David Vogt

David Vogt from UBS asked CEO George Kurian about the recovery in the federal category, which has been a challenge for the industry, and expectations for this vertical moving forward. He also asked CFO Wissam Jabre about the magnitude of NetApp's purchase commitments on the balance sheet and the working capital commitment for mitigating higher component costs.

Answer

CEO George Kurian reiterated a cautiously optimistic outlook for the second half of the year for the federal sector, noting that Q3 met cautious expectations and Q4 is expected to improve from Q3, following a severe impairment in Q2. He stated it's too early to comment on robust recovery. CFO Wissam Jabre mentioned no significant change in fiscal year 2026 purchase commitments from the prior quarter, with some inventory replenishment in Q3 and Q4. He deferred comments on fiscal year 2027. Jabre assured that NetApp has a strong balance sheet and ample flexibility regarding working capital to secure supply or better pricing, with no concerns about fluctuations.

David Vogt from UBS asked if NetApp has seen a recovery in the federal category, which has been a challenge for the industry, and what the expectations are for this vertical moving forward. He also inquired about the magnitude of NetApp's purchase commitments on the balance sheet and the working capital commitment for mitigating higher component costs.

Answer

CEO George Kurian reiterated cautious optimism for the second half of the year regarding the U.S. public sector. He noted Q3 met cautious expectations, improving from the severe impairment of Q2 (due to shutdown), and expects Q4 to improve further from Q3, but it's too early to call it robust. CFO Wissam Jabre stated no significant change in fiscal 2026 purchase commitments from last quarter, with some inventory replenishment in Q3 and potentially Q4. He deferred comments on fiscal 2027, emphasizing a strong balance sheet and flexibility for working capital to secure supply or better pricing, including working with third-party logistics.

David Vogt questioned NetApp's demand drivers for the second half of the fiscal year, particularly concerning inventory, purchase commitments, and working capital to support future business, especially with a potential recovery in the US federal sector.

Answer

George Kurian (CEO) highlighted an implied acceleration in H2 growth (ex-Spot), strong non-U.S. public sector results, and all-flash acceleration, driven by customer spending on AI, data infrastructure, and cyber resilience. Wissam Jabre (CFO) confirmed good visibility on purchase commitments until fiscal year-end and a willingness to be opportunistic for FY27 supply, leveraging a strong balance sheet.

David Vogt with UBS inquired about the demand drivers for the second half of the fiscal year and into 2027, inventory levels, purchase commitments, and working capital to support future business growth, especially considering U.S. federal recovery.

Answer

CEO George Kurian highlighted an implied acceleration in the second half's ex-Spot growth, strong non-U.S. public sector results, and accelerated all-flash business, driven by customer spending on AI, data modernization, and cyber resilience. CFO Wissam Jabre stated that NetApp has good visibility on purchasing commitments until the fiscal year-end and will be opportunistic for fiscal 2027, ready to take actions to secure supply and lock in prices.

David Vogt from UBS Group AG asked for more detail on the product mix, specifically if the shift towards capacity storage over high-performance storage was concentrated in a particular region or vertical. He also inquired about the status of pre-bought component inventory.

Answer

CFO Wissam Jabre clarified that his earlier comment on mix was relative to internal expectations, not an indication of broad market weakness. CEO George Kurian added that high-performance flash actually outgrew capacity flash year-over-year. Regarding inventory, Wissam Jabre noted that NetApp has locked-in pricing for certain component volumes, which provides confidence in future margin improvement, and that there are no current supply chain issues.

David Vogt from UBS Group asked for clarification on the sales mix between high-performance and capacity storage and inquired about the status of pre-bought component inventory on the balance sheet.

Answer

CFO Wissam Jabre clarified that his earlier comment on mix was relative to internal forecasts, not a sign of market weakness. CEO George Kurian added that high-performance flash actually outgrew capacity flash year-over-year. Jabre also noted that NetApp has locked-in pricing for certain component volumes, giving confidence in future margin improvement, and sees no current supply chain issues.

David Vogt of UBS Group AG asked for a reconciliation of the FY26 revenue guidance with the strong double-digit growth in all-flash ARR, which seems to imply a significant deceleration. He also questioned the path to achieving the full-year operating margin target, given the lower Q1 starting point.

