“The IT market is facing a sharp acceleration in supply tightness and increasing component costs, most notably in DRAM and NAND,” said HPE CEO Antonio Neri during the company’s quarterly financial call. “We expect elevated prices to persist well into 2027.”
HPE CEO Antonio Neri Monday told analysts that rising memory prices—which have resulted in tough new measures including the ability for HPE to reprice server and GreenLake orders up until shipment—will persist well into 2027.
“The IT market is facing a sharp acceleration in supply tightness and increasing component costs, most notably in DRAM and NAND,” said Neri, addressing what he called the “commodity shortages and inflationary cost environment” impacting the industry. “We expect elevated prices to persist well into 2027.”
DRAM and NAND now make up more than 50 percent of the “bill of material cost” of a traditional server, said Neri. What’s more, he said, that percentage will “continue to rise” as component costs increase.
As a result, Neri said, HPE expects higher average unit prices for both HPE server and storage products to increase as the year progresses. HPE’s Networking business is more “insulated,” with memory pricing a “significantly smaller” portion of the bill of materials, he said.
HPE has moved to protect margins by raising prices in November, December and January, said Neri.
Despite the price increases, Neri said there has been “zero” impact on demand with no “push out” in orders from customers who are anxious to get products faster. “Demand is very, very strong,” he said
Neri said he has met with many customers who all understand the inflationary memory cost environment. “The reality is that demand is strong whether it is driven by projects or deploying AI,” he said. “Obviously they are concerned about the inflationary cost, but there is zero impact on demand at this point in time.”
HPE is protecting its margins with an “agile pricing posture” through price adjustments across the entire portfolio with shorter quote commitment cycles, Neri said.
“We have amended our quoting terms with the right to reprice existing orders for commodity cost increases between quoting and shipment,” said Neri.
In February, HPE implemented a tough new contract stipulation in the wake of rising memory prices and supply constraints that allows for price adjustments until the date of shipment on server and GreenLake orders.
In a letter to partners on Feb. 5, HPE Senior Vice President of Worldwide Channel and Partner Ecosystem Simon Ewington told partners HPE is making changes in “pricing and quote validity” in the wake of the rising memory prices and supply constraints that are plaguing the industry.
Specifically, HPE is shortening “the quote validity windows to 14 days (excluding public sector, B2B, OEM),” down from 30 days, and has “updated the contract terms and conditions for server and GreenLake orders to allow for price adjustments until the date of shipment.”
Among the additional actions HPE has taken to counter the memory supply shortage, said Neri, is a move to secure additional supply of memory products.
“We have expanded our long-term multi-year agreements with our key silicon and memory partners to secure the capacity needed to meet customer demand,” he said.
Neri said HPE’s fiscal year 2026 strategy “prioritizes higher-margin product orders.”
Finally, Neri said, HPE is “proactively” communicating with customers and channel partners, providing “lead time and cost visibility along with alternative configuration recommendations” to shape demand.
Strong HPE Networking Performance
Even with the dramatic increases in memory prices, HPE reported non‑GAAP earnings for its first fiscal quarter, ended Jan. 31, of 65 cents per share, six cents above the Zacks consensus analyst estimate of 59 cents per share.
HPE reported sales of $9.3 billion, slightly below the Zacks consensus estimate at $9.32 billion.
HPE shares were up 23 cents to $22.04 in after-hours trading Monday. HPE shares closed up 68 cents, or three percent, to $21.81 ahead of the call.
HPE’s Networking business in the quarter outperformed expectations in the wake of HPE’s $13.4 billion acquisition of Juniper Networks last July, with revenue up 7 percent on a normalized basis.
HPE’s data center switching product orders were up mid-40 percent range on a normalized basis, driven by “strong momentum in AI data centers and on-going data center modernization efforts,” said Neri. “AI data center builders and operators at scale appreciate our speed of execution, high-touch support and innovative congestion management capabilities.”
HPE’s routing product orders were up in the mid-20 percent range on a normalized basis.
The strong demand for HPE routing and switching products—which make up the Networks for AI business for HPE—prompted HPE to raise its cumulative Networks for AI orders to $1.7 billion to $1.9 billion by the end of fiscal year 2026, up from the previously anticipated $1.5 billion.
In contrast, orders in the HPE cloud and AI segment—which includes server and storage—were down three percent, with operating margin dollars up 18 percent, driven by what Neri called pricing and cost discipline.
HPE server orders in the quarter grew “low double-digits,” driven by higher demand for traditional servers as “customers expand AI deployments, modernize infrastructure and accelerate orders due to industry supply challenges,” said Neri.
Neri said HPE GreenLake could benefit from the rising memory prices as more customers adopt a consumption-based model.
Furthermore, he said, HPE Financial Services will play a critical role by providing pre-certified, pre-owned products to customers.
C.R. Howdyshell, CEO of Advizex, a Myriad360 company, said he also expects the memory crisis to last well into 2027, prompting partners like Advizex to focus on consumption solutions like GreenLake and selling software and services. “We have got to offset some of the exposure we have with the memory prices with other solutions, whether it be software, as a service or consulting services,” he said.
Howdyshell said that while neocloud providers and cloud service providers are not put off by the higher prices, some legacy customers are balking and sticking with their current infrastructure unless it’s a mission critical situation.
In fact, he said, a large manufacturing Advizex customer recently postponed a compute order with a plan to keep their current infrastructure for the next 18 to 24 months. “They can’t afford it with their current supply chain because they would have to pass it on to their customers at some point,” he said. “If customers can, they are trying to get by. If they can’t, they are going to try to find the least expensive way to deal with the situation.”
Ultimately, Howdyshell said, the vendor that figures out “supply chain challenges first is going to clearly be the winner.”
