Amit Daryanani

Amit Daryanani from Evercore ISI asked about the impact of memory price inflation (NAND and DRAM) on Pure Storage's P&L, specifically regarding gross margins and revenue, and the potential indirect effects from competitors' pricing adjustments.

Answer

CFO Tarek Robbiati explained that Pure Storage's dynamic pricing environment means commodity pricing has less effect on gross margins and more on the overall market, leading to higher prices for customers requiring the same capacity. He noted that product gross margins of 73% were a bit high, with a long-term trend expected in the 65%-70% range.

Amit Daryanani from Evercore ISI inquired about the direct and indirect impacts of memory price inflation (NAND and DRAM) on Pure Storage's P&L, specifically concerning product gross margins and potential competitive pricing changes.

Answer

CFO Tarek Robbiati explained that Pure Storage's dynamic pricing environment means commodity price inflation tends to affect the overall market more than their gross margins, acting as a "rising tide" for the storage market. He noted that while Q3 product gross margins were strong at 73%, the long-term expectation remains 65%-70%.

Amit Daryanani from Evercore ISI inquired about the key factors driving the projected revenue growth acceleration in the second half of the fiscal year, questioning whether it stems from an improved macro environment, broader platform adoption, or specific product momentum.

Answer

CEO Charles Giancarlo attributed the optimistic outlook to broad-based product strength, enhanced pipeline visibility, and a more stable macroeconomic environment compared to earlier in the year. He emphasized that strong company momentum, driven by the new Enterprise Data Cloud architecture and Fusion platform, is fueling greater demand, particularly for large enterprise deals.

Amit Daryanani of Evercore ISI inquired about the progress of Pure Storage's hyperscale opportunity with Meta, its evolution from pilot to production, and the status of discussions with other hyperscalers.

Answer

CEO Charles Giancarlo explained that the engagement is proceeding as planned within Meta's 1.5-to-2-year data center design cycle. He reaffirmed that Pure is on track to deliver the anticipated one to two exabytes in the second half of the year. Giancarlo also noted steady progress with other hyperscalers, with some currently in the proof-of-concept stage, but stated it is too early to announce a formal design win.

Amit Daryanani of Evercore ISI asked for details on the investments Pure Storage needs to make to move its hyperscale design win into a production environment and the steps required to get there.

Answer

CEO Charles Giancarlo and CFO Kevan Krysler detailed the ongoing co-development. Krysler summarized the investments into four key areas: integrating Purity software with hyperscaler hardware, accelerating the DirectFlash module density roadmap, qualifying additional NAND suppliers, and expanding supply chain capabilities.

Amit Daryanani inquired about the key factors that led a top hyperscaler to choose Pure Storage over an in-house solution and asked for an estimation of the total addressable market or potential revenue scale of this opportunity.

Answer

CEO Charles Giancarlo attributed the win to Pure's ability to deliver unmatched reliability, significant power savings, accelerated time-to-value, and a superior price-performance equation that matches hard disk TCO with 5x the performance. CFO Kevan Krysler added that the hyperscale market represents 60-70% of all disk drives sold, indicating a significant long-term opportunity, with meaningful revenue and margin expansion expected in FY27. He noted the deal excludes hardware sales.

Amit Daryanani asked why the reduction in the Evergreen//One TCV sales forecast from $600 million to $500 million is not resulting in a corresponding increase to the full-year product revenue guidance.

Answer

CEO Charles Giancarlo explained that the change is due to large Evergreen//One opportunities taking longer to close, rather than customers switching from a subscription model to a CapEx purchase. CFO Kevan Krysler added that if those delayed deals were to convert to traditional product sales, the company would then consider raising its annual revenue guidance.

Hannah, on behalf of Amit Darjanani with Evercore, asked about the specific drivers behind the accelerated growth in all-flash array revenue, inquiring if it was due to pricing, portfolio refresh, or AI workloads.

Answer

CEO George Kurian stated that AI was a noticeable workload driver for all-flash. He also highlighted the benefit from the full set of systems refreshed last year, with customers qualifying and adopting them, leading to strong results, particularly in high-performance flash offerings.

Irvin Liu, on behalf of Amit Daryanani, asked about the trajectory of product gross margins beyond Q4 after the strategic SSD purchases are depleted and NetApp's ability to pass higher commodity costs to customers.

Answer

CFO Michael Berry projected that Q4 2025 would represent the low point for product gross margins. He anticipates margins will begin to increase in fiscal 2026, driven by the tailwind from recent price changes, a better cost structure from new products, and an expected decline in NAND component costs. He also highlighted the 1,000 basis point year-over-year improvement in public cloud gross margins.

Amit Daryanani asked about the durability of the strong all-flash array growth and the strategy behind the pre-purchase of SSD inventory.

Answer

CEO George Kurian expressed confidence in the durability of all-flash array growth, attributing it to a strong competitive position, rapid innovation, and focused execution. CFO Mike Berry confirmed that the first-half inventory increase was primarily due to strategic SSD pre-buys to cover fiscal 2025 demand and that no further pre-buys are planned at this time.

Amit Daryanani inquired about the drivers behind the 21% all-flash array growth and its durability, and also asked for the outlook on product gross margins for the remainder of the fiscal year.

Answer

CEO George Kurian attributed the strong, durable all-flash growth to a mix of acquiring new-to-NetApp customers and refreshing the large installed base of hard drives with QLC flash, stating it's still early in the cycle. CFO Michael Berry reiterated the full-year product gross margin guidance of upper 50s to 60%, expecting a slight decline from Q1's 60% as pre-purchased inventory is used.

Amit Daryanani asked about the specific drivers behind the 350 basis point sequential improvement in ISG margins in Q3, and how the record $9.4 billion+ AI server revenue expected in Q4 will impact gross margins and the overall P&L.

Answer

David Kennedy (CFO, Dell Technologies) attributed the ISG margin improvement to strong demand for Dell IP storage (especially PowerStore's double-digit growth), pricing discipline, and product-level improvements. He also noted that AI margins were on track with the mid-single-digit commitment, without the Q2 one-time costs. For Q4, he expects continued progress, with Dell IP storage growth driving an uptick in the ISG operating income rate sequentially. Jeff Clarke (COO, Dell Technologies) reiterated that the combination of increased AI shipments, focus on Dell IP storage, and traditional server velocity is the recipe for Q4 performance.

Amit Daryanani asked about the drivers behind the 350 basis point sequential improvement in ISG margins in Q3 and how the record $9.4 billion AI server revenue in Q4 is expected to impact the P&L, specifically regarding gross margins.

Answer

CFO David Kennedy attributed ISG margin improvement to strong demand and premium margins from Dell IP storage (especially PowerStore), pricing discipline, and product-level improvements, along with AI margins returning to mid-single digits due to the absence of Q2 one-time costs. He expects continued progress in Q4, driven by Dell IP storage growth, leading to an uptick in the ISG operating income rate. COO Jeff Clarke reiterated the strategy of focusing on Dell IP storage and increased traditional server velocity.

Amit Daryanani from Evercore pointed out that the incremental profit from the raised full-year guidance seemed low, implying a very low operating margin for AI servers, and asked for clarification on the puts and takes.