Answer

CEO George Kurian explained the FY26 guide by breaking down its components: stable support revenue, continued cloud momentum (offset by the Spot divestiture), and product revenue where all-flash is expected to grow at or above a slowing market. CFO Wissam Jabre detailed the margin ramp, explaining it will be driven by revenue growth through the year, gradual improvement in product gross margins post-Q1, and operating expense growth at a rate no more than half of revenue growth, creating operating leverage.

David Vogt from UBS Group AG asked for a bridge from fiscal 2025 to the 2026 revenue guidance, questioning a potential deceleration in the all-flash business given its strong ARR. He also inquired about the expected ramp in operating margins in the second half of the year to achieve the full-year target.

Answer

CEO George Kurian explained the FY26 guide by noting stable support revenue, continued cloud momentum (offset by the Spot divestiture), and ongoing growth in professional services. He indicated the all-flash market growth has moderated slightly, and the non-flash business is where some caution lies. CFO Wissam Jabre detailed the margin ramp, expecting gradual improvement in product gross margin and continued strength in cloud margins. He added that OpEx growth would be at most half the rate of revenue growth, providing the necessary operating leverage to hit the full-year targets.

David Vogt from UBS Group AG requested a bridge for the fiscal 2026 revenue guidance, noting the apparent disconnect with the strong double-digit all-flash ARR growth. He also asked for the expected ramp in operating margins through the year to reach the full-year target from a modest Q1 base.

Answer

CEO George Kurian broke down the guidance, highlighting stable support revenue, continued cloud momentum (net of the Spot divestiture), and growth in product revenue at or above a slightly slowing market. CFO Wissam Jabre explained the margin ramp relies on revenue growth, gradual improvement in product gross margins post-Q1, and operating leverage from OpEx growing at half the rate of revenue.

David Vogt requested more specific details on the deals that were pushed out of Q3, asking about the factors like deal size, price, or technology that caused the delays, especially given the solid all-flash array performance.

Answer

CEO George Kurian clarified that the pushed deals were primarily large, flash-based transactions and that all-flash revenue would have been 'substantially higher' without the slips. He attributed the delays to several factors, including new calendar year budget freezes, clients wanting to upsize their transactions, and general market softness in Europe, rather than a single technology or pricing issue.

David Vogt inquired about the performance of the ASA block storage portfolio and the potential impact of softening NAND prices on future revenue.

Answer

CEO George Kurian reported strong early momentum for the ASA product, which is driving net new customer wins and wallet share expansion. He noted the overall shift to flash is a tailwind for gross margins. CFO Mike Berry added that the company does not assume significant revenue changes from component price fluctuations and will provide updates on the fiscal 2026 outlook later.

David Vogt from UBS questioned whether Dell's ability to dynamically adjust pricing and steer demand, combined with its supply chain expertise, positions it for structural share gains in the PC business (CSG) in fiscal years 2027 and 2028, allowing it to outgrow a potentially declining market.

Answer

Jeff Clarke affirmed that Dell's long-term relationships and supply agreements, coupled with its dynamic pricing and supply chain expertise, position it for structural share gains across all businesses, particularly in PCs. He highlighted Dell's strong momentum in Q4, with 14% revenue growth and 18% unit growth (IDC calendar Q4), and its focus on driving growth and winning in the PC market. He believes this strategy will lead to structural share gains over the next couple of years.

David Vogt asked about Dell's structural share gains in PCs, specifically if the ability to dynamically adjust price and steer demand positions CSG for a better backdrop in fiscal years 2027 and 2028, allowing Dell to outgrow a potentially declining market.

Answer

Jeff Clarke, Vice Chairman and Chief Operating Officer, Dell Technologies, affirmed that Dell's ability to dynamically adjust price and steer demand, coupled with long-term supply relationships, positions them for structural share gains in PCs, similar to past industry-wide shortages. He highlighted the momentum from Q4 (14% revenue growth, 18% unit growth per IDC) and the focus on growing customers, believing Dell can outgrow the market and achieve structural share gains over the next couple of years across all businesses, including servers and storage.

David Vogt asked if Dell's purchase commitments could serve as a barometer for future margins, particularly regarding DRAM and NAND prices, and sought an update on purchase commitments for fiscal 2027 as an indicator.

Answer

CFO David Kennedy noted a change in the pattern of purchase commitments related to inventory positioning. He highlighted that despite $12.3 billion in AI orders, inventory values decreased sequentially by $300 million and were roughly flat year-on-year, even with a $19 billion year-to-date demand increase. He stated no discernible change from last quarter or anything to read into FY2027 yet.

