0001645590-26-000032
SEC filingHPE Q1 revenue grew 18.4% to $9.3B, driven by Juniper Networks acquisition; gross margin expanded 6.7pts to 35.9%.
HPE's first quarter of fiscal 2026 saw net revenue of $9.3 billion, an increase of 18.4% year-over-year, primarily driven by the acquisition of Juniper Networks completed in July 2025. Gross profit rose 45.5% to $3.3 billion, with gross margin expanding 6.7 percentage points to 35.9%, reflecting the higher-margin revenue mix from Networking (Juniper). Operating income rose 8.5% to $470 million, but operating margin contracted 0.4 percentage points to 5.1% due to a significant increase in operating expenses, including research and development (up 56.6%) and selling, general and administrative (up 33.9%), largely from Juniper integration costs and higher employee costs. Net earnings attributable to HPE declined 27.9% to $452 million, impacted by a $244 million gain on sale of a business in the prior year and higher interest expense. Diluted GAAP EPS fell to $0.31 from $0.44. Non-GAAP operating margin improved 2.8 points to 12.7%, and non-GAAP diluted EPS rose to $0.65 from $0.49.
Networking was the standout with revenue surging 151.5% to $2.7 billion, almost entirely from Juniper. Campus & Branch revenue grew 42%, Data Center Networking jumped 382.6%, and Security rose 114.3%. Operating income doubled to $640 million, but operating margin decreased 6 percentage points to 23.7% as operating expenses more than doubled. Cloud & AI revenue fell 2.7% to $6.3 billion, driven by a 2.7% decline in Server revenue due to lower unit volume and average unit prices, partially offset by favorable currency. Storage revenue was flat, and Financial Services grew slightly. Despite revenue decline, segment earnings from operations improved 17.9% to $645 million and margin expanded 1.8 points to 10.2%, aided by lower cost of sales and better mix. Corporate Investments and Other reported immaterial revenue decline and a wider operating loss of $12 million.
Management highlighted persistent macroeconomic uncertainty, including tariff volatility, supply chain constraints for memory components and GPUs, and competitive pricing pressures. The company expects these headwinds to continue impacting revenue and margin growth in the near term. However, HPE is focusing on strategic priorities: integrating Juniper Networks to achieve $600 million in cost synergies by fiscal 2028, executing a cost reduction program targeting $350 million in gross savings, and divesting H3C shares (expected ~$1.4 billion). No specific numerical guidance for Q2 or full year was provided in MD&A.
As of January 31, 2026, HPE held $4.8B in cash and cash equivalents, down from $5.8B at October 31, 2025. Total debt stood at $21.6B, comprising $3.9B in short-term borrowings and $17.7B in long-term debt. Shareholders' equity was $24.8B, essentially flat versus the prior year-end. Inventory increased to $6.9B from $6.4B, driven by a $790M rise in purchased parts and fabricated assemblies. Deferred revenue (contract liabilities) totaled $10.6B, with $5.5B classified as current.
Unconditional purchase obligations amounted to $3.8B as of January 31, 2026, primarily for inventory purchases, software maintenance, and support services. The expected timing of these commitments is: $1.8B in fiscal 2026, $854M in fiscal 2027, $496M in fiscal 2028, $401M in fiscal 2029, $163M in fiscal 2030, and $96M thereafter. Additionally, the company had $352M in maximum potential future payments under performance guarantees and financing arrangements.
During the quarter, HPE repurchased 6.9 million shares for $162M, leaving $3.4B remaining under its share repurchase authorization. Cash dividends of $190M ($0.14 per share) were paid to common stockholders, and $29M in preferred stock dividends were declared. Net debt decreased by $754M, with $126M in debt proceeds and $917M in repayments, including the full $400M repayment of 1.20% Juniper Global Notes. Capital expenditures totaled $569M, representing 6.1% of total net revenue.
Segment revenue: Cloud & AI generated $6.3B (down 2.7% YoY), Networking $2.7B (up 151.5% YoY, reflecting the Juniper acquisition), and Corporate Investments and Other $261M (down 2.2% YoY). Segment operating profit: Cloud & AI $645M (10.2% margin), Networking $640M (23.7% margin), Corporate Investments and Other -$12M. Geographically, the Americas contributed $3.8B (U.S. $3.3B), Europe, Middle East and Africa $3.5B, and Asia Pacific and Japan $2.0B.
Operating cash flow of $1,178M significantly exceeded net income of $452M, driven by $872M of depreciation and amortization and $216M of stock-based compensation. A large working capital outflow of $851M in 'other assets and liabilities' was partly offset by a $496M increase in accounts payable and a $274M decline in accounts receivable. The prior-year period included a $244M gain on sale of a business, which boosted net income but did not affect operating cash flow, resulting in negative CFO of -$390M.
Capital expenditures (capex) rose to $569M from $528M, reflecting ongoing investment in infrastructure. Capex intensity (capex/CFO) was 48%, moderate but elevated. Free cash flow (not explicitly stated but approximated as CFO minus capex) was ~$609M, covering capital returns (share repurchases of $158M plus dividends of $219M, total $377M) by 1.6x.
Investing cash flow was -$793M, largely due to capex and a $304M financial collateral posting. Financing cash flow of -$1,352M included $917M of debt repayments, offset by minimal new borrowing. Overall, cash and cash equivalents decreased by $967M.