Answer

CFO Yvonne McGill responded by emphasizing the role of business mix and seasonality in the second-half forecast. She stated that the primary driver of improved profitability, especially in the fourth quarter, is the seasonal strength and favorable mix of the high-margin storage business. She stressed that the improved outlook is based on holistic profitability improvements across the entire portfolio, not just one segment.

Amit Daryanani from Evercore ISI inquired about the impressive performance of Dell's AI server business, noting the $12.1 billion in Q1 orders and a backlog exceeding $14 billion. He asked for an updated outlook on the fiscal 2026 AI server revenue target, which was previously guided at $15 billion, considering the growing demand from sovereign entities and emerging cloud providers.

Answer

Jeff Clarke, Vice Chairman and COO, confirmed the strong start to the year but emphasized the lumpy and non-linear nature of AI server deployments due to dependencies like data center construction and power availability. He noted the five-quarter pipeline has grown sequentially and now includes sovereign AI deals. While it's early in the year, Clarke stated he feels confident about achieving revenue on the 'plus side of $15 billion' and will provide updates as the year progresses.

Amit Daryanani asked about the drivers for the free cash flow decline in fiscal '25 and the outlook for fiscal '26, and also questioned the durability of the operating leverage being generated, wondering if it was from one-off actions.

Answer

President of ISG Tyler Johnson explained that FY'25 cash flow was impacted by lower-than-expected CSG growth and inventory investments for the AI business. For FY'26, he expects cash flow to be strong and greater than 1x net income, driven by CCC improvement, CSG recovery, and P&L growth. COO and Vice Chairman Jeffrey Clarke addressed durability, stating the changes are structural and proprietary, stemming from a company-wide modernization effort to simplify, standardize, and automate workflows using AI, which is not a one-time event.

Amit Daryanani of Evercore ISI inquired about the key drivers behind the strong Q3 ISG margin performance and questioned the durability of these margins going forward.

Answer

Executive Yvonne McGill explained that the ISG operating income rate improved 230 basis points sequentially, driven by enhanced gross margins in richly configured traditional servers and reduced operating expenses. She noted that AI server and storage margins were stable to slightly up, and she anticipates ISG operating income rates will continue to improve into Q4.

Amit Daryanani asked about the drivers behind the significant sequential improvement in Infrastructure Solutions Group (ISG) operating margins, from 8% in Q1 to 11% in Q2, and the key factors for achieving the full-year target of 11% to 14%.

Answer

CFO Yvonne McGill and COO Jeffrey Clarke explained that the 300-basis-point margin expansion was driven by broad portfolio improvement. Key factors included revenue scale, better price discipline and a richer mix of Dell IP in storage, and improved profitability in AI servers. Clarke added that Dell is extracting more value from AI solutions through engineering and rack-level services, not just the server node.

Amit Daryanani asked for a breakdown of the $3 billion in fiscal year 2026 AI sales between optics and systems, and whether the overall AI margin is comparable to corporate averages. He also asked about the expected normalized security growth rate once the current mix shift stabilizes, referencing the prior mid-teens guide.

Answer

CFO Mark Patterson stated that Cisco has a broad portfolio with a range of margins, and the current strong margins (68.1% in Q1) and guidance reflect a focus on profitable growth across all segments, including optics and web scale. Chairman and CEO Chuck Robbins reiterated commitment to a mid-teens long-term revenue guide for security, expecting acceleration through the year, with the mix shift normalization likely taking four quarters. He confirmed the current guide does not require material security improvement.

Amit Daryanani asked about the breakdown of optics versus systems in the $3 billion AI sales for fiscal 2026 and whether AI margins are comparable to corporate averages. He also questioned what normalized security growth could look like once the mix shift stabilizes, given the current -2% revenue.

Answer

Mark Patterson, CFO, stated that AI sales, like other segments, have a broad portfolio with a range of margins, and the current strong margins (68.1% in Q1) and guidance reflect a focus on profitable growth. Chuck Robbins, Chairman and CEO, reiterated commitment to mid-teens long-term security revenue growth. He acknowledged the -2% security revenue is due to legacy pressure and cloud mix shift, expecting acceleration through the year and normalization of the mix shift over about four quarters. He confirmed the current guidance already accounts for this security performance.

Amit Daryanani from Evercore Inc. inquired about the timeline for enterprise AI adoption and the potential size of the opportunity, particularly in relation to the NVIDIA partnership. He also asked about the expected FY2026 revenue from the $2 billion in AI orders.

Answer

CEO Chuck Robbins noted hundreds of millions in enterprise AI orders are already in the pipeline, with pilots ramping and agentic AI proof-of-concepts expected in the second half of the year. He stated the meaningful benefit from the NVIDIA partnership is still to come. Regarding FY26 revenue, he suggested extrapolating from the $1B recognized in FY25 and the existing backlog.

Amit Daryanani of Evercore ISI asked about the expected future growth trajectory for AI orders after hitting the $1 billion target early, and questioned why Q4 operating margins were guided to decline sequentially despite higher revenue.

Answer

CEO Chuck Robbins noted that AI orders are large and non-linear but suggested that if Cisco can increase production capacity, the order ramp should continue. CFO Scott Herren explained that the sequential margin decline is driven by the full quarterly impact of tariffs being factored into the Q4 gross margin guidance, without assuming any mitigation efforts yet.

Amit Daryanani from Evercore ISI asked for an outlook on the growth trajectory of AI orders and sought an explanation for why Q4 operating margins are guided to decline sequentially despite an expected increase in revenue.

Answer

CEO Chuck Robbins characterized AI orders as nonlinear but noted that if Cisco can increase supply capacity, the order ramp should continue. CFO Scott Herren explained that the sequential margin decline is primarily driven by the full quarterly impact of tariffs being factored into the Q4 gross margin guidance, without yet assuming offsetting mitigation efforts.

Amit Daryanani of Evercore ISI asked how the 23% decline in Networking revenue compared to internal expectations and whether it should now grow sequentially through fiscal 2025. He also asked which opportunity, Hypershield or Hyperfabric, is viewed as larger over the next three years.

Answer

CFO Scott Herren explained the networking revenue decline was expected, as it compared against a prior-year quarter with massive backlog shipments. He noted that demand is trending in line with expectations, with AI and DC switching as bright spots. CEO Chuck Robbins stated he is "equally excited" about both Hypershield and Hyperfabric, as they address two critical customer objectives: east-west data center security and simplifying AI application deployment, respectively.

Amit Daryanani asked about the impact of CoreWeave shifting from third-party data center providers to more self-build projects on CapEx and time to market, and what the optimal mix looks like.

Answer

CEO Mike Intrator clarified that self-build is an additional component, not a replacement for third-party providers. CoreWeave will continue to partner for co-location and facility builds. Self-build helps de-risk delivery, provides first-hand supply chain information, and is necessary to operate at speed and scale in a complex supply chain environment.

Amit Daryanani asked how CoreWeave's shift towards more self-build data centers, as opposed to relying solely on third-party providers, impacts CapEx and time to market for power, and what the optimal mix and CapEx requirements might be.

Answer

CEO Mike Intrator clarified that self-build is a component to de-risk delivery, not a replacement for third-party providers. He explained that self-builds embed CoreWeave deeper into the supply chain, providing first-hand information and helping manage the complicated supply chain environment more effectively.