David Vogt asked if Dell's purchase commitments could serve as a barometer for FY27 margins, particularly regarding DRAM and NAND prices, and requested any updates on purchase commitments for FY27 as an indicator.

Answer

David Kennedy (CFO, Dell Technologies) noted a change in the pattern of purchase commitments related to inventory positioning. He highlighted that despite $12.3 billion in Q3 AI orders and over $19 billion in year-to-date demand, inventory values decreased by $300 million sequentially and were roughly flat year-on-year. He stated there was no real discernible change from last quarter or anything specific to read into FY27 purchase commitments just yet.

David Vogt of UBS Group sought clarification on ISG profitability, asking if the improved second-half mix towards proprietary storage and traditional servers would lead to margin expansion in those products, and if overall ISG margins would still be down year-over-year due to the high volume of AI servers.

Answer

Jeff Clarke, COO, confirmed that Dell's proprietary IP storage offerings are more margin-rich and that margins are improving within each product. CFO Yvonne McGill added that the overall gross margin rate is a function of mix. She explained that in Q2, AI revenue was a very high portion of the mix, which is dilutive. In the second half, the traditional server and storage businesses will represent a greater, more profitable percentage of the mix, which, along with Q4 storage seasonality, will improve overall profitability.

David Vogt from UBS asked about the nature of AI server demand and shipments, especially in the context of the ongoing GPU transition. He questioned what Dell is doing differently from competitors and requested details on the technology composition of the $14.4 billion backlog.

Answer

Jeff Clarke, Vice Chairman and COO, stated that the backlog is primarily composed of NVIDIA's Blackwell architecture, including both ARM-based and x86-based systems, along with some Hopper-based systems. He attributed Dell's success to its engineering and innovation, particularly in designing custom solutions for large, complex deployments. He highlighted Dell's ability to get systems delivered and operational at a customer site within 24 hours as a key differentiator.

David Vogt asked for insights into the strong growth outlook for traditional servers and storage, questioning what market dynamics and competitive traction support achieving high single-digit growth in that part of the business.

Answer

CFO Yvonne McGill confirmed expectations for growth across the full ISG portfolio, with storage in low single digits and servers higher. COO and Vice Chairman Jeffrey Clarke added color, explaining that Dell will overcome headwinds like the HCI pivot and secular declines in high-end storage by taking share with its own IP storage (PowerFlex, PowerScale). For traditional servers, he stated Dell expects to take share in a low-single-digit growth market, driven by the ongoing data center consolidation trend which results in richer server configurations.

David Vogt from UBS inquired about the impact of federal and sovereign spending on Dell's business segments and the outlook for this vertical heading into 2025.

Answer

Executive Jeffrey Clarke confirmed that the U.S. federal government business was strong in Q3 across all product types. However, he noted that the multi-quarter AI pipeline does not yet contain a significant sovereign component, highlighting it as a future opportunity. Yvonne McGill added that the federal pipeline continues to build.

David Vogt asked about the gating factors for AI server deliveries and how constraints will be reconciled moving forward, questioning if the backlog will continue to outpace revenue conversion.

Answer

COO Jeffrey Clarke emphasized that component supply is improving and the primary gating factor is now customer readiness. This includes coordinating complex deployments with data center space, power, and cooling availability. The current guidance reflects this logistical reality. CFO Yvonne McGill added that Dell expects continued AI momentum and overall growth into next year.

David Vogt asked about the nature of HP's Long-Term Agreements (LTAs) for memory, specifically if they cover both volume and price, and requested expansion on the strategy of qualifying new suppliers, including potential local sourcing in China or APAC and the permanence of these new supply sources. He also inquired about HP's pricing strategy, asking if windows are being tightened to match commodity prices and the feedback from channel partners regarding these pricing dynamics.

Answer

Karen Parkhill, CFO, confirmed that HP has secured necessary supply for the year through existing and new suppliers, with pricing locked in on a rolling basis. Ketan Patel, President of Personal Systems, explained that new suppliers are being qualified across different platforms, accelerating engineering efforts to maximize available supply based on regulatory and compliance needs. On pricing, Ketan Patel noted that HP deals with various routes to market, each with different durations for price reflection, ranging from immediate to a few months. He emphasized being sensitive to demand elasticity, working with customers to find optimal configurations, and using the Workforce Experience Platform for insights to drive pricing, aiming to limit overall system price increases despite memory cost escalations.

