP inventory was $6.2 billion, down $1.9 billion sequentially.
We returned a $171 million to shareholders through dividends, but was unable to repurchase shares during the quarter. Because we were in possession of material nonpublic information that we have since disclosed.
Reducing infantry levels has been a key priority, and we exited Q3 with our balance near our normalized level.
Our Q3 cash conversion cycle was positive at 35 days, up 9 days from last quarter.
As we prioritize debt reduction we remain committed to our dividend policy I'd expect quarterly share repurchases comparable to levels reported in the first half of fiscal 'twenty five partially offsetting share dilution, resulting from stock based compensation.
The inclusion of Juniper unfavorably impacted our CCC calculation this quarter, as it includes only one month of Juniper's revenue and cost of sales results versus the consolidation of Juniper's July ending balances.
At quarter end, and including incremental debt associated with the transaction our pro forma combined net leverage ratio was three one times we.
This timing issue obscures both the progress we made in improving our CCC and the positive contributions from working capital. The business generated on a sequential basis, when excluding Juniper.
We remain committed to our investment grade credit rating and intend to reduce our net leverage ratio back to our target in the two times range by the end of fiscal 2027.
We expect our CCC will improve in Q4 with a full quarter's consolidation of Juniper's financials. As we expect the amount of free cash flow we generate to increase sequentially, consistent with typical seasonality.
Now, let's turn to guidance.
We are revising our FY 'twenty five outlook to incorporate full months of contributions from Juniper networks for revenue, we expect constant currency growth of 14% to 16% and estimate currency impacts of 30 basis points up nominally versus last quarter's estimate.
We returned $171 million to shareholders through dividends, but were unable to repurchase shares during the quarter because we were in possession of material non-public information that we have since disclosed.
With the inclusion of <unk>, we expect our non-GAAP gross margin outlook for Q4 to be in the mid 30% range and fiscal 'twenty 'twenty five to be above 30%.
And policy. I'd expect quarterly share repurchases comparable to levels reported in the first half of fiscal 2025, partially offsetting share dilution resulting from stock-based compensation.
We expect operating expense to increase sequentially driven by a full quarter inclusion of juniper.
At quarter end, and including incremental debt associated with the transaction, our pro forma combined net leverage ratio was 3.1 times.
We expect full year non-GAAP operating margin to be in the upper 9% range at the midpoint benefiting from a sequential improvement in Q4 to the 11% range driven by the continued improvement in service margins and the accretive contributions from Jennifer.
We remain committed to our investment-grade credit rating and intend to reduce our net leverage ratio back to our target in the 2 times range by the end of fiscal 2027.
Now, let's turn to guidance.
We are revising our FY 'twenty five GAAP EPS range to 42 cents to 46 cents, which includes the impact of each of the path.
We are revising our FY25 outlook to incorporate four months of contributions from Juniper Networks.
We are raising our non-GAAP EPS range to $1.88 to $1.92, which reflects accretive contributions from juniper the minimal for the year.
For revenue, we expect constant currency growth of 14% to 16% and estimate currency impacts of 30 basis points, up nominally versus last quarter's estimate.
We are reaffirming our estimate of a two cent impact from tariffs in the second half of the year.
Lastly, we are revising our free cash flow outlook to approximately $700 million, excluding juniper, we expect to generate approximately $1 billion of free cash flow in line with the guidance, we provided last quarter.
With the inclusion of Churipo, we expect our non-GAAP gross margin outlook for Q4 to be in the mid-30% range and fiscal 2025 to be above 30%.
We expect operating expenses to increase sequentially, driven by the full quarter inclusion of Juniper.
Through the end of Q3 year to date free cash flow was 934 million dollar use of cash we expect Q4 free cash flow to be up materially quarter over quarter due to better net earnings. In addition to favorable working capital driven by significant improvements in accounts.
We expect a full year non-GAAP operating margin to be in the upper 9% range, at the midpoint benefiting from a sequential improvement in Q4 to the upper 11% range, driven by the continued improvement in server margins and the accreted contributions from Juniper.
We are revising FY 2556, which includes the impact of Juniper.
Super Bowl collections.
For Q4, we expect revenue to be between $9 seven and $10.1 billion for networking, we expect revenue will be up over 60% quarter over quarter, reflecting a full quarter of juniper, we expect that networking operating margin in Q4 and fiscal 2025 to be.
We are raising our non-GAAP EPS range to $1.88 to $1.92, which reflects a contribution from Juniper, the minimal for the year.
We are reaffirming our estimate of a $0.02 impact from tariffs in the second half of the year.
In the low 20% range the hybrid cloud, we expect revenue to be roughly flat quarter over quarter with a sequentially improved operating margin in the mid to high single digits.
Lastly, we are revising our free cash flow outlook to approximately $700 billion, excluding Juniper. We expect to generate approximately $1 billion of free cash flow, in line with the guidance we provided last quarter.
So, though we forecast a mid to high single digit decline in revenue quarter over quarter, driven by a greater than 30% sequential decline in AI systems revenue following the large deal that shipped in Q3.
We expect to serve our operating margin to improve sequentially to around 10% for the quarter, reflecting continued momentum behind our improved execution and an improved mix towards enterprise and sovereign as we continue to focus on profitable growth.
Through the end of Q3, year-to-date free cash flow was a $934 million use of cash. We expect Q4 free cash flow to be up materially quarter-over-quarter due to better net earnings, in addition to favorable working capital driven by significant improvements in accounts receivable collections.
Going forward, we will remain focused on profitable growth. So the segment will continue to assess the optimal balance between volume growth and margins.
We expect GAAP diluted net earnings per share to be between 50, and 54 cents and non-GAAP diluted net earnings per share to be between 56 cents 60 cents. A Q4 EPS outlook reflects a sequential increase in diluted shares outstanding to $1 4 billion attributable to the conversion of juniper.
For Q4, we expect revenue to be between $9.7 billion and $10.1 billion for networking. We expect revenue will be up over 60% quarter over quarter, reflecting a full quarter of Juniper. We expect our networking operating margin in Q4 and fiscal 2025 to be in the low 20% range. For hybrid cloud, we expect revenue to be roughly flat quarter over quarter, with a sequentially improved operating margin in the mid to high single digits.
<unk> related stock based compensation shares and forward awards.
Following the acquisition of intuitive, but we now expect Q4 <unk> in the 180 to 200 million dollar range. We expect Q4 free cash flow to be up sequentially, reflecting typical seasonality favorable working capital and increased net earnings.
For Server, we forecast a mid- to higher-single-digit decline in revenue quarter over quarter, driven by a greater than 30% sequential decline. In AI systems revenue, following the large deal that shipped in Q3.
We expect server operating margin to improve sequentially to around 10% for the quarter, reflecting continued momentum behind our improved execution and an improved mix towards Enterprise and Sovereign, as we continue to focus on profitable growth.
With that.
I look forward to see you, it's sad that October and now let me open the floor for questions.
Going forward, we will remain focused on profitable growth in the service segments and will continue to assess the optimal balance between volume growth and margins.
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 then two.
We expect Gap diluted that earnings per share to be between 50 cents and 54 cents and non-gaap diluted. Net earnings per share to be between 56 cents and 60 cents. Our Q4 EPS Outlook reflects a sequential increase in diluted shares outstanding to 1.44 billion attributable to the
In the interest of time, please limit yourself to one question.
Version of Juniper related. Stock-based compensation shares and forward awards.
And your first question today will come from Aaron Rakers with Wells Fargo. Please go ahead.
Yeah. Thanks for taking my question and congrats on the close of the Juniper acquisition I guess I wanted us.
Following the acquisition of Juniper, we now expect Q4 online in the $180 million to $200 million range.
Dive a little bit deeper into the server margin profile that you guys see I think Antonio in your prepared comments you said that we've returned to more of a normalized operating margin on the traditional server line I guess, if I look back I would assume.
We expect Q4 free cash flow to subsequently reflect typical seasonality, favorable working capital, and increased net earnings.
With that.
I look forward to seeing you at Sam in October, and now let me open the floor for questions.
That's kind of in that low double digit lets call it 11% to 13% range I guess, it's hard to do that math. It leaves me to question the profitability of the AI server business.
Thank you. We will now begin the question and answer session. To ask a question, you may press star then 1 on your touchtone phone.
So I guess as you think about that 10%, maybe you can unpack the drivers of getting to that level.
If you are using a speakerphone, please pick up your handset before pressing the keys.
How does how should we think about that AI server margin profile. Thank you.
Withdraw your question, please. Press star, then 2.
In the interest of time, please let me limit myself to one question.
Thank you iron for the question.
First we are very pleased with the progression. We've made between Q1 to Q2 to Q3 based on the challenges we experienced in Q1 with price and discounting and as you said the we resolve those issues and the traditional server is back to historical levels of around 10% to 12% as you talked about.
And your first question today will come from Aaron Rakers with Wells Fargo. Please go ahead.
Yeah, thanks for taking the question, and congrats on the close of the Juniper acquisition.
Right.
And so we believe that's consistent with what we see going forward remember there is a mix shift.
<unk> two those are pricing and discount changes to general evident Gen 12, the structure of those products.
<unk> is different than Gen pen or Gen 10, and a half obviously I was hired OUP different attach rates and the like.
And and that's going to be a core foundation as we enter Q4.
Server margin profile that you guys. See, I think Antonio and your prepared comments. You said that we've returned to more of a normalized operating margin on the traditional server line. I guess if I look back I would just do you know that's kind of in that low double digit. Let's call it 11 to 13% range. I I guess if I'm to do that math it it leaves me to question the profitability of the AI server business. Um and so I guess, you know, as you think about that 10%, maybe you can unpack the drivers of getting to that level and and I you know how the how should we think about that AI server, you know, margin profile. Thank you.
For delivering the total server segment the around 10% for the quarter now this quarter, obviously, the mix of AI and in particular, one deal and they work with they don't inventory had a short term impact.
Thank you, Aaron, for the question.
That ultimately took that you know what I call. The overall server margin down to the six 4%, but it was as we exited that.
First, uh, we are very pleased with the progression. We made between q1 to Q2 to Q3 uh, based on the challenges. We experience in q1 with pricing and discounting. And uh, as you said, uh, we we resolve those issues. And the traditional server is back to historical levels around that 10 to 12% as you talked about it.
Or are they recognize that they're going to get the natural lift in through that higher single digit too close to 10% and then therefore also you have also the mix of sovereign in enterprise in the AI revenue conversion.