Amit Daryanani inquired about the assumptions underpinning Karman Space & Defense's preliminary 20%-25% growth guidance for 2026, which suggests moderation, and the extent to which the $758 million backlog covers 2026. He also asked if the backlog shows program-level concentration or is broadly distributed.

Answer

CEO Tony Koblinski clarified that the 20%-25% is a preliminary number and that Karman Space & Defense aims for over 75% of the future year's revenue to be booked by the start of the year, a path they are comfortable with. He confirmed the backlog is consistent with revenue, with no single program exceeding 10-11% concentration, indicating a well-balanced and distributed backlog.

Amit Daryanani inquired about the underlying assumptions for Karman Space & Defense's preliminary 20-25% growth guidance for 2026, which suggests moderation from 2025, and asked about the coverage provided by the $758 million backlog for 2026. He also asked if the backlog shows program-level concentration or is broadly distributed.

Answer

CEO Tony Koblinski reiterated the 20-25% as a preliminary figure aimed at building confidence, noting the multi-year $758 million backlog puts them on track to have over 75% of the future year booked. He confirmed the backlog is consistent with revenue, growing across all three end markets, with no single program exceeding 11% concentration, indicating a well-balanced portfolio.

Amit Daryanani questioned the implied deceleration in Arista Networks' growth rate from high 20% to low 20% for Q4 and 2026, despite purchase commitments suggesting acceleration, and asked for the drivers behind this deceleration.

Answer

Jayshree Ullal, Arista Networks' CEO and Chairperson, rejected the term 'deceleration,' emphasizing strong demand and variability across quarters rather than a lack of demand. Chantelle Breithaupt, Arista Networks' CFO and SVP, added that large AI use cases involve acceptance clauses, and their timing does not follow a seasonal model.

Amit Daryanani questioned the projected deceleration of Arista's growth rate from high 20% to low 20% for Q4 and FY26, noting that purchase commitments and product growth might suggest an acceleration instead.

Answer

Jayshree Ullal, CEO and Chairperson, emphasized that the company is experiencing "variability across quarters" rather than deceleration, with demand remaining strong. Chantelle Breithaupt, CFO and SVP, added that the timing of large AI use cases with specific acceptance clauses contributes to this variability, as they do not follow a seasonal pattern.

Amit Daryanani of Evercore asked for the specific drivers behind the significant full-year revenue growth guidance increase from 17% to 25% and questioned the potential durability of this higher growth rate.

Answer

Chairperson & CEO Jayshree Ullal attributed the raise to strong, confirmed demand across all three key sectors: Enterprise Campus, AI, and Cloud. She noted that early-year activity has now translated into firm orders and deployments. While not committing to a specific long-term rate, she reiterated the company's belief in achieving a mid-teens CAGR for many years.

Amit Daryanani inquired about the progress of Arista's four key back-end AI customers and whether the 1:1 ratio for front-end to back-end AI networking spend remains intact.

Answer

CEO Jayshree Ullal confirmed that all four customers are progressing well, with three in production and two on track for 50,000-100,000 GPU deployments. She reiterated confidence in the $750 million back-end AI revenue goal for 2025 and affirmed that the 1:1 front-end to back-end ratio is still a good, though variable, guideline.

Amit Daryanani asked about the competitive threat from white box vendors in AI networks, particularly in the back-end, and questioned if Arista's front-end differentiators are applicable there.

Answer

CEO Jayshree Ullal stated that the AI networking TAM is large enough for Arista and white boxes to coexist. She explained that in back-end clusters, the AI spine is almost universally Arista-branded EOS due to its rich routing, scale, and feature requirements. While AI leads can be a hybrid of EOS and open OS, Arista's key differentiators in 400/800G—such as scale, visibility, congestion control, and smart system upgrades—are critical for maximizing the performance of expensive GPUs.

Amit Daryanani pointed out the significant increase in deferred revenue, noting that this historically precedes strong revenue growth, and asked why the 2025 guidance suggests a deceleration.

Answer

CEO Jayshree Ullal clarified that unlike past scenarios, current AI-related deals involve much longer trial and deployment timelines, potentially spanning multiple years before manifesting as revenue. CFO Chantelle Breithaupt added that the deferred balance reflects the bespoke and lengthening timeframes of these complex use cases and customer mixes, and represents the current state of commitments.

Amit Daryanani inquired about the impact of the current government shutdown on CDW's Q4 guide, specifically for the federal public vertical, and whether lost sales are a matter of timing or permanent loss. He also asked about the drivers behind the impressive small business growth and if SMB trends serve as a leading indicator for the overall business.

Answer

Chris Leahy, Chair and CEO of CDW, explained that the Q4 guide takes a conservative view, presuming the shutdown persists, but noted that history suggests lost sales are typically a timing issue, not permanent. Regarding small business, Leahy attributed its resilience to outstanding team execution and small businesses increasingly leveraging technology for competitive advantage, but cautioned against using it as a direct indicator for other segments.

Amit Daryanani from Evercore ISI inquired about the potential impact of the government shutdown on CDW's Q4 federal segment guidance and whether lost sales are typically recovered in subsequent periods. He also asked about the drivers behind the impressive double-digit growth in the small business segment and if it serves as a leading indicator for the broader business.

Answer

Chris Leahy, Chair and CEO of CDW, stated that the Q4 federal guide is conservative, assuming the shutdown persists, but noted it's not a "zero quarter" due to existing pipeline and open agencies. He added that historically, shutdowns result in shifted, not lost, sales, which typically recover over an extended timeframe. Regarding small business, Mr. Leahy highlighted its resilience and the team's execution, observing a trend of small businesses leaning more into technology for competitive advantage, but cautioned against viewing it as a clear leading indicator for other segments.

Amit Daryanani from Evercore ISI asked for the rationale behind the guided growth deceleration in the second half of the year, given the strong first-half results. He also questioned the cause of the subdued free cash flow conversion during the quarter.

Answer

Chris Leahy, Chair & CEO, explained the cautious outlook is driven by expected softness in the Education and Federal segments due to ongoing policy and funding changes. CFO Al Miralles addressed cash flow, stating that the conversion rate was impacted by timing and stronger-than-expected growth drawing on working capital, but he expects to hit the full-year target of 80-90% of non-GAAP net income.

Amit Daryanani asked about buying behavior in the SMB and corporate verticals for Q2 versus March and inquired how share buybacks are factored into the full-year low single-digit EPS growth guidance.

Answer

CEO Christine Leahy described Q2 commercial demand as having a 'healthy rhythm,' with customers being cautious but determined, and noted the client device refresh cycle is in its middle innings. CFO Albert Miralles confirmed the EPS guide includes a 50-75% free cash flow return to shareholders and noted that the front-loaded $200 million buyback in Q1 provides a benefit to the full-year average.

Amit Daryanani asked for the 2025 growth outlook for the public sector verticals and questioned why the gross profit dollar growth guidance for 2025 appears more muted than the top-line forecast.

Answer

CEO Christine Leahy explained that the public sector outlook remains fluid, particularly in Federal and Education, and the company has taken a prudent approach. CFO Al Miralles clarified that the variance between growth rates for customer spend, gross profit, and EPS is not significant, with a slight mix shift towards netted-down revenue influencing the relationship between top-line and gross profit growth.