David Vogt asked for details on the nature of HP's long-term agreements (LTAs) with memory suppliers, specifically if they cover both volume and price, and sought expansion on the strategy of qualifying new suppliers, including potential local sourcing in China or APAC and their likely permanence. He also inquired about HP's PC pricing strategy, how it's adapting to match underlying commodity prices, and the feedback from channel partners regarding these pricing dynamics.

Answer

Karen Parkhill, HP Inc.'s Chief Financial Officer, confirmed that HP has secured the necessary supply through good relationships with existing suppliers and by adding new ones, and that pricing with suppliers is locked in on a rolling basis to inform demand shaping and pricing strategy. Ketan Patel, President of Personal Systems, added that engineering efforts are accelerating to qualify new commodities from various suppliers across different platforms, depending on regulatory and compliance needs, to maximize available supply. Regarding pricing strategy, Ketan Patel explained that HP deals with multiple routes to market (online, channel, enterprise, public sector, contractual business), each with different durations for price reflection, ranging from immediate to a few months. He emphasized being sensitive to demand elasticity, working with customers to find optimal configurations, and using the Workforce Experience Platform for insights to drive pricing based on total cost of ownership and use cases, aiming to limit overall system price increases despite memory cost escalations.

David Vogt questioned the confidence in achieving normal seasonality in the PC market for Q4, given two consecutive quarters of very strong growth. He also asked for more detail on the dynamics that will drive Print operating margins back to the high end of the target range in Q4.

Answer

CEO Enrique Lores explained that PC confidence stems from ongoing momentum in the Windows 11 refresh, with only about 50% of the installed base converted, and strong AI PC demand, supplemented by typical Q4 consumer holiday strength. CFO Karen Parkhill stated the Q4 Print margin rebound will be driven by a seasonally higher mix of supplies sales, disciplined pricing, and cost management, a pattern similar to the previous year.

David Vogt from UBS inquired about the competitive landscape in the Print segment, especially regarding the weak Japanese yen, and questioned why HP maintains a 2x gross leverage target for its capital return policy given its improved structural margins.

Answer

CEO Enrique Lores stated that competitive pressure from Japanese rivals benefiting from the weak yen remains strong, but HP's own cost reduction efforts have allowed it to regain share. CFO Karen Parkhill explained the capital allocation policy is unchanged, and the 2x leverage target is reviewed annually and considered optimal for maintaining their credit rating and liquidity access.

David Vogt asked Arista to quantify the potential revenue and gross margin impact from memory dynamics and supply constraints embedded in their 2026 guidance. He also sought insight into factors that could limit the outlook and potential upside in an ideal scenario.

Answer

Jayshree Ullal, Arista's Chairperson and CEO, explained that memory and silicon fabrication costs have worsened significantly in 2026, with prices exponentially higher. She noted Arista absorbed costs in 2025 but will face shortages. Chantelle Breithaupt, Arista's Chief Financial Officer, added that the company is comfortable with the 62%-64% gross margin guide, having planned for mitigation, and will provide updates within that range.

David Vogt asked for quantification of the revenue and gross margin impact from memory dynamics and supply constraints embedded in the 2026 guidance, and what factors could limit potential upside.

Answer

CEO Jayshree Ullal detailed that Arista absorbed significant memory costs in 2025, but the situation has worsened in 2026 with exponentially higher prices and shortages. CFO Chantelle Breithaupt stated that Arista is comfortable holding its 62%-64% gross margin guide for 2026, finding ways to mitigate these pressures, but acknowledged variability within that range.

David Vogt asked about Arista Networks' 2026 outlook, specifically if the strong growth in AI-centric and campus opportunities leaves limited room for growth in the core business, and how the core market is expected to progress through 2026.

Answer

Chantelle Breithaupt, Arista Networks' CFO and SVP, explained that their guidance approach leaves optionality and doesn't assume 100% hits. Jayshree Ullal, Arista Networks' CEO and Chairperson, clarified that AI and campus segments are expected to grow substantially, implying lesser growth for the core business, but the exact mix (flattish, single-digit growth, or shift to AI) for 2026 is not yet predictable.

David Vogt asked about the expected growth trajectory for Arista's core business, excluding AI and campus segments, through 2026, given the recently raised 2026 outlook and strong targets for AI and campus.

