Hewlett Packard Enterprise (HPE) is taking several steps to manage ongoing memory supply constraints as demand for artificial intelligence infrastructure continues to rise across enterprises and data centers.
The company is working with partners to secure additional multiyear supply agreements, provide customers with alternative product configurations and improve its ability to forecast supply availability, President and CEO Antonio Neri said during HPE’s fiscal third-quarter earnings call.
Despite those measures, supply limitations prevented HPE from fully converting strong demand for AI systems into revenue during the fiscal quarter ended July 31.
“Supply will continue to be constrained, which means we’re going to continue to run into high backlog as we go forward,” Neri said during the Sept. 2 earnings call.
Supply constraints continue to weigh on AI infrastructure
HPE is facing memory-related supply pressures similar to those that affected the server market earlier this year. At the same time, demand for AI infrastructure from enterprises and data centers continues to accelerate, contributing to growing backlogs across original equipment manufacturers, according to consulting firm Deloitte.
To support its ability to respond to customer orders, HPE increased its inventory to $11.8 billion at the end of fiscal Q3. Executive Vice President and Chief Financial Officer Marie Myers said the figure was higher both year over year and sequentially.
The company is also using longer-term supplier agreements to secure capacity for AI servers. According to HPE, these agreements are intended to reduce lead times, improve the conversion of existing backlog into revenue and support additional order growth.
Networking backlog highlights supply-demand imbalance
HPE’s networking business is also seeing customer demand exceed available supply, Neri said.
The company nevertheless expects to convert a greater portion of its orders into revenue during the fourth quarter, supporting its confidence in maintaining networking growth into fiscal 2027.
“We expect an acceleration of revenue as we go forward, but supply will continue to be the constraint,” Neri said.
Myers expects fourth-quarter revenue to reach between $13.9 billion and $14.8 billion, above the $12.2 billion recorded in the third quarter.
The projected increase is expected to be driven by continued strong demand across HPE’s networking, cloud and AI business units.
Long-term supplier commitments aimed at securing capacity
Neri said HPE’s ability to provide the revenue outlook is directly linked to the supply-chain work carried out to secure additional capacity.
“We put numbers out there if we have the ability to fulfill it,” Neri said, pointing to the work of HPE’s supply chain team in securing multiyear, long-term agreements that lock in capacity.
For HPE, those agreements are becoming an increasingly important tool for navigating an AI infrastructure market where customer demand remains strong but the availability of critical components continues to limit how quickly orders can be fulfilled.