Amit Daryanani noted that two consecutive years of gross profit decline is a historical anomaly for CDW and asked what has fundamentally changed in the business to cause this. He also inquired if evolving channel strategies from major vendors like Cisco and Microsoft could benefit CDW's agent-based sales in 2025.

Answer

CEO Christine Leahy attributed the pressure to a "double whammy": CDW's ongoing transformation, which increases exposure to lumpy, large-scale projects and a growing-but-not-yet-scaled cloud/SaaS business, amplified by a persistently muted hardware market. She confirmed that vendor strategies are aligning with CDW's focus on delivering value-added services around cloud, which should be a positive benefit and drive better economics.

Amit Daryanani asked for an explanation of the December quarter gross margin expectations, including the drivers of the sequential increase and the operating leverage. He also sought clarification on the weakness in China during the September quarter, whether it was a pause due to iPhone Air availability, and the factors contributing to the expected uptick in December.

Answer

CFO Kevan Parekh outlined a gross margin target of 47-48% for the December quarter, driven by favorable mix, particularly from products, which offsets the higher initial cost structure of new products. CEO Tim Cook attributed the 4% year-over-year decline in Greater China revenue in the September quarter primarily to iPhone supply constraints and expects a return to growth in December due to strong iPhone 17 reception and increased traffic.

Amit Daryanani asked for a detailed explanation of the December quarter gross margin expectations, focusing on the sequential increase and the percentage drivers. He also sought clarification on the factors contributing to iPhone weakness in Greater China during the September quarter and the basis for improved expectations in December.

Answer

CFO Kevan Parekh explained that the December quarter gross margin outlook of 47%-48% (midpoint 47.5%) reflects a sequential increase driven by favorable product mix, offsetting the higher cost structure of new products. CEO Tim Cook attributed the 4% year-over-year decline in Greater China revenue in the September quarter primarily to iPhone supply constraints, expressing confidence in a return to growth in December due to strong iPhone 17 reception and increased traffic.

Amit Daryanani asked how Apple plans to offset the significant tariff headwinds over the long term and when it might execute on those levers. He also questioned if the strong Services growth was impacted by the Epic Games court ruling and the subsequent changes to App Store steering policies.

Answer

CEO Tim Cook explained that Apple mitigates tariff costs by optimizing its supply chain and increasing investment in the U.S., citing its $500 billion commitment and specific investments in materials and manufacturing. SVP & CFO Kevan Parekh noted that the App Store changes were only recently introduced but that the U.S. App Store still saw double-digit growth and set an all-time record in the quarter.

Amit Daryanani asked for clarification on the 'unique factors' that are benefiting the June quarter's tariff cost estimate of $900 million. He also questioned whether Services growth is expected to remain in the double-digit range within the company's overall revenue guidance for the June quarter.

Answer

CEO Tim Cook cited the build-ahead of inventory, reflected in manufacturing purchase obligations, as an example of a helpful unique factor for the June quarter. CFO Kevan Parekh stated that while FX headwinds are expected to lessen, Apple is not providing category-level guidance for Services in the June quarter due to various uncertainties.

Amit Daryanani asked about the durability of growth in emerging markets and whether it could offset China's headwinds, and also questioned the drivers behind the March quarter gross margin guidance.

Answer

CEO Tim Cook highlighted strong results in emerging markets, particularly India, as a key opportunity. CFO Kevan Parekh explained that the strong gross margin guidance of 46.5-47.5% balances FX headwinds and a loss of leverage with favorable costs and services mix.

Amit Daryanani asked about the Services business reaching a $100 billion run rate, inquiring about the mix between recurring and transactional revenue. He also asked for color on demand in China and the drivers behind strong double-digit growth in Europe.

Answer

CFO Luca Maestri confirmed that the recurring portion of Services is growing faster than the transactional part, with paid subscriptions now exceeding one billion. CEO Tim Cook noted that Greater China was relatively flat, an improvement aided by FX, and highlighted a record installed base. Luca Maestri attributed Europe's 11% growth to broad strength across Western Europe and strong performance in emerging markets like Turkey, the Middle East, and India, which is included in the segment.

Amit Daryanani asked about the Digital Data & Devices (DDN) segment, specifically the drivers behind the estimated $1.5 billion AI revenue run rate (end demand versus share gain), and what is fueling the impressive growth in DDN's non-AI (XAI) business, which grew over 40% in fiscal year 2025.

Answer

CEO Terrence Curtin clarified that the AI revenue growth is primarily driven by program ramp wins with hyperscalers, where TE Connectivity maintains a stable share but benefits from co-designing technology. For non-AI cloud, revenue doubled to $500 million, driven by infrastructure upgrades and the cascading effect of high-speed technology. He noted that enterprise and cloud grew about 15% in the past quarter, with similar double-digit growth in edge and IoT, indicating a broadening of cloud CapEx beyond just AI, leading to strong overall DDN growth.

Amit Daryanani of Evercore asked about the drivers behind the broad-based growth and significant margin expansion in the Industrial segment, which reached 20% faster than expected, and questioned the sustainability of these levels.

Answer

CEO Terrence Curtin attributed the growth to strategic investments in data connectivity and power trends, highlighting 20% organic growth in the Energy business. CFO Heath Mitts explained the margin expansion resulted from footprint consolidation, reduced fixed costs, and strong volume leverage, stating that 20% margins are expected at these volumes and are in line with internal targets.

Amit Daryanani asked about the sustainability of margin expansion and EPS growth in a choppy market, seeking to understand the key drivers between market demand versus company-specific initiatives.

Answer

CFO Heath Mitts expressed confidence in TE's ability to continue expanding margins, driven primarily by self-help initiatives like manufacturing footprint optimization and localization, rather than market tailwinds. He noted the Industrial segment has the most significant opportunity for margin improvement, while the Transportation business is focused on maintaining its strong profitability above 20% in a softer market.

Amit Daryanani questioned the drivers behind the increased AI revenue forecast (exceeding $600 million) and asked about the margin profile of the AI business compared to the broader Industrial segment average.

Answer

CEO Terrence Curtin responded that AI revenue doubled in the quarter, driven by broad demand across multiple hyperscalers, not just a single program. He noted that TE's market share remains stable at 30-35% and that upside is tied to execution on program ramps. Regarding margins, Curtin stated they are similar to TE's cloud products and are expected to scale with volume, contributing positively to the overall Industrial Solutions segment margin.

Amit Daryanani of Evercore ISI asked for an expansion on TE Connectivity's AI opportunity, including customer diversity, the impact of architectural shifts, and the timeline for its long-term revenue goals.

Answer

CEO Terrence Curtin highlighted that the AI opportunity is driven by customer demand for higher speed and power efficiency. He confirmed that FY24 AI sales were $300 million, exceeding expectations, and are projected to double to $600 million in FY25. Curtin noted the customer base is broad, including hyperscalers and semiconductor companies, and that the previously stated $1 billion revenue target is likely to be achieved sooner than initially forecast due to accelerating momentum and strong design wins.

Amit Daryanani asked if customers are looking to co-invest CapEx for more units, whether aerial density alone will be sufficient or if unit capacity additions are needed, and sought clarification on the implied HAMR exabytes shipped from the reported 1 million+ Mosaic drives.