Answer

Chantelle Breithaupt, CFO and SVP, explained that Arista's guidance approach includes optionality, not assuming 100% hits on all targets, leaving room for flexibility. Jayshree Ullal, CEO and Chairperson, clarified that while AI and campus are expected to grow substantially, the core business, already operating on large numbers, will likely see lesser growth, though its exact trajectory (flattish or single-digit growth) is difficult to predict this early.

David Vogt from UBS asked about Arista's technical and competitive position in "scale out" networking, especially in light of the new Jericho 4 silicon, and its implications for distributed AI.

Answer

Chairperson & CEO Jayshree Ullal described scale-out as Arista's "bread and butter," positioning the 7800 AI spine as the premier platform in the industry. She highlighted its advantages in buffering and congestion control. She expressed excitement for leveraging Jericho 4 for 800G products, continuing the evolution of their flagship spine architecture.

David Vogt asked for a deeper explanation of the potential impact of tariffs on Arista's top-line revenue, customer behavior, and the full-year financial outlook.

Answer

CEO Jayshree Ullal described the logistical challenges of navigating shifting tariff policies, stating Arista is absorbing current costs but may pass on future increases. CFO Chantelle Breithaupt added that the worst-case gross margin impact could be 1 to 1.5 points without mitigation, and the conservative full-year guidance reflects this uncertainty, not a change in demand.

David Vogt asked about the evolution of network speed deployments (400G, 800G, 1.6T) at major customers and how Arista sees this playing out in 2025 and beyond.

Answer

CEO Jayshree Ullal explained that AI is accelerating speed transition cycles to approximately every two years. She characterized 2024 as the year of 400G, with 2025 and 2026 being focused on 800G. She sees 1.6T as a 2027 production reality, as its adoption is tied to the availability of next-generation GPUs that require such bandwidth. In the meantime, she expects a long runway for both 400G and 800G.

David Vogt questioned why the AI order target of 'in excess of $5 billion' for fiscal year 2026 seemed conservative given current momentum and announced CapEx programs. He also asked if the recognition of 'over $3 billion' in AI infrastructure revenue, previously stated as 'about $3 billion,' suggests a shift in revenue recognition timing into fiscal year 2027, providing more visibility for next year.

Answer

Chuck Robbins (Chairman and CEO, Cisco Systems) explained that the $5 billion AI order target reflects the current pipeline, acknowledging the nonlinear and lumpy nature of hyperscaler orders. He noted winning three new use cases (one optics, two systems) in Q2, which could lead to better numbers in the future. Mark Patterson (CFO, Cisco Systems) confirmed that hyperscaler customers plan well in advance, and the revenue recognition ramp continues through the year, providing better visibility for FY27.

David Vogt questioned why Cisco's $5 billion AI order target for fiscal year 2026 seems conservative given current market momentum and CapEx announcements. He also asked if the recognition of over $3 billion in AI-related revenue for FY26, an increase from a previous $3 billion estimate, implies a timing shift into FY27, providing greater future visibility.

Answer

Chairman and CEO Chuck Robbins explained that AI orders are nonlinear and lumpy, coming from a small number of major customers, and the $5 billion target reflects the current pipeline. He noted winning three new use cases (one optics, two systems) with major players in Q2. CFO Mark Patterson confirmed that customers plan well in advance, leading to orders converting to revenue with a continued ramp through the year, and that the revenue recognition timing does provide better visibility into FY27.

David Vogt asked about the drivers behind the faster ramp-up of next-gen campus solutions, including competitive dynamics. He also questioned how the end-of-life product in the campus market, particularly for government customers, relates to the current situation in D.C. and future upgrade strategies.

Answer

Chuck Robbins, Chairman and CEO, attributed the faster campus ramp to end-of-sale equipment (Cat 4K, 6K, older Wi-Fi), competitive confusion in the Wi-Fi market, AI preparation, and the need for integrated network security. For government, he noted strong US federal business despite the shutdown and expressed optimism for upgrades driven by cyber risk and hygiene, especially once the government reopens.

David Vogt asked about the specific drivers behind the faster ramp-up of next-gen campus solutions, including competitive dynamics and potential disruption from smaller players. He also inquired how the end-of-life product base, particularly in government, relates to future upgrade strategies and potential funding from government re-openings.

