Hewlett-Packard Enterprise Co. delivered better-than-expected earnings and gave an outlook for the current quarter and full year that surpassed Wall Street’s expectations, signaling it continues to benefit from strong demand for artificial intelligence hardware.

The company reported first-quarter earnings before certain costs such as stock compensation of 65 cents per share, comfortably ahead of the Street’s 59 cent target, while revenue came to $9.3 billion, just shy of the $9.35 billion expected.

HPE’s total revenue jumped 18% from a year earlier, with most of those gains driven by an increase in networking sales. The networking business has grown markedly thanks to the company’s recent acquisition of Juniper Networks. Sales in the segment came to $2.7 billion in the quarter, up 152% from a year earlier, with a 40% bump in data center switch orders and a 20% increase in orders for routers.

Chief Financial Officer Marie Myers told MarketWatch that “networking now represents a very important component of revenue, but actually an even more significant part of our operating profit.” She explained that networking now accounts for about 30% of the company’s sales, and half of its operating profit.

Networking was the sole reason for HPE’s growth during the quarter. Surprisingly, HPE’s server revenue declined just shy of 3% from the same period last year, to $4.2 billion. Chief Executive Antonio Neri (pictured) told analysts on a conference call that the company ended the quarter with a backlog of $5 billion worth of AI server orders. But most of that backlog stems from government and enterprise customers, and such orders typically take longer to fill, he explained.

Neri said three months earlier that “the back end of the year will have the biggest part of the AI revenue conversion,” and he reiterated that statement again today.

Today’s results make it clear that HPE badly needed Juniper, and the timing of the deal was has proven to be a real stroke of luck for the company, Constellation Research analyst Holger Mueller told SiliconANGLE. He said that HPE would have gone backwards without that acquisition, as all of its growth came from networking. “HPE is more of a networking business now than ever before, with one third of its revenue now coming from that side of the business,” the analyst added. “But investors won’t want to see that. They want to see Antonio Neri and team smooth out the AI server revenue. While it’s okay to show different rates of growth, it should not be going backwards at a time when AI is transforming the world’s economies.”

Besides the servers, analysts were also curious to know what HPE is doing about the rising memory costs amid growing shortages of one of the key components of its AI servers. Neri said the company has been working closely with suppliers and leveraging its relationships to offset those headwinds, while simultaneously increasing the prices of some of its products. “Prices will continue to go up,” Neri added. He said memory shortages will likely persist well into the next calendar year, and the company has already factored these costs into its guidance.

For the current quarter, HPE is looking at sales of between $9.6 billion and $10 billion, which is better than the $9.57 billion analyst estimate. It’s also looking for a profit of between 51 and 55 cents per share, which is in-line with the Street’s 53-cent-per-share target.

The company also raised its full-year earnings guidance. It’s now targeting fiscal 2026 earnings of between $2.30 and $2.50 per share, up from a previous estimate of $2.25 to $2.45 per share. Wall Street is looking for a full-year profit of $2.34 per share.

HPE’s stock inched up 1% in extended trading, but is still down just over 9% in the year to date.

Photo: SiliconANGLE