Answer

Dave Mosley, Chair and CEO, stated that there are no significant changes to architecture or co-investment, with the focus remaining on predictable long-term plans and accelerating product transitions to increase exabyte capacity. Gianluca Romano, CFO, confirmed that shipping over 1 million Mosaic drives (between 30-36TB each) implies exabytes shipped within that range, emphasizing the importance of maintaining the current supply-demand balance.

Amit Daryanani asked if customers are looking to co-invest CapEx for more units given the uptick in video creation and committed nearline capacity, whether areal density alone will be sufficient, and clarified if 1M+ Mosaic drives implied 36 EB.

Answer

Seagate's Chair and CEO, Dave Mosley, stated that product transitions are key for higher capacity, and customers are seeking predictable long-term plans rather than co-investment. CFO Gianluca Romano confirmed that 1 million HAMR units align with the 30-36 TB per unit range, contributing to the exabyte total.

Amit Daryanani from Evercore asked about the pricing assumptions embedded in Seagate's long-term agreements (LTAs) and whether the company expects to retain the cost savings from HAMR technology or pass them on to customers.

Answer

CEO Dave Mosley explained that the significant Total Cost of Ownership (TCO) benefit of HAMR drives for customers means Seagate does not need to incentivize the transition with lower prices. CFO Gianluca Romano added that the company's strategy of slightly increasing like-for-like pricing remains in place.

Amit Daryanani asked if the strong demand visibility into early 2026 implies sequential growth in revenue and margins for the second half of the year. He also sought perspective on a recent Meta white paper regarding QLC NAND and its potential impact on nearline HDD demand.

Answer

CFO Gianluca Romano confirmed the current expectation is for continued growth in revenue and profitability. CEO Dave Mosley addressed the white paper, characterizing the QLC use case as niche and not disruptive to the broader HDD/NAND blend in data centers. He highlighted the significant cost and capital efficiency advantages of HDDs and noted that the trend toward disaggregated storage presents a further opportunity for hard drives.

Amit Daryanani of Evercore ISI questioned the implications of adding production capacity and asked how gross margins could expand in the March quarter despite sequentially lower revenue.

Answer

CEO Dave Mosley clarified that the gross margin expansion is driven entirely by a favorable product mix. As Seagate shifts to higher-capacity drives, it provides a compelling value proposition for customers and predictable economics for Seagate, which boosts the margin profile despite the temporary revenue dip.

Amit Daryanani from Evercore ISI raised concerns about the HDD industry being at a cyclical peak, asking how Seagate validates that shipments are being deployed rather than building customer inventory, and what the appropriate forward-looking gross margin framework is, given current levels are above the long-term target.

Answer

CEO Dave Mosley stated that while the business has been cyclical, the recent pandemic-induced bubble and crash were anomalous. He noted that improved triangulation processes and the build-to-order model help prevent overbuilding. Mosley believes there is still significant upside to gross margin, driven by aerial density gains and cost reductions on new high-capacity platforms, all contingent on proper supply-demand management.

Amit Daryanani asked about F5's implied operating margin for fiscal 2026 (around 34%) and why there isn't more leverage expected in the second half compared to the first half, requesting quantification of the OpEx uptick in the March quarter for events. He also questioned how F5 assures customers about zero-day threats given potential source code compromise and if the breach dampens the ability to implement price increases.

Answer

Cooper Werner, EVP and CFO, clarified that Q2 is typically the low water mark for operating margins due to seasonality (payroll tax resets, customer event), so leverage is expected in the back half. François Locoh-Donou, President and CEO, outlined measures to ensure code security, including engaging partners for scanning, setting up a trust center for customer penetration testing, leveraging AI for vulnerability hunting, enhancing bug bounty programs, and implementing EDR capabilities on F5 BIG-IP with CrowdStrike. On price increases, he stated F5 intends to maintain its policy of durable customer relationships and value justification through continuous investments in security and its world-class hybrid multi-cloud platform.

Amit Daryanani asked about the operating margin for fiscal 2026, specifically why leverage isn't expected in the back half compared to the front half, given the implied 34% margin for the year and Q1. He also asked to quantify the OpEx uptick in the March quarter due to events. Additionally, he inquired about how F5 plans to reassure customers regarding zero-day threats given the source code compromise and if the breach dampens F5's ability to implement price increases on the hardware side.

Answer

Cooper Werner (EVP and CFO, F5) clarified that Q2 is typically the low water mark for operating margins due to seasonality (payroll tax resets, large customer event in March), and leverage is expected in the back half. He did not quantify the Q2 OpEx uptick but suggested looking at seasonal trends. François Locoh-Donou (President and CEO, F5) outlined measures to ensure code security: engaging partners for continuous code scanning, setting up a trust center for customer penetration testing, leveraging AI for threat hunting, and enhancing the bug bounty program. He also mentioned implementing EDR capabilities on F5 BIG-IP with CrowdStrike for enhanced observability. He stated that F5 does not intend to change its policy on price increases, focusing on durable customer relationships and justifying value through continuous investments in roadmap, security, and platform capabilities (hardware, software, SaaS for traditional, modern, and AI apps), including the recent Calypso AI acquisition.

Amit Daryanani of Evercore questioned why F5's strong front-half hardware growth is projected to decelerate in the second half, given the positive drivers discussed. He also asked for a qualitative ranking of F5's three AI use cases by current revenue opportunity and traction.

Answer

President and CEO François Locoh-Donou explained that the guidance incorporates appropriate conservatism due to macroeconomic volatility, although the company is not currently seeing any negative changes in customer demand. Regarding AI, he identified data delivery for AI models as the largest current revenue driver, with security for AI applications and AI factory load balancing representing significant future opportunities that are in earlier stages.

Amit Daryanani from Evercore questioned the implied deceleration in hardware systems growth for the second half of the year, given the strong momentum and multiple drivers. He also asked for a qualitative ranking of F5's three AI use cases by dollar opportunity and current traction.

Answer

CEO François Locoh-Donou explained that the conservative guidance for the second half reflects prudence regarding macro volatility, despite not currently seeing any changes in customer buying behavior. Regarding AI, he identified data delivery for AI models as the largest current opportunity. He noted that securing AI applications and AI factory load balancing are emerging opportunities that are still in their early stages but show strong potential.

Asked to quantify the impact of demand pull-in on systems growth and whether the implied software growth deceleration is due to conservatism.

Answer

The demand pull-in for systems was modest, driven by a mid-single-digit price increase. The software growth forecast is prudent; while Q1 saw exceptional expansion rates on large deals, the company is not yet assuming this high rate will continue for the rest of the fiscal year.

Amit Daryanani requested more detail on the BIG-IP NGINX for Kubernetes solution, its target customers, and the potential size of the opportunity, and also asked for clarity on the software growth cadence for FY25.

Answer

President and CEO François Locoh-Donou described the NGINX solution as a way to increase GPU utilization, targeting service providers and large enterprises building AI factories at scale. He positioned it as a significant but longer-term opportunity for fiscal '26 and beyond. SVP of Finance and incoming CFO Cooper Werner confirmed that software growth is expected to be stronger in the second half of FY25, aligning with the timing of a larger renewal base.