Answer

Chairman and CEO Chuck Robbins attributed the campus refresh to end-of-sale equipment, slightly faster adoption of new products, and market confusion benefiting Cisco. He emphasized AI preparation and the need for integrated security in the network. He noted that US federal business grew high single digits in Q1 despite the shutdown and expects upside from government upgrades driven by cyber risk concerns once operations normalize.

David Vogt of UBS Group AG sought to frame the AI revenue impact on FY2026 networking growth, suggesting it could add about two percentage points. He also asked for the specific gross margin impact from tariffs embedded in the FY2026 guidance.

Answer

CEO Chuck Robbins agreed that the two-point contribution from AI was 'generally in the ballpark' and that both AI and the core refresh would be meaningful. CFO Mark Patterson declined to quantify the tariff impact in basis points but detailed the specific tariff rate assumptions included in the guidance for clarity.

Speaking for David Vogt of UBS, an analyst asked about the composition of the $600 million in AI orders, specifically whether they were concentrated or diffuse, and requested an estimate of the tariff impact on Q4 gross margin guidance.

Answer

CEO Chuck Robbins described the AI orders as 'fairly balanced,' noting that three of the top six web scalers grew orders by triple digits and that acceleration is visible across all of them. CFO Scott Herren reiterated the tariff assumptions built into the guidance but declined to quantify the specific impact, citing the fluid nature of the situation.

David Vogt of UBS asked if the strong enterprise order growth was related to non-AI web-scale spending or a campus refresh. He also sought clarification on the gross margin impact from Splunk, specifically regarding subscription versus term licenses, and the outlook for the rest of fiscal 2025.

Answer

CEO Chuck Robbins clarified that enterprise segment growth is distinct from web-scale customer sales and was driven purely by enterprise customers. CFO Scott Herren reiterated that while Splunk provided a favorable mix benefit to gross margin, the quarter's outperformance was primarily due to a one-time duty drawback refund. He stated the team has done a great job on cost-out initiatives and expects gross margins to maintain a 68% to 69% range for the year.

David Vogt asked about the impact of memory pull-forwards on the balance of the year, particularly for memory-sensitive products like PCs and servers, and how demand is expected to progress qualitatively.

Answer

CEO Chris Leahy explained that Q1 is expected to see a similar or slightly higher pull-forward than Q4, with PC strength potentially becoming choppier due to memory, and a tamped-down outlook for the back half of the year. CFO Al Miralles addressed SG&A as a 2025 baseline, emphasizing expected operating leverage and a progressive decline in the SG&A ratio through 2026.

David Vogt from UBS inquired about the implications of memory pull-forward in Q4 and Q1 for the rest of 2026, specifically regarding demand for memory-sensitive products like PCs and servers, and the qualitative progression of the year given current memory prices. He also asked about the expected decline in SG&A as a percentage of gross profit in 2026, given prior investments.

Answer

Christine Leahy, CEO of CDW, noted the difficulty in predicting Q1 pull-forward but expects it to be similar or slightly more than Q4. She anticipates decelerating but still strong PC growth, potentially choppier due to memory, with a more conservative outlook for the latter half of the year. Albert Miralles, CFO, stated that the 2026 outlook is prudent, but operating leverage is a top priority, expecting it to kick in and accelerate through the year, leading to a decline in the SG&A ratio as growth picks up and expenses are optimized.

David Vogt asked for an understanding of the impact on healthcare, parsing out the lingering effects of efficiency efforts versus the government shutdown, and how these dynamics might affect market growth in 2026. He also inquired about profitability outside of netted down gross profit and potential margin accretion from a mix shift towards fewer client devices and more margin-rich solutions.

Answer

Chris Leahy, Chair and CEO of CDW, noted healthcare's strong performance over recent quarters due to investments in industry expertise and technology adoption. He indicated that CDW is watchful for second-order impacts from funding shifts, which could lead to industry consolidation requiring technology support. Al Miralles, CFO of CDW, stated that non-netted down margins have shown stability and could modestly tick up with a mix shift away from client devices and continued services growth, but reserved more detail for 2026 planning.

David Vogt from UBS asked for clarification on the impact of lingering efficiency efforts versus the government shutdown on the healthcare segment, and how these dynamics might shape market growth in 2026. He also inquired about the potential for margin accretion from a mix shift away from client devices and towards more margin-rich solutions, excluding netted-down revenues.