As we move from more of a server provider centric revenue conversion to more of a sovereign and then propriety revenue conversion and AI, obviously, we're going to convert less in aggregate numbers, but it's going to have a different margin.
Um, and so we believe that's consistent with, uh, what we see going forward. Remember, there is a mix shift in addition to those pricing and discount changes to Gen 11 and Gen 12. The structure of those products is different from Gen 10 or Gen 10 and a half. Obviously, it has a higher AUP and different touch rates and the like.
Our margin profile, and that's why Marie and I and the team are very confident that in Q4 the.
Total server operating margin will be around 10%. So that's the work pattern.
And I was just out there and you know we also have a robust until framework that guides us in how we evaluate these AI related deals and prioritize them as well.
Very good. Thank you Erinn operator next question please.
Your next question today will come from <unk> Mohan with Bank of America. Please go ahead.
Hi, yes. Thank you so much another juniper is closed can you maybe just talk about.
Some of the early progress on integration and go to market changes that we should expect in any top line synergies.
And, uh, and that's going to be a core Foundation. As we enter Q4 for delivering at the total server segment, the around, 10% for the quarter. Now, this quarter obviously the mix of AI and, in particular, 1 deal, um, you know, and they work with they don't even to had a short-term impact. Uh, that ultimately took that, you know what, I call the uh, the overall server margin down to the 6.4%, but as, as we exit that, we, we already recognize, then you're going to get a natural lift in through that higher single digit to close to 10%. And then there are 4 also, you have also the mix of sovereign, and an Enterprise in the AI Revenue conversion. Because, as we move from more, a server provider Centric, Revenue conversion to more is Sovereign and Enterprise Revenue, conversion and AI. Obviously, we're going to convert Less in.
And early customer feedback and Ann Marie maybe if you could talk.
Talk about just the longer term opportunity for H b.
AI or Antonio just relative to networking works as servers, where do you see the larger opportunity for AI, both from a revenue Tam and from a margin or profitability standpoint that cause some of them.
Aggregate numbers, but it's going to have a different margin profile. And that's why Maria, I, and the team are very confident that in Q4 the total server operating margin will be around 10%. So that's the walk pattern.
And I'll just add, Aaron, you know, we also have a robust internal framework that guides us in how we evaluate these AI-related deals and prioritize them as well.
Thank you won't see so first we are incredibly pleased we closed the transaction with juniper.
Very good. Thank you, Aaron operator. Next question, please.
It was close to the right time, because obviously market recovers they can place, but also we see a demand across multiple sub segment of the networking market.
And your next question today will come from Wy Moen with Bank of America. Please go ahead.
And as we commented during my remarks.
My name is remark every sub segment on that work and had a very strong performance whether it was you know H b intelligent edge stand alone or Juniper, Standalone and obviously on a combined basis, it's even better very strong, but if you look at campus and branch both companies are doing very well are above.
Company grow in double digits. So that's very strong in data center switching and we've talked about this during the July 9th call Juniper had that record breaking performance in data center switches and also a very good performance in routing, which we call. It the automated one security was.
Uh, yes, thank you so much. Uh, now that Juniper is closed. Can you maybe just talk about some of the early progress on integration and go to market changes that we should expect and any Topline synergies uh and early customer feedback and and Marie. Maybe, uh, if you could, um, talk about, uh, just a longer term opportunity for hpe in AI or Antonio, um, just relative to networking versus servers. Where do you see the larger opportunity for AI both from our Revenue Tam and from a margin or profitability standpoint. Thank you so much.
Also up in the single digits year over year revenue growth driven by sassy.
Thank you, 1 c. Um, so uh, first, we are incredibly pleased, we close the transaction of juniper, uh, I think was close to the right time and because obviously Market recovery is taking place, but also we see uh, demand across multiple sub segments of the networking Market.
And then you know.
The progress we have made is that the debt is very strong and integration is progressing really well, we have a citizen of milestones, which we call. It the employees day, one which is on boarding the employees and for our systems. That's a combination of you know benefits and other things that have to take place and then we have the.
The harmonization of the sales force, which we call itself. They won and that takes place at the end of this calendar year and we already are incentivized and both sales forces to sell both products and I can tell you. The channel community is super excited to be able to solve.
Both products because of the combination of both products allows them to cover every vertical every use case.
Every geography.
And the fact of the matter is that the complementarity to portfolio allows us to drive strong security integration in our stack.
As shown through the integration with the rest of the portfolio with server and storage.
So we will be able to talk more about this wednesday of the securities Analyst meeting Rami will take center stage and walked through the strategy. Our early views of the Provost Road map, how we are driving the sales force integration, including our channel ecosystem.
And we believe that's going to be an opportunity as we enter 2026 and then obviously 27 28 your question about AI.
But a strong, uh, in data center switching, and we talked about this during the July 9th call, uh, Juniper had that record-breaking performance in data center switches and also a very good performance in routing which they, we call it. The automated 1 security was also, uh, up in the single digit year-over-year, Revenue growth, uh, driven by sassy. Um, and then, you know, uh, the, the progress we have made is that the, the is is very strong. Meaning integration is progressing, really? Well, we have a series of Milestones, which we call it the employee they want, which is on boarding, the employees into our systems. That's a combination of, uh, you know, benefits and all the things I have to take place. And then we have the, the harmonization of the sales force which we call it sales day 1 and that takes place at the end of these um uh you know, calendar year and we already are incentive.
Advising both sales forces to sell both products.
You know I also think about the ice space always ground myself on three very distinct customer segments.
In the service provider segment.
And I can tell you the channel community is super excited to be able to sell both products because the combination of both products allows them to cover every vertical, every use case.
In every geography.
<unk> and Marvell builders, our strategy is to lead with networking for AI.
The opportunity is significant journey, but it is getting traction is becoming the de facto standard in many of those customers and the opportunity with hp's to expand that footprint.
And the fact of the matter is that the complementary is $2. Portfolio allows us to drive strong security integration in our stack, in addition to the integration with the rest of the portfolio with server and storage.
And then we will solve this server products in that unique segment, where it makes sense from an accretion from a margin perspective and working capital perspective.
If you go to the sovereign space, which we sold this quarter, a 200 plus percent growth on a year over year basis, and thus solver and also includes video clouds.
So we will be able to talk more about this onesie at the security analyst meeting. Ramey will take center stage and walk through the strategy, early views of the Provo map, how we are driving the Salesforce integration, including our channel ecosystem.
We will lead with an integrated rack scale architecture, meaning networking class the server business and all the services that comes with it.
And we believe that's going to be an opportunity as we enter 2026 and then, obviously, in 2027/28 your question about AI.
And that will allows us to cover multiple type of offerings as customers in that segment may have the need to drive optionality and flexibility.
Um, you know, as I think about the eye space, I always grant myself on three very distinct customer segments.
And we have unique conversations with our partners and then in the enterprise space through the factory engagement with our private cloud AI portfolio, which this quarter added 300, plus new logos double from last quarter.
We will lead with a full integrated stack and that's what we're there with Nvidia the integrations the software without great Lake plus the integrated infrastructure without a hitch people rely on Cray for the Gpus, and then or a later MP storage or fast object and file plus all the services around.
But to lifecycle manage that solution. So I think other portfolio level. We can service every segment and find the right balance.
But I think that's working mouse make us stronger in the AI space because one of the key elements of the <unk> stock is the network of scale Juniper brings amazing technology, both on the data center switching and the routing piece because once you integrate this in a larger deployment you need to.
<unk> core aggregate all of this through the leaf and spine intra data center footprint and that requires also at routing product so more to come at some.
Okay. Thank you see operator next question please.
Your next question today will come from Cemig Chatterji with J P. Morgan. Please go ahead.
Yeah, Hi, Thanks for taking my question <unk> you.
Just following up here on the clinical sort of line of Oh topics.
Networking overall margins, taking a bit of a step down to the sort of low 20 range, where this segment historically has been about mid twenties, how should we think about with the synergy roadmap that you have windows segment and gets back to that sort of mid twenty's level, because some of the back of the envelope math on the synergies would suggest you could actually probably go lot of.
That is well long term, but maybe just lay out the roadmap for us in terms of how to think about the progress on the margin front from the new sort of level that you have post consolidation of Jennifer and Marie if I could quickly squeeze in one on cash get the headwinds in terms of closing during the quarter on the cash flow this year, but how should we think about sort of the impact.
On next year's cash flow in relation to any closing costs or integration costs. Thank you.
So I will pass it to Marie because I think she will be able to answer both questions.
Simply yeah, no worries and thanks, Antonio Hey, Simon good afternoon. So.
Just a preface my answer before I get started so I'm going to ask about questions in the context of our Q4 and full year twenty-five guide we will provide longer term update to your questions, particularly around cash as we get into security analyst meeting in early October. So let me have Pat first of all the networking margin rates during the quarter.
As you recall, we integrated a month of junipers results in our intelligent edge business to combine them into one segment called the networking segment.
And the combined operating margins were 28, if you look at I think the question was focused specifically on the edge business as Mark said actually I disclosed in my prepared remarks was $22 seven and we did see a sequential reduction and that was really due to two primary factors one variable comp expense and the other one is product related cost.
And I did guide the Q4 op range to the low twenty's as we get into the quarter and the reason for that stomach is obviously Europe is right with a few points below our intelligent edge business. So just bear that in mind as you think forward to the networking Martin right now with respect to your question on cash flow you know, we're confident in our guide for the year.
And I would just say as you think about cash there's puts and takes that obviously you brought up the costs and we will give more clarity on that as we get through the sand, but even as we get into Q4. There's obviously costs that are I believe I commented on in Q3, and Q4 and also the increase in Hawaii. So all of that takes it into account when you think about cash flow and I'd just add look.
We are absolutely focused on free cash flow, we will give you a lot more detail as we have the security analysts as you know our leverage has gone up and so free cash flow generation is paramount for us.
Speaker #1: They will come expense, and the other one is product-related costs. I did guide the Q4 up range to the low $20s as we get into the quarter.
Speaker #1: Hi Paul, our solution—whether it's cloud-based, virtual private cloud (meaning sovereign), or on-prem—is the opportunity we have ahead of us. And then, last but not least, on the data center switching side, in addition to networking for AI, we are also working on integration in the private cloud portfolio with the software-defined networking components that Juniper brings, through Fidelma's Hybrid Cloud Ops Suite.
I want to reinforce the last point.
Because of the integration of Juniper.
The ability to generate earnings, but also pay down the debt.
