Shares of Hewlett Packard Enterprise Co. and NetApp Inc. both fell in late trading today despite the two compute, storage and networking companies beating Wall Street expectations for their July quarters and raising their full-year outlooks.
For its fiscal third quarter, which ended on July 31, HPE reported adjusted earnings of $1.11 per share, up from 44 cents a year earlier, on revenue of $12.2 billion, up 34% year-over-year. Analysts were expecting 93 cents per share on revenue of $11.91 billion.
Unadjusted diluted earnings came in at $1.06 per share against 21 cents in the same quarter of fiscal 2025. Net earnings attributable to HPE were $1.54 billion, helped by a $444 million gain on the sale of an equity interest. Adjusted operating margin widened 770 basis points to 16.2%. Operating cash flow was $1.6 billion and free cash flow $1 billion, both up from a year ago.
Cloud and AI, the segment that holds the server business, was the larger of the two revenue engines at $9 billion, up 25.4% year-over-year. Servers accounted for $6.8 billion of that and grew 35.3%. Storage revenue rose 10.2% to $1.3 billion. Segment operating margin more than doubled to 17% from 7%.
Networking revenue of $2.9 billion was up 74.9% from the prior-year period, a figure that mostly reflects the Juniper Networks Inc. acquisition rather than fresh demand. Strip that out and the segment grew 10%. Data center networking revenue of $382 million more than doubled, and routing revenue of $788 million was up 270%.
Normalized order growth reached 42% in the quarter, running well ahead of revenue. Artificial intelligence orders set a company record at $3.1 billion, of which $2.4 billion came from AI systems and about $700 million came from networking equipment sold into AI buildouts. HPE finished the quarter with a record AI backlog of $7.6 billion, $6.8 billion of it in AI systems. Supply constraints are still capping how quickly that converts into revenue.
Chief Executive Antonio Neri put the quarter down to what he called “surging customer demand” across the portfolio. AI, he said in the earnings release, is becoming a multiyear growth driver for the company. At least 75% of free cash flow will go back to shareholders in the fourth quarter, Chief Financial Officer Marie Myers said, pointing to the record order backlog.
Two deals landed after the quarter closed. HPE expanded its networking arrangement with Oracle Corp. to cover the database company’s AI data center buildout, an agreement announced this morning, and it signed a $3.5 billion inferencing deal with an unnamed hyperscaler. The Oracle agreement also carries an equity component. HPE issued Oracle warrants to purchase shares of HPE common stock as part of the deal. How many shares those warrants cover, at what price and under what conditions were all left undisclosed, as was any estimate of the dilution.
Juniper integration is also running ahead of schedule. HPE now expects $600 million in annualized cost synergies by the end of fiscal 2028, and net leverage has fallen to 1.8 times, clearing the company’s two-times target more than a year early.
Shares still slipped after the bell. HPE stock has more than doubled this year on the strength of the AI order book, and consensus going into the print sat above the range management guided to in June, so a 19% earnings beat cleared a bar that was already high.
In NetApp’s fiscal 2027 first quarter also ended on July 31, the storage company posted adjusted earnings of $2.58 per share, up from $1.55 a year earlier, on record revenue of $2.03 billion, up 30% year-over-year. Analysts were expecting $2.12 per share on revenue of $1.84 billion. Billings grew 36% to $2.06 billion and adjusted operating margin was 31.9%.
All-flash array revenue hit a record $1.3 billion, up 47%, and public cloud revenue of $206 million grew 28%. Free cash flow was the weak spot at $401 million, down 35% from $620 million a year earlier. NetApp bought DataPelago Inc. during the quarter for an undisclosed sum. The startup builds data infrastructure software aimed at speeding up AI workloads.
Chief Executive George Kurian said the quarter beat guidance on every metric and was NetApp’s best first quarter ever. The company raised full-year revenue guidance to a range of $7.98 billion to $8.23 billion and adjusted earnings guidance to $9.73 to $10.03 per share, well clear of the $9.01 analysts had penciled in. Second-quarter revenue is forecast at $2.03 billion to $2.18 billion, with adjusted earnings of $2.54 to $2.64 per share. NetApp will pay a quarterly dividend of 52 cents per share on Oct. 28.
Investors fixed on the cash flow number rather than the beats. NetApp shares dropped more than 8% in extended trading.