Amit Daryanani inquired about IBM's free cash flow guidance of $14 billion for 2025, seeking clarification on any one-off dynamics contributing to the implied double-digit growth and 125% conversion rate. He also asked if anything might preclude free cash flow from growing a few points higher than sales in 2026, aligning with long-term models, and if capital allocation strategies would alter.

Answer

Jim Kavanaugh, IBM's Senior Vice President and Chief Financial Officer, highlighted the strength of the free cash flow engine, driven by accelerating top-line revenue growth and significant operating leverage. He noted overcoming a $500 million headwind from the Palo Alto QRadar transaction in Q3 2024 and attributed the $14 billion FCF guidance to increased revenue, operating margin, adjusted EBITDA, and profitability. For 2026, Mr. Kavanaugh affirmed that the free cash flow generation flywheel—accelerated revenue growth, operating leverage, and an efficient balance sheet—is expected to continue, delivering sustainable realization in the mid to high 120s.

Amit Daryanani with Evercore ISI inquired about IBM's free cash flow projection of $14 billion for 2025, seeking clarification on any one-off dynamics contributing to the double-digit growth and whether free cash flow can continue to grow a few points higher than sales in 2026, aligning with long-term models. He also asked about potential alterations to capital allocation.

Answer

Jim Kavanaugh, IBM's Senior Vice President and Chief Financial Officer, highlighted the company's strong free cash flow engine, noting $7.2 billion year-to-date and the highest free cash flow margin in reported history. He explained that the $14 billion projection for 2025 is driven by accelerating top-line revenue growth, significant operating leverage, and productivity gains, overcoming a $500 million headwind from the Palo Alto QRadar transaction. For 2026, Kavanaugh expressed confidence in continued free cash flow growth, driven by accelerated revenue, operating leverage, and an efficient balance sheet, with a sustainable realization rate in the mid-to-high 120s.

Amit Daryanani inquired about customer sentiment in the current macro environment, areas of spending priority, and how the competitive situation with VMware is contributing to Red Hat's virtualization growth.

Answer

Chairman, President & CEO Arvind Krishna stated he has shifted from 'cautious optimism' to 'optimism' on the macro environment, citing strong digitization trends globally. Regarding Red Hat, he noted that growth is driven by demand for Linux in AI workloads and OpenShift's leadership as a unified platform for both containers and virtualization, which has accelerated its adoption as clients seek alternatives.

Amit Daryanani asked for more details on the Consulting segment's exposure to U.S. federal and DOGE-related initiatives and the outlook for discretionary projects. He also questioned the rationale for providing an explicit Q2 revenue guide, which is not typical for IBM.

Answer

CFO Jim Kavanaugh explained the explicit Q2 guide was for transparency amid a dynamic macro environment and significant FX volatility. Regarding federal exposure, he stated it's less than 5% of total IBM revenue, with Consulting making up 60% of that. He quantified recent contract impacts as minimal. CEO Arvind Krishna added that the vast majority of their federal work is mission-critical, such as processing benefits and payroll, rather than discretionary.

Amit Daryanani asked for details on the expected linearity of IBM's 2025 revenue guidance, specifically the performance split between the first and second half of the year, given the timing of mainframe and Consulting tailwinds.

Answer

CFO Jim Kavanaugh explained that the year's performance would be back-half weighted. He noted that while the Software segment has a strong and steady outlook, Consulting growth is expected to accelerate through the year, and the new mainframe cycle will begin contributing to Infrastructure growth from the second quarter onward. He estimated first-half revenue growth could be about one point lower than the second half, with free cash flow linearity remaining similar to historical patterns.

Amit Daryanani asked for details on the expected 'upward inflection' in revenue growth for 2025, specifically questioning the drivers for the Software and Consulting segments.

Answer

CEO Arvind Krishna detailed the drivers for 2025 growth. For Software, he pointed to Red Hat's 14% growth momentum, strong Gen AI and automation pipelines, mainframe software strength, and the HashiCorp acquisition. For Consulting, he acknowledged macro pressures but cited a strong bill-to-book ratio and a growing Gen AI pipeline that is expected to convert to revenue, leading to positive growth.

Amit Daryanani asked for a breakdown of the 13% sequential growth in the IT Data Communications segment, specifically how much was driven by traditional IT Data Communications versus AI-related demand. He also inquired about the current inventory levels within the AI ecosystem heading into 2026.

Answer

CEO Adam Norwitt indicated that the strong performance in the IT Data Communications segment was "pretty balanced" between AI-related products and traditional data communications, though he couldn't provide granular details. He also noted that Amphenol does not observe any abnormal inventory levels in the AI ecosystem, as increased demand in the third quarter was successfully met.

Amit Daryanani inquired about the split between traditional IT Data Comm and AI-driven performance in the segment's Q3 results, and the current inventory levels within the AI ecosystem.

Answer

CEO Adam Norwitt stated that the Q3 outperformance in IT Data Comm was balanced between AI-related and traditional data comm demand. He noted no abnormal inventory levels in the AI ecosystem, with demand improving in Q3.

Amit Daryanani of Evercore raised concerns about potential 'peak revenues' and 'peak margins,' asking about the durability of growth in AI infrastructure and requesting a breakdown of AI's contribution to the IT Datacom segment's growth.

Answer

President & CEO R. Adam Norwitt stated that while 133% growth in IT Datacom is not sustainable every quarter, the AI revolution is in its 'early innings,' ensuring durable long-term opportunities. He confirmed that AI was a significant driver, accounting for roughly two-thirds of both the year-over-year and sequential growth in the IT Datacom business.

Amit Daryanani from Evercore ISI questioned the sources of the substantial organic revenue beat in Q1, asking for confirmation on whether a significant portion was due to customers pulling in orders to avoid potential tariffs.

Answer

CEO Adam Norwitt attributed the outperformance to exceptional execution by the team, especially in meeting the 134% YoY growth in IT Datacom. He confirmed a "slight pull-in" for mobile devices but saw no evidence of it in other key markets, noting that IT Datacom customers are actively seeking more products than Amphenol can currently ship.

Amit Daryanani questioned the durability of AI-driven growth, how the record $5.1 billion order book will convert to revenue, and whether content per system in AI increases generationally, similar to smartphones.

Answer

CEO R. Norwitt affirmed his confidence in the durability of Amphenol's AI position, stating that the demand for higher performance in these systems is a 'one-way ratchet.' While avoiding comments on specific customers, he confirmed that Amphenol plays a crucial role in enabling generational shifts by providing solutions for increased performance, power efficiency, and system complexity, strengthening its position across the entire AI ecosystem.

Amit Daryanani asked about the breadth of Amphenol's customer base for AI deployments and how its revenue is distributed among hyperscalers, OEMs, and chip providers.

Answer

CEO R. Norwitt emphasized Amphenol's comprehensive relationships across the entire AI ecosystem, from web service providers to OEMs and chip companies. He highlighted that Amphenol's value is in providing critical high-speed, low-latency interconnects and power efficiency solutions, which are fundamental to all AI architectures, rather than being tied to any single program.

Amit Daryanani of Evercore ISI questioned the path for Test and Measurement to reach its target EBITDA margins from the Q3 forecast of 10%, asking for the split between self-help initiatives and the need for revenue growth. He also requested details on the $40 million tariff headwind, including the manufacturing footprint and the mix of price versus efficiency offsets.