Speaker #1: And the reason for that summit is obviously Juniper's rate was a few points below our Intelligent Edge business. So just bear that in mind as you think forward to the networking margin rates.
Our main focus going forward. In addition to drive the right balance of growth and operating margins is really free cash flow generation.
Speaker #1: Now, with respect to your question on cash flow, you know we're confident in our guidance for the year. And I would just say, as you think about cash, there are puts and takes.
And so we will be able to talk more about this.
Speaker #1: Now, obviously, you brought up Juniper costs, and we will give more clarity on that as we get through to Sam. But even as we get into Q4, there are obviously costs that I believe are coming in at odds in Q3 and Q4.
The outcome.
Thank you for the question stomach operator next question. Please.
And your next question today will come from Amit <unk> with Evercore. Please go ahead.
Speaker #1: And also the increase in OI&E. So all of that takes into account when you think about cash flow. And I’d just add, look, you know we are absolutely focused on free cash flow.
Yeah. Good afternoon. Thanks for taking my question I guess Antonio wanted to sort of go back to the networking discussion. It sounds like you know both intelligent edge and also general are doing fairly well from a revenue basis Oh. He's simplistically. How do you think about the growth rates of the combined business as we go forward. If you think the net.
Speaker #1: We'll give you a lot more detail as we head into security analyst. As you know, our leverage has gone up, and so free cash flow generation is paramount for us.
Speaker #1: Thank you.
Speaker #2: I want to reinforce the last point. Because of the integration of Juniper, the ability to generate earnings, and also pay down the debt, our main focus going forward, in addition to driving the right balance of growth and operating margins, is really free cash flow generation.
Market Rose five 6% a year, how do you think H B E plus juniper can do and then you know really over time, how do you think about product integration on the campus side between Aruba and mist do you think we need to mystify, Aruba or and have a single product or you think you can have both the products in the market place simultaneously.
Speaker #2: And so we will be able to talk more about this at some point.
Thank you.
Yeah, Thanks, Amit Rami and I and the team are very pleased with the momentum both businesses have in the market.
Speaker #1: Thank you for the question, Samek. Operator, next question please.
Speaker #3: And your next question today will come from Amit Daryanani with Evercore. Please go ahead.
That's a reflection of the above offers are very strong and let's remind ourselves that that's true for campus and branch, but when you go to data center switching.
Speaker #4: Yep. Good afternoon. Thanks for my question. You know, I guess, Antonio, I wanted to sort of go back to the networking discussion. It sounds like, you know, both Intelligent Edge and also Juniper are doing fairly well from a revenue basis.
And obviously, the one business that 100% and Juniper and then in the security space. We have a you know a robust security portfolio, because we need to lead with a secure network approach and that's inclusive of juniper firewalls, and the secure access service edge or the SSC, which.
Speaker #4: You know, I guess simplistically, how do you think about the growth rates for the combined business as we go forward, if you think the networking market grows 5% to 6% a year?
Speaker #4: How do you think HPE plus Juniper can do? And then, you know, really over time, how do you think about product integration on a campus side between Aruba and Mist?
Both companies have very strong offerings and as you'll recall in 2020, we acquire silver peak are.
Speaker #4: Do you think we need to mystify Aruba, or have a single product? Or do you think you can have both products in the marketplace simultaneously?
To drive the conversion between convergence between SD Wan and security.
Speaker #4: Thank you.
But I was as I think going forward. Our goal is to build the best network of business and that means we're going to grow above market and that's the reality will now explain how that's going to be the case over the next three years and we have an opportunity across AI and cloud.
Speaker #2: Yeah, thanks, Amit. Rami and I, along with the team, are very pleased with the momentum both businesses have in the market. That's a reflection that both offers are very strong.
Speaker #2: And let's remind ourselves that that's true for campus and branch. But when you go to data center switching, and obviously the one business, that's 100% Juniper.
And and across the infrastructure itself.
And when I think about a couple of some branch question, we were very clear a waiter Amit we've gone off thoughtfully integrate the.
Speaker #2: And then in the security space, we have a robust security portfolio because we need to lead with the secure network approach.
The juniper platform and the Aruba central platform, because you need to think about that alere everything below that is very straight forward. There is no confusion because the reality is that you know we have a very strong robust campus switching portfolio.
Speaker #2: And that's inclusive of Juniper firewalls and the Secure Access Service Edge, or SSE, which both companies have very strong offerings. As you recall, in 2020, we acquired Silver Peak.
<unk>, obviously has a lot of that has the wire piece, which is a robot silicon than Wi Fi access points I don't think that's too complicated and we're not sure what that looks like.
Speaker #2: To drive the convergence between SD1 and security. But as I think going forward, our goal is to build the best networking business. And that means we're going to grow above market.
And then finally is the extension and throw IOP of private five G, which obviously H b.
Speaker #2: And that's the reality. We're going to explain how that's going to be the case over the next three years. We have an opportunity across AI and cloud, and across the
Coffers, but that integration of the cloud and AI ops is where that experience will evolve, but we're going to we're not going to leave any customer behind we're going to sell both products.
And youre going to see an integration that suddenly happen over time through the AI ops layer and that's the opportunity we have here and the good news customers want both today and we can serve every market us market vertical and we can also deploy any type of a solution whether it's cloud base.
Virtual private cloud.
Sovereign and then on Prem and that's the opportunity. We have ahead of US and then last one on the list on the data center switching side.
Addition to networking for a high we also work in integration and the private cloud portfolio with our software defined networking components that juniper brink's through Fidel myself you know.
Hybrid cloud ops suite.
And then obviously in our storage and server business, which required a switch along the way.
Very good. Thank you Amit operator next question please.
Your next question today will come from David <unk> with UBS. Please go ahead.
Great. Thanks, guys for the question so yeah, Tony I want to go back to the networking piece and maybe Maria can chime in on this I think you talked about the traction that juniper is getting with some of these AI model builders and sort of that part of the network how much of sort of the opportunity to grow is predicated on junipers traction with those customers and then maybe along those lines I think.
Operator: After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then one on your touch-tone phone. To withdraw your question, please press star, then two. Please note that today's event is being recorded. I would now like to turn the conference over to Paul Glaser, Head of Investor Relations. Please go ahead, sir.
We mentioned some product related costs was that mix in the networking section in more AI centric offerings and how do we think about that mix shift going forward from a more enterprise campus centric model to one more hopefully one more towards an AI model building sort of cloud model going forward. Thank you.
Paul Glaser: Good afternoon. I am Paul Glaser, Head of Investor Relations for Hewlett Packard Enterprise. I would like to welcome you to our fiscal 2025 third-quarter earnings conference call with Antonio Neri, HPE's 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 the world and our businesses as we see them today. HPE assumes no obligation and does not intend to update any such forward-looking statements.
Speaker #1: And then, obviously, in our storage and server business, which requires the switch along the way.
Yeah. Thank you.
No.
The opportunity is across all the three segments.
Speaker #2: Very good, thank you, Ahmed. Operator, next question please.
Earlier right in networking, which is the service provider, where we have division to lead with networking there because there is unique value proposition for four months cost simplicity lifecycle management, and AI driven capabilities, where.
Speaker #3: And your next question today will come from David Vaught with UBS. Please go ahead.
Speaker #4: Great, thanks, Patrick, for the question. So, you know Antonio, I want to go back to the networking piece, and maybe Marie can chime in on this.
Speaker #4: I think, you know, you talked about the traction that Juniper is getting with, you know, some of these AI model builders and sort of that part of the network.
Where do you go to the sovereign space.
Speaker #4: How much of the opportunity to grow is predicated on Juniper's traction with those customers? And then maybe along those lines, I think Marie mentioned some product-related costs.
In phases, and that's even more important because you know drive rock scale integration with the rest of the server business.
And then are the enterprise layer of course, we want to integrate the juniper switch in everything we do in cloud and AI going forward by giving customers choice and flexibility. So the opportunity for networking and AI is across all three segments now in the service provider space.
Speaker #4: Was that mix in the networking section to more, you know, AI-centric offerings? And how do we think about that mix shift going forward from a more enterprise campus-centric model to one more, hopefully, towards an AI model building sort of cloud model going forward?
Paul Glaser: 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 ending July 31, 2025. For more detailed information, please see the disclaimers on the earnings materials relating to forward-looking statements that involve risks, uncertainties, and assumptions. Please refer to HPE's filings with the SEC for a discussion of these risks. For financial information we have expressed 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 and adjusted to exclude the impact of currency.
Speaker #4: Thank you.
Let's say once you laid out you know.
Speaker #1: Yeah, thank you. No, the AI opportunity is across all the three segments I mentioned earlier, right? In networking, which is the service provider where we have the vision to lead with networking, there is unique value proposition: performance, cost, simplicity, lifecycle management, and AI-driven capabilities.
The simple.
Now the Jamaica.
Inside the data center and you connect that data center to the rest of the the interconnect process. Then obviously you become the standard and then from that that solution you kind of hang these amount of Gpus.
That comes with those deployments and.
Speaker #1: When you go to the sovereign space, same thesis. You know, and that's even more important because you now drive rack scale integration with the rest of the server business.
And so this is why the opportunity is significant and the benefit for Juniper, which already has good traction is access to a very.
A larger number of customers.
Speaker #1: And then, at the enterprise layer, of course, we want to integrate the Juniper switch in everything we do in cloud and AI going forward.
We are not able to access before because we are strategic in many geos remember we cover 172 countries and also our heritage in countries and geographies, where our mix has shifted to those of Geos example, Europe in Asia versus North America. So there is an approach.
Paul Glaser: Antonio and Marie will reference our earnings presentation in their prepared comments. Finally, I would like to clarify that in the discussion today, any mention of HPE Intelligent Edge will refer to HPE's prior business segment, and networking will refer to the combination of Intelligent Edge and Juniper Networks. With that, let me turn it over to Antonio.
Speaker #1: By giving customers choice and flexibility, the opportunity for networking in AI spans all three segments. In the service provider space, once you lay down the infrastructure—using a simple analogy, you can think of it as laying down the pipes inside the data center and connecting that data center to the rest of the interconnect process—you become the standard.
Surety here as we integrate the sales force, but also integrate the architectures and then David just to add on to your question around the product costs that was actually in the intelligent edge business that I mentioned that was on a sequential basis and it was it related to a platform transition.