Answer

Chris Leahy, Chair and CEO of CDW, highlighted healthcare's strong performance driven by past investments and its increasing adoption of technology. He stated that CDW is monitoring potential trickle-down effects from funding shifts but expressed confidence in navigating these changes, emphasizing the long-term sustainability of healthcare technology investments. Al Miralles, CFO of CDW, anticipated near-term stability in non-netted down margins for Q4. He suggested a modest tick-up in these margins could occur longer-term with a favorable mix shift away from client devices and continued strong services performance, while reserving a detailed 2026 outlook.

David Vogt of UBS Group inquired about the specific drivers behind the strong performance in the Corporate segment, noting the absence of a pull-forward effect. He also asked if the lower mix of netted-down revenue was solely due to the shift towards larger corporate deals.

Answer

Chair & CEO Chris Leahy attributed the Corporate segment's strength to pent-up enterprise demand for mission-critical projects and strong sales execution. CFO Al Miralles explained that the lower netted-down revenue mix resulted from a greater wallet share going to solutions and client devices, difficult SaaS/IaaS comps, and lighter warranty revenues, cautioning against extrapolating from a single quarter.

David Vogt inquired about the underperformance in the NetComm and storage product categories, questioning if customer spending was paused due to tariff uncertainty despite favorable year-over-year comparisons.

Answer

CEO Christine Leahy explained that the networking results reflect a continuing shift to software-defined architectures and a temporary pause in large infrastructure deals due to market caution. She characterized it as a timing issue rather than a systemic problem, noting that ongoing design discussions are a positive leading indicator for future quarters.

David Vogt asked about the forecast for a flat 2024 U.S. IT market and CDW's potential to underperform it, a departure from its historical premium. He also inquired about the recovery outlook for networking and servers and what leading indicators management is watching for 2025.

Answer

CEO Christine Leahy affirmed the goal to outperform the market but acknowledged challenges from low hardware demand impacting CDW's specific mix. She noted that data center hardware (storage, networking, servers) remains muted, though client device refresh is picking up. CFO Albert Miralles added that NetComm comps get easier in Q4. For 2025 indicators, Leahy cited economic and geopolitical certainty and election outcomes as key factors.

David Vogt asked for Apple's perspective on overall smartphone market demand, considering rising memory prices, component availability concerns, and potential demand destruction, and what this might mean for iPhone demand through the calendar year. He also sought clarification on the 'range of options' Apple is considering for memory pricing, specifically if Long-Term Agreements (LTAs) or spot-based purchasing are more prevalent.

Answer

CEO Tim Cook reiterated Q2 supply constraints due to advanced node capacity, reflected in revenue guidance, and declined to comment on supply beyond Q2. He believed iPhone gained share in the December quarter but would not predict future market reactions. Regarding memory pricing, Tim Cook stated it's a range of levers and declined to be more specific.

David Vogt sought clarification on the sequential tariff impact from the September to December quarter, particularly how the change from $1.1 billion to a projected $1.4 billion aligns with iPhone supply changes and the recent tariff reduction in China. He also asked about the attached possibility for other products to the iPhone during the holiday season, considering consumer sentiment and the tough Mac comparison.

Answer

CEO Tim Cook confirmed that the projected $1.4 billion tariff impact for December factors in the recent reduction of tariffs in China from 20% to 10%, explaining why it's not linear to volume. He noted that Apple always encourages iPhone buyers to consider other products, but highlighted that the Mac faces an extremely difficult comparison due to the 'mother of all Mac launches' in the prior year, which included multiple product refreshes simultaneously.

David Vogt asked for clarification on the sequential tariff impact from the September to December quarter, its correlation with iPhone supply and production, and how the recent tariff change in China (20% to 10%) is factored into the outlook. He also inquired about the attached possibility for other products to the iPhone during the holiday season, consumer mindset, and potential upside from attached rates despite tough Mac comparisons.

Answer

CEO Tim Cook confirmed the tariff projection of $1.4 billion (up from $1.1 billion) assumes a stable environment and comprehends the tariff change from 20% to 10% in China, explaining why it's not linear to volume. He emphasized encouraging iPhone buyers to consider other Apple products and noted that the Mac faces an extremely difficult comparison due to last year's extensive product launches. CFO Kevan Parekh added that DRAM upgrades for Mac last year also contributed to the tough comparison.