Answer

CFO Neill Reynolds detailed that margin expansion will come from tariff mitigation, volume leverage, and cost savings, with the full $10M savings run rate expected by mid-2026. President and CEO Tami Newcombe emphasized that volume remains a significant lever. Regarding tariffs, Neill confirmed the impact is mostly from China and the offset is primarily through pricing actions, which will leave a persistent gross margin headwind of about 100 basis points.

Amit Daryanani of Evercore ISI asked about the drivers of the Q2 operating margin beat, the specific impact of tariffs, and the durability of margin levers. He also questioned Motorola's positioning in the unmanned systems market and its potential size, including participation in Pentagon initiatives.

Answer

EVP & CFO Jason Winkler attributed margin strength to a favorable mix from higher Software & Services sales. He updated the full-year tariff impact to $80 million, with most of it occurring in the second half. Chairman & CEO Greg Brown estimated the unmanned systems TAM at $3 billion, expecting it to double in four years. EVP & CTO Mahesh Saptharishi detailed the drone strategy across response, communications, and detection.

Amit Daryanani of Evercore ISI questioned the 3% year-over-year decline in video product revenue and sought clarification on how the M&A environment and strategy might change post-election.

Answer

John Molloy, EVP and COO, explained the video product performance was due to a higher software attachment rate, strong momentum to the cloud, and a difficult comparison against 24% growth in mobile video products in the prior-year quarter. On M&A, Gregory Brown, Chairman and CEO, clarified that while the macro environment could become incrementally more favorable, Motorola's strategy remains consistent, with an active and robust funnel focused on video, software, and services.

Amit Daryanani of Evercore ISI asked about the product breadth of the recent SMB market growth and whether it serves as a leading indicator. He also questioned the significant inventory build and associated obsolescence risk.

Answer

EVP & CFO Mike Zilis characterized the SMB growth as modest but encouraging, with a product mix concentrated in servers, storage, and desktop/notebooks. CEO Paul Bay added that SMBs are now participating in the hardware refresh cycle. Regarding inventory, Mike Zilis stated the build was to support strong sales growth and specific large deals, with no material risk of write-offs, highlighting that inventory days (DIO) were flat year-over-year.

Amit Daryanani from Evercore ISI asked if the current 2.5% top-line growth rate is expected to accelerate as 2025 progresses and requested clarification on the size of the India business.

Answer

CEO Paul Bay stated that the company does not provide full-year guidance but noted that potential acceleration depends on the pace of the PC refresh and the recovery in the networking market. He confirmed that India is one of the company's largest businesses within the Asia-Pacific region.

Amit Daryanani from Evercore ISI asked about the drivers behind the sequential headcount increase and the outlook for hiring and utilization in the second half. He also questioned if the strong 18% bookings growth, which suggests market share gains, was achieved at lower initial margins.

Answer

CFO Jatin Dalal attributed the headcount growth primarily to the seasonal hiring of recent college graduates and expects modest increases in the second half. CEO Ravi Kumar S added that year-over-year headcount is nearly flat when excluding acquisitions, highlighting significant productivity gains. Both executives asserted that the large deal wins were priced competitively and fit within the company's plan to deliver 20-40 basis points of margin expansion for the year.

Amit Daryanani asked about the financial impact of the extra week in the upcoming quarter and how the rise of Agentic AI could positively revise the company's long-term growth model.

Answer

CFO Kris Sennesael explained the extra week adds about $15 million to OpEx with minimal revenue impact. CEO Irving Tan stated that AI tailwinds are pushing exabyte growth closer to the high end of their model (23% CAGR), which, combined with better ASP trends, could lift long-term revenue CAGR from mid-to-high single digits toward the mid-teens.

Amit Daryanani from Evercore ISI asked if the new long-term agreements contain tariff escalator clauses and inquired about the qualification timeline for HAMR drives and any potential impact on R&D spending.

Answer

CEO Irving Tan explained that the company is working collaboratively with customers to mitigate the fluid tariff situation rather than relying on specific contract clauses. He reiterated the established HAMR roadmap: qualification starting in the second half of calendar '26 with a volume ramp in the first half of '27. He confirmed progress is on track with milestones, without indicating a need for increased R&D spending.

Amit Daryanani asked how the company gains confidence that its record HDD exabyte shipments are being deployed by customers rather than accumulating in their inventory. He also requested the CapEx outlook for the rest of the year.

Answer

CEO David Goeckeler stated that based on close customer relationships, they do not see signs of excessive inventory building or double ordering, believing the demand signals are high-integrity. CFO Wissam Jabre commented on CapEx, indicating that gross CapEx for the upcoming quarter is expected to be in line with the average of the last few quarters, with no major inflection.

Amit Daryanani from Evercore inquired about the strength in Vertiv's backlog and orders, specifically asking about the duration of the order book and the customer diversity within it.

Answer

CEO Giordano Albertazzi explained that the backlog's duration is historically consistent, though some customers desire earlier deliveries. He noted the pipeline shows a slight, positive elongation. Regarding diversity, he described the customer base as well-balanced within the 'core hyperscale' category, which includes traditional hyperscalers, colocation, sovereign, and new cloud entities.

Amit Daryanani from Evercore ISI asked for details on the strength in orders and backlog, specifically focusing on the duration of the order book and the diversity of the customer base, including new cloud providers.

Answer

CEO Giordano Albertazzi explained that the backlog's duration is consistent with historical trends, though some customers desire earlier deliveries. He noted the pipeline shows a slight, positive elongation in visibility and is well-balanced, with strong growth from the 'core hyperscale' segment which includes traditional hyperscalers, colocation, sovereign, and new cloud clients.

Amit Daryanani from Evercore ISI asked about the key drivers and durability of Vertiv's strong order growth, especially given market noise about potential hyperscaler project adjustments.

Answer

CEO Giordano Albertazzi emphasized the durability of demand, citing sequentially growing pipelines for the next 12 months and beyond. He explained that while order lumpiness can affect quarterly results, the long-term trajectory remains strong and aligns with the company's 5-year model, with stable pipeline velocity indicating no significant demand pull-in.

Amit Daryanani inquired about Vertiv's long-term opportunity if AI inference adoption accelerates and if custom silicon gains more traction in AI clusters versus NVIDIA's GPUs.

Answer

CEO Giordano Albertazzi explained that Vertiv is agnostic to both scenarios. He stated that any acceleration in AI adoption, including inference, is a net positive for the industry and Vertiv is well-equipped for both hyperscale and distributed edge deployments. Regarding silicon, he noted that 'loads are loads' and Vertiv's power and thermal solutions are designed to handle high-density compute regardless of the chip provider.

Amit Daryanani of Evercore ISI sought clarification on whether Vertiv would continue disclosing trailing 12-month order numbers and asked if the expected 2025 revenue acceleration would stem from backlog normalization or continued backlog growth.

Answer

CEO Giordano Albertazzi confirmed that Vertiv will continue to use the trailing 12-month orders metric as the primary indicator going forward. He stated it was premature to detail the exact mechanics of 2025 backlog and revenue, but noted the favorable market, strong pipelines, and global acceleration support their optimistic outlook, with more details to come at the November investor event.