Antonio Neri: Thank you, Paul. Good afternoon, everyone. In Q3, we delivered solid results and completed a major milestone, closing our acquisition of Juniper Networks. Together with Juniper, we will accelerate our momentum across our three strategic business pillars: networking, cloud, and AI, building a stronger, leaner, and more profitable HPE. In Q3, HPE achieved record-breaking revenue with and without Juniper. Revenue was $9.1 billion, up 18% year over year, fueled by strong momentum across AI, networking, and hybrid cloud. We grew revenues year over year across our three largest business segments. Demand was broad-based across our products and services. We increased sequential operating profit dollars in server, hybrid cloud, and both Intelligent Edge and the new combined networking segment. We also grew operating profit dollars in financial services on a year-over-year basis. The new combined networking segment accounted for nearly 50% of HPE's non-GAAP consolidated operating profit.
Speaker #1: And then from that solution, you kind of hang these amounts of GPUs, you know, that come with those deployments. And so this is why the opportunity is significant.
Thank you.
Thank you David.
Operator next question please.
Your next question today will come from Erik Woodring with Morgan Stanley. Please go ahead.
Speaker #1: And the benefit for Juniper, which already had good traction, is access to a very larger number of customers that were not able to access before because we are strategic in many deals. Remember, we covered 172 countries.
Hey, guys. Thanks, so much for taking my question and Tony I was wondering if you could maybe.
Just take a step back and share some details on what you're hearing from customers what youre seeing in the pipeline as it relates to kind of end market growth for your for your three core end markets networking server and storage and really what I'm trying to understand is.
Speaker #1: And also a heritage in countries and geographies where our mix is shifted to those deals. For example, Europe and Asia versus North America. So, there is an opportunity here as we integrate the Salesforce but also integrate the architectures.
There is some maybe concerns that the market could be rolling over Theres, obviously, a lot of aged infrastructure that can be refreshed. What are you hearing from your customers about prioritizing those types of upgrades and from the HPE perspective, you know if we put networking to the side because you've talked AD nauseum, there just where do you see the biggest opportunity to take share.
Speaker #2: And then, David, just to add on to your question around the product costs, that was actually in the intelligent edge business that I mentioned, and that was on a sequential basis.
Speaker #2: And it was related to a platform transition. Thank you.
With a core HBU portfolio in those respective end markets. Thanks, so much.
Antonio Neri: We also improved sequential operating profit margins in server and hybrid cloud. Our improved profitability flowed through non-GAAP diluted net earnings per share of $0.44. Free cash flow was $719 million, as we significantly lowered our inventory, driven by higher AI backlog conversion to revenue and strong supply chain execution. We continue to transform our business through Catalyst, the structural cost-saving program we announced last quarter, including enhancing operational efficiency, simplifying our portfolio, adopting AI, and optimizing our workforce. In Q3, customers continued to demonstrate strong demand for our AI portfolio. We nearly doubled our AI orders sequentially, driven by sovereign opportunities, up approximately 250%. Cumulative orders since Q1 2023 for sovereign and enterprise now account for more than 50% of total AI systems net orders. We exited the quarter with a record AI backlog at $3.7 billion.
Speaker #4: Thank you, David.
Speaker #2: Operator, next question please.
Well, Thank you Eric and welcome I know you are starting to cover that drove our our company just few weeks ago. So we appreciate you spending time with us.
Speaker #3: Your next question today will come from Eric Woodring with Morgan Stanley. Please go ahead.
Speaker #5: Hey guys, thanks so much for taking my question. Antonio, I was wondering if you could maybe just take a step back and share some details on what you're hearing from customers and what you're seeing in the pipeline.
Uh huh.
My view is that the market is as robust we.
We saw that throughout the Q3 order linearity was very consistent there was nothing unnatural.
Speaker #5: Is it related to the kind of end market growth for your three core end markets: networking, server, and storage? And really what I'm trying to understand is, you know, that there are some maybe concerns that the markets could be rolling over.
Sometimes you know if the trade and tariff no tariff, but Murray commented on that.
Thats impacted that is very minimal for us at this point in time.
And I will say on the server side, let's start with that on.
Speaker #5: There’s obviously a lot of aged infrastructure that can be refreshed. What are you hearing from your customers about prioritizing those types of upgrades? And from the HPE perspective, you know, if we put networking to the side because you’ve talked at nausea there, just where do you see the biggest opportunity to take share with the core HPE portfolio and those respective end markets?
On the traditional server side, there is a refresh going on we saw double digit year over year revenue growth in traditional servers customers are refreshing edge infrastructure with more richly configured servers, because they can review space and cooling.
Speaker #5: Thanks so much.
On an aggregate basis, so without went out in traditional and Gen 12 servers will demonstrate that we can replace seven Gen 11 servers and 14 Gen 10 servers by and at the same time, reducing the power consumption by 65% innovation to increase the secure.
Speaker #1: Well, thank you, Eric, and welcome. I know you are starting the coverage of our company just a few weeks ago, so we appreciate you spending time with us.
Antonio Neri: Marie will provide more details on the quarter and our Q4 fiscal year 2025 guide, but first, I would like to provide key Q3 highlights across our business segments. I am incredibly pleased that we closed the Juniper acquisition in July. Integration is progressing well. I have been spending time with Rami and the new combined networking leadership team, which is world-class. Going forward, we will refer to the combination of our HPE Intelligent Edge segment and Juniper as our new HPE Networking segment. Our vision for this segment is clear: to build the best networking business, providing customers with a modern, secure, and AI-driven networking portfolio. Rami and I will discuss our networking strategy in more detail at our upcoming securities analyst meeting in October. On the demand front, the networking market recovery continues.
Speaker #1: My view is that the market is robust. We saw that throughout the Q3 quarter, linearity was very consistent. There was nothing unnatural. Despite sometimes, you know, the true on tariff, no tariff, but Marie commented on that, that the net impact of that is very minimal for us.
Alrighty.
In in their infrastructure, because now we support our OEM partner <unk>, seven which is basically the quantum proof encryption and.
And so that's an example, where we see and that was consistent across all three geos now there we participate with discipline.
Speaker #1: At this point in time, I will say on the server side, let's start with that. On the traditional server side, there is a refresh going on.
And ultimately it's a question of volume and margins, which we demonstrated in Q3.
Speaker #1: We saw double-digit year-over-year revenue growth in traditional servers. Customers are refreshing edge infrastructure with more richly configured servers because they can reduce space and cooling on an aggregate basis.
We can do.
The challenge we have in Q1. So that's one example, and we believe over time, we believe we are poised to potentially gain share.
Share in enterprise.
Speaker #1: So without, when adding traditional Gen 12 servers, we demonstrated we can replace seven Gen 11 servers and 14 Gen 10 servers. By the end, at the same time, reducing the power consumption by 65% in addition to increasing the security in their infrastructure because now we support our own internal iLO 7, which is basically the quantum-proof encryption.
In the hybrid cloud space.
Huge opportunity through the transition of the virtualization of layer.
Antonio Neri: In enterprise, we continue to see robust demand in campus and branch, driven by the wire and wireless refresh, chassis, and data center switching. Wi-Fi 7 demand is ramping, with orders up triple digits sequentially. In cloud, we see strong demand for networking for AI, particularly in data center switching and Juniper PTX routing. Revenue of $1.7 billion increased 54% year over year, driven by strong performances in both Intelligent Edge and Juniper. Intelligent Edge revenue increased 11% year over year and 8% quarter over quarter. We generated double-digit year-over-year revenue growth in campus and branch, data center switching, automated WAN, and services. We also grew chassis and security revenue. These strong results contributed to sustained momentum in networking SaaS and support services.
One of the areas you know people are focused on AI, obviously for good reasons, but I can tell you one of the most exciting areas. We see is the ability for customers to update or change their virtualization layer because of the rising costs. They have seen in the last call. It two years.
Speaker #1: And so that's an example of what we've seen, and that was consistent across all three deals. Now, there we participated with discipline, and ultimately, it's a question of volume and margins, which we demonstrated in Q3 that we can do after, you know, the challenge we had in Q1.
We have an enormous amount of proof of concepts going on with our Morpheus and VM essentials.
We really focus there is the conversion from POC to revenue this quarter, we had double digit growth in our entire software portfolio, which includes all thrump, which provides deep observe ability.
Speaker #1: So that's one example. And we believe, you know, over time, we are poised to potentially gain share in enterprise. In the hybrid cloud space, there is a huge opportunity through the transition of the virtualization layer.
Inside the data center and outside the data center in a multi cloud multi vendor so that they can use our AI co pilot capabilities that we've built inside green lake to reduce opex. So they can reduce opex on licenses.
Speaker #1: One of the areas, you know, people are focused on AI, obviously for good reasons. But I can tell you one of the most exciting areas we see is the ability for customers to update or change their virtualization layer because of the rising costs they have seen in the last, call it, two years.
The reduced opex on running that infrastructure in a way is observed. So that's another example of growth that we expect private cloud is another areas, we expect the growth.
Antonio Neri: Operating profit for the networking segment was $360 million, up 43% year over year, benefiting from one month of Juniper results and operating profit dollars expansion in Intelligent Edge. Networking innovation is accelerating across the entire networking portfolio. Just last week, we introduced our new Mist agentic AI native innovations for campus and branch, data center switching, and automated WAN. These complement the new agentic AI mesh technology from our HPE Aruba networking portfolio that we announced alongside GreenLake Intelligence at HPE Discover in June. Our innovation is being noticed by the market. HPE and Juniper Networks were both recognized again as leaders in the latest 2025 Gartner Magic Quadrant for enterprise wire and wireless LAN infrastructure. Customers are already taking advantage of the power of our full HPE portfolio with the inclusion of HPE Juniper networking solutions.
And then storage you know on the transition to all IP portfolio. This was the third consecutive quarter of triple digit year over year revenue growth and I'll, let Randy.
Speaker #1: We have an enormous amount of proof of concepts going on with our Morpheus and VM Essentials. What we really focus on there is the conversion from POCs to revenue.
While that's happening is because we architected, our new platform. That's totally disaggregated that provides the most effective block solution.
Speaker #1: This quarter, we had double-digit growth in our entire software portfolio, which includes OpsRamp. OpsRamp provides deep observability inside the data center and outside the data center in a multi-cloud and multi-vendor environment.
Or those are structural databases, while at the same time to leverage the same infrastructure and grow that in a scale out architecture intra the unstructured data for fast object, which is necessary for players you know fine tune in rat models.
Speaker #1: So they can use our AI copilot capabilities that we built inside GreenLake to reduce OPEX. They can reduce OPEX on licenses and can reduce OPEX on running that infrastructure in the way it is observed.
Especially if you do that on Prem and then eventually to do file ingestion that value proposition is resonating with customers. That's why we gained one point of share in the last report from IDC.
