Dive Brief:
- Hewlett Packard Enterprise is mitigating persistent memory supply constraints by working with partners to secure additional multiyear agreements, offering customers alternative product configurations, and improving supply-availability forecasting, President and CEO Antonio Neri said on a fiscal Q3 earnings call.
- Nevertheless, the supply shortage limited HPE’s ability to convert strong demand for artificial intelligence systems into revenue in the fiscal quarter ended July 31, Neri said.
- “Supply will continue to be constrained, which means we're going to continue to run into high backlog as we go forward," Neri said on the Sept. 2 earnings call.
Dive Insight:
Demand for AI infrastructure among enterprises and data centers continues to surge, as HPE faces constraints similar to those reported earlier this year. The rising demand has sparked growing backlogs among original equipment manufacturers in general, according to consulting firm Deloitte.
To meet climbing customer orders, HPE raised inventory to $11.8 billion by the end of fiscal Q3, up year over year and sequentially, EVP and CFO Marie Myers said. Meanwhile, to meet AI server demand, HPE has signed some multiyear supplier agreements to secure capacity, thereby reducing lead times, improving backlog conversion and driving new order growth.
HPE's networking backlog shows customer demand outpacing supply, Neri said. Nevertheless, HPE expects to convert more orders into revenue in Q4, bolstering confidence that it can sustain networking growth in fiscal 2027.
"We expect an acceleration of revenue as we go forward, but supply will continue to be the constraint," Neri said.
Myers expected Q4 revenue — forecasted between $13.9 billion and $14.8 billion — to exceed Q3’s $12.2 billion, driven by continued strong demand in HPE's networking and cloud and AI business units.
"We put numbers out there if we have the ability to fulfill it, and that came through the work our supply chain team have done to secure these multiyear long-term agreements that locks the capacity," Neri said.