Amit Daryanani of Evercore asked about the cloud versus telco growth assumptions within the new 14% annual outlook and whether strong orders would primarily convert to revenue in fiscal 2026. He also inquired about the specifics of the pluggables opportunity for GPU clusters.

Answer

President and CEO Gary Smith confirmed that due to the scale of demand, Ciena will enter fiscal 2026 with an increased backlog, as not all current orders can be fulfilled this year. Regarding GPU clusters, Smith described it as a "hundreds of millions of dollars" opportunity with just the first customer. Executive Advisor Scott McFeely added that the application involves creating express overlay networks between GPU clusters over distances of 100-150 km, a sweet spot for Ciena's coherent optical technology.

Amit Daryanani of Evercore ISI questioned the drivers behind the strong Q1 adjusted gross margin, asking about non-recurring benefits, and also asked why the Q2 revenue guide seemed below seasonal trends despite positive order commentary.

Answer

CFO Jim Moylan attributed the strong Q1 gross margin to several unexpected one-time events, including software and supply chain efficiencies, which are not expected to recur. He explained that historical seasonality is less relevant now due to the high mix of project-based cloud provider business. CEO Gary Smith added that the backlog continues to increase, setting up for a strong second half of the year.

Amit Daryanani asked for a breakdown of the fiscal 2025 8-11% growth guidance across cloud, North American telco, and international segments, and questioned the risk of further inventory obsolescence charges impacting gross margins.

Answer

CEO Gary Smith explained that the growth is driven by a stabilizing service provider market, particularly in North America, with the significant upside coming from cloud and AI traffic layering on top. CFO Jim Moylan added that the Q4 inventory charge was due to unique factors like a new forecast and improved supply chain visibility, and is not expected to recur at that level. He stated that future gross margin improvement is primarily dependent on product mix, with a heavy, lower-margin line system mix early in FY25 expected to shift to higher-margin capacity additions later.

Amit Daryanani asked for quantification of the gross margin headwind from selling more line systems in the Q4 guide and inquired about telco spending trends in the APAC region, particularly India.

Answer

CFO Jim Moylan quantified the near-term gross margin impact from the higher mix of initial line system deployments as being at least 100 basis points. CEO Gary Smith described the APAC region as strong, with new logo wins in South Asia. He noted that while India is cyclical as it recovers from 5G investment, Ciena is bullish on the market for the next one to three years, seeing strong activity and MOFN growth.

Amit Daryanani asked for an update on the server margin recovery path to 10% by year-end and inquired about HPE's strategic options if the Juniper Networks acquisition does not close.

Answer

CEO Antonio Neri confirmed confidence in reaching the 10% server operating margin in Q4, citing actions taken on pricing analytics, discount scrutiny, and inventory management. Regarding the Juniper deal, he stated that while it's the fastest path to shareholder value, the company has explored other options, including capital returns and portfolio actions, but will not discuss them until the transaction's outcome is known.

Amit Daryanani questioned the confidence behind the back-half weighted guidance, which implies significant revenue acceleration and a 250 basis point operating margin expansion from Q2, even with a ramp in AI servers.

Answer

CFO Marie Myers attributed the back-half margin expansion to three factors: the full effect of corrective actions in the Server business, the implementation of tariff mitigations, and savings from the new cost efficiency program. CEO Antonio Neri added that the recovering, high-margin Intelligent Edge business would also be a significant contributor to profitability in the second half of the year.

Amit Daryanani questioned the drivers behind the significant year-over-year decline in corporate gross margins and asked about the sustainability of the strong OpEx controls that have been offsetting this pressure.

Answer

CFO Marie Myers attributed the 390 basis point gross margin decline primarily to a lower revenue contribution from the high-margin Intelligent Edge segment, which hit its lowest point of the year, combined with a higher mix of AI systems. She noted that gross profit dollars still grew. Looking ahead, she expects margins to improve from a better business mix and the future impact of the Juniper acquisition. On OpEx, she expressed confidence in ongoing productivity gains, including the use of internal GenAI tools.

Amit Daryanani of Evercore ISI questioned the year-over-year decline in free cash flow, asking for a breakdown of headwinds from AI ramps versus strategic inventory prebuys, and noted the slight change in the full-year guidance wording.

Answer

CFO Marie Myers clarified that the Q3 free cash flow was affected by working capital timing and normal seasonality. She expects a reversal in Q4, driven by a stronger conversion of AI revenue and improvements in the cash conversion cycle. Myers confirmed the company is still on track for the full-year target of $1.9 billion, stating the guidance was simply tightened as they approached year-end.

Amit Daryanani inquired about the primary drivers for the revenue upside in Akamai's Delivery segment and questioned the performance of the Security segment, seeking reasons for its perceived slowdown and the path to its guided 10% growth.

Answer

CFO Ed McGowan explained that the Delivery upside was driven by strong traffic growth across multiple verticals, not pricing. For Security, he stated performance was in line with expectations, noting that a sequential decline in onetime license revenue impacted the comparison. He reaffirmed the full-year 10% constant currency growth guidance, citing strong momentum in API Security and Guardicore.

Amit Daryanani questioned the nature of the largest customer's revenue headwind, asking if it was primarily due to their DIY strategy or political risks. He also asked about the key drivers for Akamai to return to a 30% operating margin.

Answer

CEO F. Leighton attributed the headwind primarily to the customer's DIY build-out, noting the new 5-year agreement mitigates some political risk. CFO Ed McGowan stated that margin expansion to 30% will be driven by a favorable product mix shift towards security and compute, and operating leverage from top-line growth, with go-to-market changes already partially funded.

An analyst on behalf of Amit Daryanani from Evercore ISI asked about the potential for gross margin leverage when the macro environment and housing turnover improve, and whether margins could comfortably exceed 30% in such a scenario.

Answer

CFO Michael Carlet stated that Resideo sees ongoing opportunities for structural gross margin improvement from operational efficiencies, new products, and accretive activities at ADI, regardless of market conditions. While declining to provide a specific future target, he expressed optimism for continued margin accretion. CEO Jay Geldmacher supported this, pointing to the company's track record of eight consecutive quarters of year-over-year gross margin expansion in the P&S segment as evidence of execution.

Amit Daryanani questioned the drivers of the expected operating margin expansion from Q1 to the second half of 2025, asking for the split between operational improvements and revenue leverage. He also asked about the factors behind the strong Q4 free cash flow conversion and the outlook for 2025.

Answer

Chief Financial Officer Brian Roberts explained that with revenue expected to be organically flat, margin improvement will be driven by operational productivity and new opportunities. Regarding free cash flow, he credited the operations team for a significant inventory reduction of approximately $100 million year-over-year and a renewed focus on balance sheet fundamentals. For 2025, he expects free cash flow conversion to be in the high 70s, approaching 80%.

Amit Daryanani asked about the drivers behind the significant EBITDA margin expansion, seeking to understand the contribution from sales leverage versus CommScope NEXT initiatives. He also inquired about the incremental CapEx required for the new data center capacity.

Answer

CFO Kyle Lorentzen attributed the CCS margin improvement to a combination of favorable product mix, cost reductions, and operating leverage. He noted that CommScope NEXT is a continuous improvement program with further, though smaller, savings expected. For the capacity expansion, he estimated a capital expenditure of $10-$20 million, emphasizing the investments are highly accretive with paybacks in months or quarters.