Speaker #1: So that's another example of growth that we expect. Private cloud is another area we expect to grow. And then storage, you know, on that transition to our IP portfolio.
And then and that's working Youre right, we spoke of notion, but I do believe there is a transition on anyway in the wired switching remember we grew triple digits in Wi Fi seven and when you go to Wi Fi seven also you need more power at the port level to support those access points and I believe that's gonna be.
Antonio Neri: For example, early this year, HPE won a multimillion-dollar deal with Spar Austria Group, a leading retailer in Central Europe. Spar is building out a digital business services platform underpinned by GreenLake. The full IT stack solution is designed and implemented by HPE Professional Services. It will be fully managed by HPE Managed Services and includes Aruba switches, Juniper firewalls, HPE Alletra MP storage, plus HPE Cloud Ops software, including Zerto, OpsRamp, and Morpheus. The solution will enable a cloud-native and AI-driven platform experience. Finally, with respect to integration synergies, we are reiterating at least $600 million in cost synergies over the next three years. In the server segment, market demand is robust across our portfolio. Revenue of $4.9 billion was an all-time high, increased 16% year over year and 21% quarter over quarter, driven by strong conversion of AI orders and solid demand for traditional servers.
Speaker #1: This was the third consecutive quarter of triple-digit year-over-year revenue growth in our letter to NP. Why that's happening is because we architected a new platform.
Speaker #1: That's totally disaggregated. That provides the most effective block solution for those structured databases. While at the same time, leverage the same infrastructure and grow that in a scale-out architecture into the unstructured data for fast object, which is necessary for training or fine-tuning rack models.
Also another opportunity for us.
Very good thank you Eric welcome.
Last question. Please operator.
And your final question today will come from Simon Leopold with Raymond James. Please go ahead.
Thanks for taking the question I wanted to see if you could revisit the topic of junipers position in AI on the call you hosted in July.
Speaker #1: Especially if you do that on-prem. And then eventually to do file ingestion. That value proposition is resonating with customers. That's why we gained one point of share in the last report from IDC.
Rami had indicated that that juniper had landed some deals in the backend I'm wondering if you could unpack and give us a little bit more detail on that particular part of the business. Thank you.
Speaker #1: And then in networking, you're right, we spoke at Notion, but I do believe there is a transition anyway in the wire switching. Remember, we grew triple digits in Wi-Fi 7, and when you go to Wi-Fi 7, you also need more power at the port level to support those access points.
Yeah. So I think the team has done.
A great job in landing a sim.
Pro customers to become the reference.
In the you know in the networking space above the the the deployment of envy their spectrum X right. So obviously inside the Rockies, but for my spectrum ex all the way down to the link.
Antonio Neri: AI systems revenue of $1.6 billion was also an all-time high, as we completed the delivery of a large GB200 system. Server operating margin improved sequentially, benefiting from the changes we made in pricing and discounting early in the year, which returned traditional server product margins to historical levels. This was partially offset by higher AI mix, including a large deal. As we enter Q4, we continue to expect total server operating margin to be around 10% for the quarter. AI systems orders increased nearly 100% quarter over quarter, including Middle East sovereign wins and continued traction in enterprise. We have grown enterprise AI orders year over year every quarter since the beginning of fiscal 2024. From an innovation perspective, we continue to keep pace with new accelerators, technology, and time-to-market customer demands.
Speaker #1: And I believe that’s going to be another opportunity for us.
Speaker #2: Very good. Thank you, Eric. Welcome. Last question, please, operator.
With the you know the video Blackwell Gpus in the Grace Hopper Gpus.
Speaker #3: And your final question today will come from Simon Leopold with Raymond James. Please go ahead.
But above that we have become the standard in some of these very large deployments and we are in a number of conversations with the neo clouds and other service providers, where we want to become the standard in that space and that's where we believe there is a big opportunity in leaving with networking for a in that particular.
Speaker #4: Thanks for taking the question. I wanted to see if you could revisit the topic of Juniper's position in AI. On the call you hosted in July, Rami had indicated that Juniper had landed some deals in the backend.
Speaker #4: I'm wondering if you could unpack and give us a little bit more detail on that particular part of the business. Thank you.
A couple of segments.
And so that's our strategy going forward and then obviously that would make our servers.
Speaker #1: Yeah, Simon, I think Rami's team has done a great job in landing several customers to become the reference in the networking space above the deployment of NVIDIA Spectrum X, right?
More and more attractive because also we will have more integration of the rack scale for the sovereign space and juniper when the transaction closed had a very nice backlog that they built prior to the acquisition and we expect to unwind that backlog and new orders as we go forward and so rami will be able to.
Speaker #1: So obviously inside the rack, you have Spectrum X, Spectrum X all the way down to the NVLink, with the, you know, the NVIDIA Blackwell GPUs and the Grace Hopper GPUs.
Antonio Neri: Last month, we launched HPE servers with the new NVIDIA RTX Pro 6000 Blackwell and NVIDIA Blackwell Ultra accelerated computing platforms. In traditional servers, customers have continued to refresh aged infrastructure with more powerful, richly configured servers. As a result, revenue increased double digits year over year on mix-shift to HPE Gen 11 and Gen 12 servers. During the quarter, we expanded the Gen 12 compute portfolio to include the latest AMD fifth-generation EPYC processors. The new servers include support for HPE Compute Ops Management with AI-driven lifecycle management. We expect the Gen 12 adoption to accelerate through 2026. In Q3, we also released our next-generation HPE NonStop Compute Solutions for mission-critical workloads. We doubled the memory capacity and doubled the system interconnect bandwidth. Finally, hybrid cloud performance was solid. Revenue of $1.5 billion increased year over year for the fourth consecutive quarter.
Explain more about this as we go through the security analyst meeting from a pure architectural perspective, and how we are approaching that for myself.
Speaker #1: But above that, we have become the standard in some of these very large deployments. We are in a number of conversations with Neoclouds and other service providers where we want to become the standard in that space.
Perspective, so thank you.
Yeah, sorry, we're running out of time, but we appreciate your time today I hope you take away that we are executing will position.
Speaker #1: And that's what we believe: there is a big opportunity in leading with networking for AI in those particular segments. So, that's our strategy going forward.
But we have a clear vision for the company I and the management team is very excited about the next chapter of HB. After the closing of the jewelry transaction, you'll see the results of juniper in our numbers with just one month and we're excited to share more about this when we get.
Speaker #1: And then obviously, that will make our servers more attractive because also we'll have more integration of the rack scale for the sovereign space. And Juniper, when the transaction closed, had a very nice backlog.
The security Analyst meeting in New York, which I know everybody's wanted to get a free.
I worked for 26, 27, 28, but beyond that I am excited to share our vision and the strategy for the company with this amazing portfolio. We built so thank you very much for your time.
Speaker #1: That they built prior to the acquisition, and we expect to unwind that backlog and new orders as we go forward. Rami will be able to explain more about this as we go to the security analyst meeting, from a pure architecture perspective and how we are approaching that from a sales perspective.
Conference is now concluded. Thank you for attending today's presentation you may now disconnect.
Speaker #1: So, thank you. Yeah, sorry we’re running out of time, but we appreciate your time today. I hope you take away that we are executing with precision.
Antonio Neri: In addition, operating profit margins were up 70 basis points, and operating profit dollars increased 26% year over year. AIR increased 75% compared to Q3 2024, with the inclusion of one month of Juniper results. On an organic basis, AIR increased 40% in line with our guidance of 35% to 45% CAGR. In storage, we saw robust growth in our IP product portfolio. HPE Alletra MP storage revenue increased triple digits year over year. We have now shipped more than 5,000 Alletra MP arrays to date. We continue to successfully migrate our customer install base while gaining new customer logos, resulting in a one-point share gain in the most recently released IDC market share report. In private cloud, we continue to ramp sales of our enterprise AI factory solutions.
Speaker #1: We have a clear vision for the company. I, along with the management team, am very excited about the next chapter of HPE after the closing of the Juniper transaction.
Speaker #1: You see the results of Juniper in our numbers with just one month, and we're excited to share more about this when we get at the security analyst meeting in New York, which I know everybody's wanting to get.
Speaker #1: A framework for 26, 27, and 28. But beyond that, I'm excited to share our vision and strategy for the company with this amazing portfolio we built.
Speaker #1: So, thank you very much for your time.
Antonio Neri: During Q3, we added twice the number of new private cloud AI customers compared to Q2, with particular interest in our developer configuration. Software is a core differentiator for our GreenLake Cloud and for our private cloud portfolio, which is a key contributor to our AIR growth. In June, we announced our new HPE Hybrid Cloud Ops Suite software, bringing together Morpheus, HPE VM Essentials, OpsRamp, and Zerto to assist customers from hybrid cloud orchestration, virtualization, and observability to continuous data protection. Our cloud software revenue in the quarter increased strong double digits year over year. At Discover Las Vegas, we unveiled GreenLake Intelligence, our framework for deploying AI agents across cloud and infrastructure to simplify customers' hybrid IT operations. We also expanded our agentic AI capabilities in OpsRamp, networking, and storage. Innovations like these continue to attract new customers to our GreenLake Cloud.
Antonio Neri: In Q3, we added approximately 2,000 new customers, bringing our GreenLake Cloud customer count to approximately 44,000. In closing, as we look ahead, I am excited for HPE's next chapter. The completion of our Juniper acquisition positions us to win in networking as the market enters a new era of IT and business transformation where AI, cloud, and networking converge. We launched a new brand for HPE to reflect this potential. The brand is modern, expresses what our technology and talent make possible, and reinforces our relevance with our customers. Our vision for the company is clear: to lead in the AI era through a modern, secure, cloud-native, and AI-driven networking portfolio that accelerates our profitable growth. We are focused on executing with precision to capitalize on the growing opportunities in the market to deliver strong value to our customers and our shareholders.
Antonio Neri: I look forward to providing more details about our strategy and our long-term value creation framework at our securities analyst meeting on October 15 at the New York Stock Exchange. I would like now to turn it over to Marie to provide more insights into our quarterly results and full fiscal year guide. Marie.
Marie Myers: Thank you, Antonio, and good afternoon. I'm pleased with our performance this quarter while navigating an evolving market environment. Regarding our results, first, all segments of our business performed well. Our server business has moved past the pricing and discounting issues we reported earlier this year in compute. Hybrid cloud posted its fourth consecutive quarter of year-over-year top-line growth and operating margin expansion, and revenue growth in our Intelligent Edge business is improving as the networking market recovery continues. Second, I'm pleased that we completed our acquisition of Juniper, which will shift our revenue mix towards our higher growth, higher margin networking business. We continue to expect the acquisition to be accretive to our non-GAAP results in year one, enhancing our profitability as we capture synergies and drive new market opportunities with our increased scale. Finally, we made solid progress on our cost reduction initiatives announced last quarter.
Marie Myers: I'm looking forward to sharing more about the next chapter of our company at our security analyst meeting next month. Let's talk about the details of the quarter. Third-quarter revenue of $9.1 billion, which included Juniper, was up 18% year over year and quarter over quarter, and up 11% excluding Juniper revenue of $480 million. Excluding Juniper, total revenue of $8.7 billion exceeded the high end of our outlook range. Demand was strong this quarter, and we did not see material demand pull in. Our reported annualized recurring revenue run rate was $3.1 billion, including $590 million contributed by Juniper. Reported ARR was up 75% year over year, or up 40% excluding Juniper. Software and services ARR, including Juniper, doubled year over year as the mix of this higher margin revenue improved sequentially by 640 basis points to over 81%.
Marie Myers: Including Juniper, non-GAAP gross margin was 29.9%, down 190 basis points year over year, and up 50 basis points quarter over quarter. On a year-over-year basis, gross margin was impacted by an unfavorable mix within server, networking, and hybrid cloud, which more than offset the beneficial margin contribution from one month of Juniper. Excluding Juniper, gross margin was 28.3%. Non-GAAP operating expense, including Juniper as a percentage of revenue, was flat sequentially and declined 40 basis points year over year, reflecting strong revenue performance and disciplined cost management partially offset by variable compensation. We will continue to manage costs rigorously as we target efficiencies through Catalyst, complemented by at least $600 million in expected Juniper-related cost synergies over the next three years, with $200 million expected to be realized next year.
Marie Myers: Excluding Juniper, non-GAAP operating expense as a percentage of revenue was 20.2%, down 160 basis points year over year, and down 120 basis points sequentially, driven by strong cost discipline as we grew revenue faster than expenses. Non-GAAP operating margin, including Juniper, was 8.5%, down 150 basis points year over year, primarily due to lower gross margins partially offset by cost management. The 50 basis point sequential improvement was primarily due to the inclusion of Juniper's results. Excluding Juniper, operating margin was 8.1%, down 190 basis points year over year, but up 10 basis points sequentially. During the quarter, we generated free cash flow of $790 million, including approximately $200 million of deal-related costs and higher net interest expense, partially offset by improved inventory management. Non-GAAP diluted net earnings per share of $0.44 was toward the high end of our guided range of $0.40 to $0.45.
Marie Myers: Non-GAAP diluted net EPS includes a $0.01 net impact attributable to consolidating one month of Juniper's results and the impact of net interest costs related to the acquisition. Q3, GAAP diluted net earnings per share was $0.21, below our guidance of $0.24 to $0.29. In terms of these results, non-GAAP diluted net earnings per share excludes $326 million in net costs, primarily due to Juniper-related acquisition costs, stock-based compensation expense, amortization of intangible assets and acquisition disposition, and other charges, partially offset by adjustments for taxes, gain from litigation settlement, and other adjustments. Now, let's turn to our segment results. Starting with networking. As previously mentioned, we closed our acquisition of Juniper on July 2, so our Q3 earnings report includes only one month of Juniper's results. Our Q4 networking results will include our first full quarter of consolidated Juniper financials.
Marie Myers: We will provide more details regarding our near-term and longer-term strategy and outlook for our networking business at our security analyst meeting next month. Networking revenue for the quarter was $1.7 billion, up 54% year over year, up 48% sequentially, and up 11% year over year, excluding Juniper. Strong networking revenue growth was driven by the ongoing recovery in the networking market and consolidation of Juniper's results for the month of July. While it's early days, we are pleased with our order growth and revenue performance we generated across the combined networking business. Reported orders grew strong double digits year over year, including double-digit growth in both campus switching and the SMB markets. Excluding Juniper, Intelligent Edge orders grew a mid-teens % year over year. Demand in Q3 was strong as sell-out increased sequentially and year over year. Networking operating margin was 20.8%, down 160 basis points year over year.
Marie Myers: This is inclusive of a 22.7% operating margin from HPE's former Intelligent Edge business and 15.8% operating margin from Juniper's networking business. Excluding Juniper, operating margin was down 90 basis points sequentially, primarily due to variable compensation and product-related costs. Server revenue was $4.9 billion, up 16% year over year and up 21% sequentially, above the high end of our guidance range. The quarter-over-quarter revenue increase was driven largely by a double-digit increase in AI systems revenue due to a large AI deal we shipped in the quarter, augmented by higher AUP from a favorable mix shift in core compute. In traditional server, revenue increased sequentially, driven by volume increases and AUP strength supported by the continued shift to Gen 11 servers, augmented by early yet improving sales of our Gen 12 servers.
Marie Myers: In AI systems, we signed $2.1 billion in net new orders, driven by robust growth in sovereign net new orders, which increased by triple digits both year over year and sequentially, while enterprise net new orders were also up year over year. Together, enterprise and sovereign constitute greater than 50% of our cumulative AI orders since Q1 2023. We generated $1.6 billion of revenue during the quarter, up 25% year over year and up 57% sequentially, driven by the previously disclosed large AI system that we shipped in the quarter. We finished Q3 with our pipeline at multiples of our $3.7 billion ending backlog. Server operating margin of 6.4% was consistent with our outlook. Margin performance improved sequentially, benefiting from the changes we made in pricing and discounting earlier in the year, which returned traditional server product margins to historical levels.
Marie Myers: This was partially offset by higher AI mix, including a large deal and AI inventory. Moving to hybrid cloud, revenue was $1.5 billion, up 11% year over year, the fourth consecutive quarter of double-digit growth. Sequentially, revenue increased 1%, consistent with our outlook. In storage, our HPE Alletra MP platform continues to drive robust growth, achieving triple-digit year-over-year revenue growth for the third consecutive quarter, while high double-digit margins expanded sequentially again. In Q3, new logos were up more than 350 sequentially and grew over 70% year over year. In private cloud, revenue grew strong double digits year over year as we see continued growth in our pipeline for HPE Private Cloud AI, where the number of new enterprise customers doubled quarter over quarter. Also, our HPE VM Essentials solutions closed over 120 customers in Q3 and has generated a pipeline exceeding 1,000 interested customers since its launch last November.
Marie Myers: Hybrid cloud operating margin increased 50 basis points sequentially to 5.9% and increased 70 basis points year over year, the fourth consecutive quarter that our operating margin has expanded on a year-over-year basis. Lastly, our financial services business generated revenue of $886 million, down 1% year over year and flat quarter over quarter. Financing volumes increased 2% year over year to $1.5 billion. Our Q3 loss ratio was 0.7%, and return on equity improved sequentially and year over year to 17.7%. Operating margin of 9.9% increased 90 basis points year over year, primarily due to a high mix of financing versus operating leases, but declined 50 basis points quarter over quarter, driven by unfavorable operating expenses despite the higher revenue. Last quarter, we announced Catalyst, a series of initiatives designed to accelerate growth, increase efficiency, and make it easier to do business with HPE.
Marie Myers: Our starting point was an approximate 5% workforce reduction from the exit of Q1, with gross savings of at least $350 million by fiscal year 2027. We are executing well against our plan and expect to achieve our target of 20% of the total savings by fiscal year end 2025. We are taking an AI-first approach to reimagine our key workflows and have started in my own finance organization, leveraging AI to increase productivity. Turning to cash flow and capital allocation, we generated $1.3 billion of operating cash flow in the quarter, and free cash flow was a positive $719 million, a significant improvement sequentially, as expected. At the end of fiscal Q3, inventory totaled $7.2 billion, down $933 million sequentially. Excluding July ending Juniper inventory of approximately $1 billion, Q3 ending standalone HPE inventory was $6.2 billion, down $1.9 billion sequentially.
Marie Myers: Reducing inventory levels has been a key priority, and we exited Q3 with our balance near our normalized level. Our Q3 cash conversion cycle was positive 35 days, up nine days from last quarter. The inclusion of Juniper unfavorably impacted our CCC calculation this quarter, as it includes only one month of Juniper's revenue and cost of sales results versus the consolidation of Juniper's July ending balances. This timing issue obscures both the progress we made improving our CCC and the positive contributions for working capital the business generated on a sequential basis when excluding Juniper. We expect our CCC will improve in Q4 with a full quarter's consolidation of Juniper's financials, as we expect the amount of free cash flow we generate to increase sequentially, consistent with typical seasonality.
Marie Myers: We returned $171 million to shareholders through dividends, but were unable to repurchase shares during the quarter because we were in possession of material, non-public information that we have since disclosed. As we prioritize debt reduction, we remain committed to our dividend policy and expect quarterly share repurchases comparable to levels reported in the first half of fiscal 2025, partially offsetting share dilution resulting from stock-based compensation. At quarter end and including incremental debt associated with the transaction, our pro forma combined net leverage ratio was 3.1 times. We remain committed to our investment-grade credit rating and intend to reduce our net leverage ratio back to our target in the two times range by the end of fiscal 2027. Now, let's turn to guidance. We are revising our FY2025 outlook to incorporate four months of contributions from Juniper Networks.
Marie Myers: For revenue, we expect constant currency growth of 14% to 16% and estimate currency impacts of 30 basis points up nominally versus last quarter's estimate. With the inclusion of Juniper, we expect our non-GAAP gross margin outlook for Q4 to be in the mid-30% range and fiscal 2025 to be above 30%. We expect operating expense to increase sequentially, driven by a full quarter inclusion of Juniper. We expect full-year non-GAAP operating margin to be in the upper 9% range at the midpoint, benefiting from a sequential improvement in Q4 to the upper 11% range, driven by the continued improvement in server margins and the accretive contributions from Juniper. We are revising our FY25 GAAP EPS range to $0.42 to $0.46, which includes the impact of Juniper. We are raising our non-GAAP EPS range to $1.88 to $1.92, which reflects accretive contributions from Juniper, though minimal for the year.
Marie Myers: We are reaffirming our estimate of a $0.02 impact from tariffs in the second half of the year. Lastly, we are revising our free cash flow outlook to approximately $700 million. Excluding Juniper, we expect to generate approximately $1 billion of free cash flow in line with the guidance we provided last quarter. To the end of Q3, year-to-date free cash flow was a $934 million use of cash. We expect Q4 free cash flow to be up materially quarter over quarter due to better net earnings in addition to favorable working capital driven by significant improvements in accounts receivable collections. For Q4, we expect revenue to be between $9.7 billion and $10.1 billion. For networking, we expect revenue will be up over 60% quarter over quarter, reflecting a full quarter of Juniper.
Marie Myers: We expect our networking operating margin in Q4 and fiscal 2025 to be in the low 20% range. For hybrid cloud, we expect revenue to be roughly flat quarter over quarter, with a sequentially improved operating margin in the mid to high single digits. For server, we forecast a mid to high single-digit decline in revenue quarter over quarter, driven by a greater than 30% sequential decline in AI systems revenue following the large deal that shipped in Q3. We expect server operating margin to improve sequentially to around 10% for the quarter, reflecting continued momentum behind our improved execution and an improved mix towards enterprise and sovereign as we continue to focus on profitable growth. Going forward, we will remain focused on profitable growth in the server segment and will continue to assess the optimal balance between volume growth and margins.
Marie Myers: We expect GAAP diluted net earnings per share to be between $0.50 and $0.54, and non-GAAP diluted net earnings per share to be between $0.56 and $0.60. Our Q4 EPS outlook reflects a sequential increase in diluted shares outstanding to $1.44 billion, attributable to the conversion of Juniper-related stock-based compensation shares and forward awards. Following the acquisition of Juniper, we now expect Q4 OINE in the $180 to $200 million range. We expect Q4 free cash flow to be up sequentially, reflecting typical seasonality, favorable working capital, and increased net earnings. I look forward to seeing you at the New York Stock Exchange in October. Let me open the floor for questions.
Operator: Thank you. We will now begin the question and answer session. To ask a question, you may press star, then 1 on your touch-tone phone. If you are using a speaker phone, 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, then 2. In the interest of time, please limit yourself to one question. Your first question today will come from Aaron Rakers with Wells Fargo Securities. Please go ahead.
Aaron Rakers: Yeah, thanks for taking the question and congrats on the close of the Juniper acquisition. I guess I want to just dive a little bit deeper into the server margin profile that you guys see. I think, Antonio, in your prepared comments, you said that we've returned to more of a normalized operating margin on the traditional server line. I guess if I look back, I would assume that's kind of in that low double digit, let's call it 11% to 13% range. I guess if I'm to do that math, it leaves me to question the profitability of the AI server business. As you think about that 10%, maybe you can unpack the drivers of getting to that level. How should we think about that AI server margin profile? Thank you.
Antonio Neri: Thank you, Aaron, for the question. First, we are very pleased with the progression we made between Q1 to Q2 to Q3 based on the challenges we experienced in Q1 with pricing and discounting. As you said, we resolved those issues, and the traditional server is back to historical levels around 10% to 12%, as you talked about it. We believe that's consistent with what we see going forward. Remember, there is a mix shift in addition to those pricing and discount changes to Gen 11 and Gen 12. The structure of those products is different than Gen 10 or Gen 10 and a half. Obviously, it has higher AUP, different attach rates, and the like. That's going to be a core foundation as we enter Q4 for delivering at the total server segment around 10% for the quarter.
Antonio Neri: This quarter, obviously, the mix of AI, and in particular one deal, and the work we did on inventory had a short-term impact that ultimately took that, what I call the overall server margin down to the 6.4%. As we exit that, which we already recognized, then you're going to get a natural lift into that higher single digit to close to 10%. You have also the mix of sovereign and enterprise in the AI revenue conversion. Because as we move from more a server-provider-centric revenue conversion to more a sovereign and enterprise revenue conversion in AI, obviously, we're going to convert less in aggregate numbers, but it's going to have a different margin profile. That's why Marie and I and the team are very confident that in Q4, the total server operating margin will be around 10%. That's the walk, Aaron.
Marie Myers: I'll just add, Aaron, we also have a robust internal framework that guides us in how we evaluate these AI-related deals and prioritize them as well.
Paul Glaser: Very good. Thank you, Aaron. Operator, next question, please.
Operator: Your next question today will come from Wamsi Mohan with BofA Securities. Please go ahead.
Aaron Rakers: Yes, thank you so much. Now that Juniper is closed, can you maybe just talk about some of the early progress on integration and go-to-market changes that we should expect, any top-line synergies, and early customer feedback? Marie, maybe if you could talk about just the longer-term opportunity for HPE in AI, or Antonio, just relative to networking versus servers, where do you see the larger opportunity for AI, both from a revenue TAM and from a margin or profitability standpoint? Thank you so much.
Antonio Neri: Thank you, Wamsi. First, we are incredibly pleased we closed the transaction of Juniper. I think it was closed at the right time because, obviously, market recovery is taking place. We see demand across multiple subsegments of the networking market. As we commented during my remarks and Marie's remark, every subsegment of networking had a very strong performance. Whether it was HPE Intelligent Edge standalone or Juniper standalone, and obviously on a combined basis, it's even very, very strong. If you look at campus and branch, both companies are doing very well. Both companies grow in double digits, so that's very strong. In data center switching, and we talked about this during the July 9 call, Juniper had a record-breaking performance in data center switches and also a very good performance in routing, which we call the automated one.
Antonio Neri: Security was also up in the single-digit year-over-year revenue growth driven by SASE. The progress we have made is very strong, meaning integration is progressing really well. We have a series of milestones, which we call the employee day one, which is onboarding the employees into our systems. That's a combination of benefits and other things that have to take place. We have the harmonization of the sales force, which we call sales day one. That takes place at the end of this calendar year. We already are incentivizing both sales forces to sell both products. I can tell you the channel community is super excited to be able to sell both products because the combination of both products allows them to cover every vertical, every use case in every geography.
Antonio Neri: The fact of the matter is that the complementarity of the two portfolios allows us to drive strong security integration in our stack, in addition to the integration with the rest of the portfolio with server and storage. We will be able to talk more about this, Wamsi, at the securities analyst meeting. Rami will take center stage and walk through the strategy, early views of the prover roadmap, how we are driving the sales force integration, including our channel ecosystem. We believe that's going to be an opportunity as we enter 2026 and obviously in 2027, 2028. Your question about AI. As I think about the AI space, I always ground myself on three very distinct customer segments. In the service provider segment and model builders, our strategy is to lead with networking for AI. The opportunity is significant. Juniper is getting traction.
Antonio Neri: It's becoming the de facto standard in many of those customers. The opportunity with HPE is to expand that footprint. We will sell the server products in that unique segment where it makes sense from an accretion, from a margin perspective, and working capital perspective. If you go to the sovereign space, which we saw this quarter at 200+% growth on a year-over-year basis, and that sovereign also includes NeoClouds, we will lead with an integrated rack scale architecture, meaning networking plus the server business and all the services that come with it. That will allow us to cover multiple types of offerings as customers in that segment may have the need to drive optionality and flexibility. We have unique conversations with our partners.
Antonio Neri: In the enterprise space, through the AI factory engagement with our HPE Private Cloud AI portfolio, which this quarter added 300+ new logos, double from last quarter, we will lead with a fully integrated stack. That's what we did with NVIDIA, the integration of their software with our HPE GreenLake, plus the integrated infrastructure with our HPE ProLiant and Cray for the GPUs, and then our HPE Alletra MP storage for fast object and file, plus all the services around it to lifecycle manage that solution. I think at the portfolio level, we can service every segment and find the right balance. I think networking makes us now stronger in the AI space because one of the key elements of that IT stack is the network at scale.
Antonio Neri: Juniper brings amazing technology, both at the data center switching and the routing piece, because once you integrate this in a large AI deployment, you need to core aggregate all of this through the leaf and spine into the data center footprint, and that requires also a routing product. More to come at SAN.
Paul Glaser: Okay. Thank you, Wamsi. Operator, next question, please.
Operator: Your next question today will come from Samik Chatterjee with JPMorgan Chase & Co. Please go ahead.
Aaron Rakers: Yep. Hi. Thanks for taking my question. Antonio, you talked about just following up here on the Juniper sort of line of topics. Your networking overall margins are taking a bit of a step down to this sort of low 20% range, where the segment historically has been about mid-20%. How should we think about with the synergy roadmap that you have when the segment gets back to that sort of mid-20% level? Some of the back-of-the-envelope math on the synergies would suggest you could actually probably go north of that as well long term. Maybe just lay out the roadmap for us in terms of how to think about the progress on the margin front from the new sort of level that you have post-consolidation of Juniper.
Aaron Rakers: Marie, if I can quickly squeeze in one on cash, get the headwinds in terms of closing Juniper on the cash flow this year. How should we think about sort of the impact on next year's cash flow in relation to any closing costs or integration costs? Thank you.
Antonio Neri: I will pass it to Marie because I think she will be able to answer both questions succinctly.
Marie Myers: Yeah, no worries. Thanks, Antonio. Hey, Samik, good afternoon. Just to preface my answer before I get started, I'm going to answer both questions in the context of our Q4 and full year 2025 guide. We will provide a longer-term update to your questions, particularly around cash, as we get into the security analyst meeting in early October. Let me unpack, first of all, the networking margin rate. In the quarter, as you recall, we integrated a month of Juniper's results and our Intelligent Edge business. We combined them now into one segment called the networking segment. The combined operating margins were 20.8%. If you look at, I think your question was focused specifically at the edge business. Our edge margin, actually, I disclosed in my prepared remarks, was 22.7%.
Marie Myers: We did see a sequential reduction, and that was really due to two primary factors. One is variable comp expense, and the other one is product-related costs. I did guide the Q4 op range to the low 20s as we get into the quarter. The reason for that, Samik, is obviously Juniper's rate was a few points below our Intelligent Edge business. Just bear that in mind as you think forward to the networking margin rates. Now, with respect to your question on cash flow, we're confident in our guide for the year. I would just say, as you think about cash, there's puts and takes. Obviously, you brought up Juniper costs, and we will give more clarity on that as we get through to SAN.
Marie Myers: Even as we get into Q4, there's obviously costs that I believe I commented on in Q3 and Q4, and also the increase in OINE. All of that takes it into account when you think about cash flow. I'd just add, look, we are absolutely focused on free cash flow. We'll give you a lot more detail as we enter security analysts. As you know, our leverage has gone up, and so free cash flow generation is paramount for us.
Aaron Rakers: Thank you.
Antonio Neri: I want to enforce the last point. Because of the integration of Juniper Networks, the ability to generate earnings, but also pay down the debt, our main focus going forward, in addition to driving the right balance of growth and operating margins, is really free cash flow generation. We will be able to talk more about this at SAN.
Paul Glaser: Thank you for the question, Samik. Operator, next question, please.
Operator: Your next question today will come from Amit Daryanani with Evercore. Please go ahead.
Aaron Rakers: Yep. Good afternoon. Thanks for taking my question. I guess, Antonio, I wanted to sort of go back to the networking discussion. It sounds like both HPE Intelligent Edge and also Juniper are doing fairly well from a revenue basis. I guess simplistically, how do you think about the growth rates for the combined business as we go forward? If you think the networking market grows 5% to 6% a year, how do you think HPE plus Juniper can do? Really over time, how do you think about product integration on the campus side between Aruba and Mist? Do you think we need to Mistify Aruba and have a single product, or do you think you can have both the products in the marketplace simultaneously? Thank you.
Antonio Neri: Yeah, thanks, Amit. Rami and I and the team are very pleased with the momentum both businesses have in the market. That's a reflection that both offers are very strong. Let's remind ourselves that that's true for campus and branch. When you go to data center switching and obviously the WAN business, that's 100% Juniper. In the security space, we have a robust security portfolio because we need to lead with a secure network approach. That's inclusive of Juniper firewalls and the Secure Access Service Edge, or the SSE, which both companies have very strong offerings. As you recall, in 2020, we acquired Silver Peak to drive the convergence between SD-WAN and security. As I think going forward, our goal is to build the best networking business. That means we're going to grow above market. That's the reality.
Antonio Neri: We're going to explain how that's going to be the case over the next three years. We have an opportunity across AI and cloud and across the infrastructure itself. When I think about the campus and branch question, we were very clear with Rami. We're going to thoughtfully integrate the Juniper platform and the Aruba Central platform because you need to think about that layer. Everything below that is very straightforward. There is no confusion because the reality is that we have a very strong, robust campus switching portfolio, which obviously has a lot of that, has the wire piece, which is Aruba Silicon. Then Wi-Fi access points, I don't think that's too complicated, and we're going to show what that looks like. Finally, there is the extension into IoT, private 5G, which obviously HPE has unique offers.
Antonio Neri: That integration of the cloud and AI ops is where that experience will evolve. We are not going to leave any customer behind. We're going to sell both products. You're going to see an integration that's suddenly happening over time through the AI ops layer. That's the opportunity we have here. The good news, customers want both today, and we can serve every market vertical. We can also deploy any type of solution, whether it's cloud-based, virtual private cloud, meaning sovereign, and then on-prem. That's the opportunity we have ahead of us. Last but not least, on the data center switching side, in addition to networking for AI, we are also working integration in the private cloud portfolio with the software-defined networking components that Juniper brings through Fidelma's hybrid cloud op suite. Obviously, in our storage and server business, which requires a switch along the way.
Paul Glaser: Very good. Thank you, Amit. Operator, next question, please.
Operator: Your next question today will come from David Vogt with UBS Investment Bank. Please go ahead.
Aaron Rakers: Great. Thanks, guys, for taking the question. Antonio, I want to go back to the networking piece, and maybe Marie can chime in on this. I think you talked about the traction that Juniper is getting with some of these AI model builders and sort of that part of the network. How much of the opportunity to grow is predicated on Juniper's traction with those customers? Maybe along those lines, I think Marie mentioned some product-related costs. Was that mix in the networking section to more AI-centric offerings? How do we think about that next shift going forward from a more enterprise campus-centric model to one more, hopefully one more towards an AI model building sort of cloud model going forward? Thank you.
Antonio Neri: Yeah, thank you. No, the AI opportunity is across all the three segments I mentioned earlier, right, in networking, which is the service provider where we have the vision to lead with networking there because there is unique value proposition, performance, cost, simplicity, lifecycle management, and AI-driven capabilities. When you go to the sovereign space, same thesis. That's even more important because you now drive rack scale integration with the rest of the server business. At the enterprise layer, of course, we want to integrate the Juniper switch in everything we do in cloud and AI going forward by giving customers choice and flexibility. The opportunity for networking and AI is across all three segments.
Antonio Neri: In the service provider space, obviously, once you lay down the simple analogy I make, you lay the pipes inside the data center and you connect the data center to the rest of the interconnect process, then obviously you become the standard. From that solution, you kind of hang this amount of GPUs that comes with those deployments. This is why the opportunity is significant. The benefit for Juniper, which already has good traction, is access to a very larger number of customers that we are not able to access before because we are strategic in many geos. Remember, we cover 172 countries and also a heritage in countries and geographies where our mix is shifted to those geos, example Europe and Asia versus North America. There is an opportunity here as we integrate the sales force, but also integrate the architectures.
Marie Myers: David, just to add on to your question around the product costs, that was actually in the HPE Intelligent Edge business that I mentioned. That was on a sequential basis, and it was related to a platform transition. Thank you.
Paul Glaser: Thank you, David. Operator, next question, please.
Operator: Your next question today will come from Erik Woodring with Morgan Stanley. Please go ahead.
Aaron Rakers: Hey, guys, thanks so much for taking my question. Antonio, I was wondering if you could maybe just take a step back and share some details on what you're hearing from customers, what you're seeing in the pipeline as it relates to kind of end market growth for your three core end markets, networking, server, and storage. What I'm trying to understand is that there's some maybe concerns that the markets could be rolling over. There's obviously a lot of edge infrastructure that can be refreshed. What are you hearing from your customers about prioritizing those types of upgrades? From the HPE perspective, if we put networking to the side, because you've talked ad nauseam there, just where do you see the biggest opportunity to take share with the core HPE portfolio in those respective end markets? Thanks so much.
Antonio Neri: Thank you, Erik, and welcome. I know you are starting the coverage of our company just a few weeks ago, so we appreciate you spending time with us. My view is that the market is robust. We saw that throughout the Q3 quarter. Linearity was very consistent. There was nothing unnatural, despite sometimes the true on tariff, no tariff, but Marie commented on that, that the net impact of that is very minimal for us at this point in time. I will say on the server side, let's start with that. On the traditional server side, there is a refresh going on. We saw double-digit year-over-year revenue growth in traditional servers.
Antonio Neri: Customers are refreshing edge infrastructure with more richly configured servers because they can reduce space and cooling on an aggregate basis. When adding traditional HPE ProLiant Gen 12 servers, we demonstrated we can replace seven Gen 11 servers and 14 Gen 10 servers, and at the same time, reducing the power consumption by 65%, in addition to increasing the security in their infrastructure because now we support our own internal iLO7, which is basically the quantum-proof encryption. That's an example of what we've seen, and that was consistent across all three geos. There we participate with discipline, and ultimately, it's a question of volume and margins, which we demonstrated in Q3 that we can do after the challenge we had in Q1. That's one example. We believe over time, we believe we are poised to potentially gain share in enterprise.
Antonio Neri: In the hybrid cloud space, huge opportunity through the transition of the virtualization layer. One of the areas, you know, people are focused on AI, obviously, for good reasons, but I can tell you one of the most exciting areas we see is the ability for customers to update or change their virtualization layer because of the rising costs they have seen in the last, call it, two years. We have an enormous amount of proof of concepts going on with our Morpheus and HPE VM Essentials. What we really focus on there is the conversion from POCs to revenue.
Antonio Neri: This quarter, we had double-digit growth in our entire software portfolio, which includes OpsRamp, which provides deep observability inside the data center and outside the data center in a multi-cloud and multi-vendor environment so that they can use our AI copilot capabilities that we built inside HPE GreenLake to reduce OpEx. They can reduce OpEx on licenses and can reduce OpEx on running that infrastructure in the way it is observed. That's another example of growth that we expect. Private cloud is another area we expect to grow, and then storage, you know, on the transition to our IP portfolio. This was the third consecutive quarter of triple-digit year-over-year revenue growth in HPE Alletra MP.
Antonio Neri: Why that's happening is because we architected a new platform that's totally disaggregated, that provides the most effective block solution for those structured databases, while at the same time leveraging the same infrastructure and growing that in a scale-out architecture into the unstructured data for fast object, which is necessary for training or fine-tuning rack models, especially if you do that on-prem, and then eventually to do file ingestion. That value proposition is resonating with customers. That's why we gained 1 point of share in the last report from IDC. In networking, you're right, we spoke of Notion, but I do believe there is a transition anyway in the wire switching. Remember, we grew triple digits in Wi-Fi 7, and when you go to Wi-Fi 7, also you need more power at the port level to support those access points.
Antonio Neri: I believe that's going to be also another opportunity for us.
Paul Glaser: Very good. Thank you, Erik. Welcome. Last question, please, operator.
Operator: Your final question today will come from Simon Leopold with Raymond James. Please go ahead.
Aaron Rakers: Thanks for taking the question. I wanted to see if you could revisit the topic of Juniper's position in AI. On the call you hosted in July, Rami had indicated that Juniper had landed some deals in the back end. I'm wondering if you could unpack and give us a little bit more detail on that particular part of the business. Thank you.
Antonio Neri: Yeah, Simon, I think Rami and team have done a great job in landing several customers to become the reference in the networking space above the deployment of NVIDIA Spectrum X, right? Obviously, inside the rack, you have Spectrum X all the way down to the NVLink with the NVIDIA Blackwell GPUs and the Grace Hopper GPUs. Above that, we have become the standard in some of these very large deployments. We are in a number of conversations with NeoClouds and other service providers where we want to become the standard in that space. That is why we believe there is a big opportunity in leading with networking for AI in that particular couple of segments. That is our strategy going forward. Obviously, that will make our servers more attractive because also we will have more integration of the rack scale for the sovereign space.
Antonio Neri: Juniper, when the transaction closed, had a very nice backlog that they built prior to the acquisition, and we expect to unwind that backlog and new orders as we go forward. Rami will be able to explain more about this as we go to the security analyst meeting from a pure architecture perspective and how we are approaching that from a sales perspective. Thank you. Sorry we're running out of time, but we appreciate your time today. I hope you take away that we are executing with precision, that we have a clear vision for the company. I am and the management team are very excited about the next chapter of HPE after the closing of the Juniper transaction. You see the results of Juniper in our numbers with just one month.
Antonio Neri: We are excited to share more about this when we get at the security analyst meeting in New York, which I know everybody's wanting to get a framework for 2026, 2027, 2028. Beyond that, I'm excited to share our vision and the strategy for the company with this amazing portfolio we built. Thank you very much for your time.
Operator: Conference is now concluded. Thank you for attending today's presentation. You may now disconnect.