David Vogt requested an update on Apple's supply chain strategy, particularly concerning production in India versus China in light of tariff dynamics. He also asked for the key drivers behind the iPhone's significant above-seasonal demand in the June quarter, beyond promotional activities.

Answer

CEO Tim Cook reiterated that the majority of iPhones sold in the U.S. originate from India, while Macs, iPads, and Watches sold in the U.S. largely come from Vietnam, with China still serving other international markets. SVP & CFO Kevan Parekh attributed the strong iPhone performance primarily to the strength of the product lineup, noting the iPhone 16 family has performed incredibly well compared to the prior year's models.

David Vogt asked a broader philosophical question about Apple's supply chain resiliency and redundancy over the next few years and any near-term export control risks. He also asked if there was a quantifiable impact on demand from tariffs factored into the June quarter outlook.

Answer

CEO Tim Cook acknowledged that the supply chain is complex and always has risks, stating that Apple learned some time ago not to have everything in one location and will continue to open new sources of supply. CFO Kevan Parekh responded that the company's best thinking on demand is captured in the provided outlook, but reemphasized that the guidance assumes the current tariff and macroeconomic situations do not worsen.

David Vogt asked to reconcile the Apple Intelligence momentum with a seemingly flat iPhone revenue outlook for the March quarter, and also asked about the potential ceiling for Services gross margins.

Answer

CEO Tim Cook reiterated that AI-enabled markets performed better and the iPhone 16 is outperforming the 15. CFO Kevan Parekh explained that the 75% Services margin is driven by a favorable mix across its broad portfolio and that the business is accretive to overall company margin.

David Vogt pressed for clarity on the December quarter guidance, asking if it implied a potential decline in product revenue. He also asked if the staged global rollout of Apple Intelligence could alter the historical demand cadence across different regions.

Answer

CFO Luca Maestri reiterated that Apple is not providing that level of detail, emphasizing that it's very early in the new product cycle and the Apple Intelligence rollout will occur over time. CEO Tim Cook acknowledged the rollout cadence is different from a typical software launch but maintained that the feature is a compelling reason for customers to upgrade, while declining to forecast demand beyond the current quarter.

David Vogt asked for an update on the scope of work and economics of the digital native customer relationship for 2026-2027, and how the $1 billion CapEx is parsed between existing customer expansion and incremental customers like the digital native customer.

Answer

Rob Mionis (President and CEO) stated that the digital native customer relationship is a tight, engineering-driven partnership, with samples shipping in 2026 and a ramp expected in early 2027, confirming the program is on track. Mandeep Chawla (CFO) explained that CapEx is geographically allocated to support multiple customers (Thailand, Richardson, Fort Worth) across major hyperscalers, with the vast majority tied to hyperscaler programs, though some investment supports the digital native customer ramp for 2027.

David Vogt asked for an update on the scope of work and economics of the digital native customer relationship for 2026-2027. He also asked CFO Mandeep Chawla to parse the $1 billion CapEx, detailing how much is tied to existing customer base expansion versus incremental customers like the digital native customer or other new pipeline customers for 2026-2027.

Answer

CEO Rob Mionis stated that the digital native customer relationship is a tight, engineering-driven partnership, with 2026 focused on shipping samples and preparing for a ramp in early 2027, confirming the program is on track. CFO Mandeep Chawla explained that CapEx is geographically allocated to support multiple customers and largely tied to programs with major hyperscalers, with some investment supporting the digital native customer's 2027 ramp, but the vast majority for existing hyperscaler programs.

David Vogt asked about the future composition of Celestica's CCS business, specifically whether compute and ancillary opportunities like Optical will be bigger drivers than switching over the next 3+ years, given switching's past role. He also asked for more details on the new hyperscaler storage application win for 2026, including customer needs and Celestica's contribution.

Answer

Rob Mionis (President and CEO) stated Celestica aims to grow share of wallet in AI/ML compute and other areas with hyperscalers, especially HPS. Jason Phillips (President of Connectivity and Cloud Solutions) emphasized strength in hyperscaler/digital native networking and AI/ML, with incremental opportunities in scale-up and merchant AI/ML, and plans to double down on enterprise with new leadership. Jason Phillips and Steve Dorwart (SVP and GM of Hyperscalers) confirmed storage as an opportunity with AI, with traction in a specific hyperscaler program and selective engagement in custom storage solutions.

David Vogt asked about the composition of product within the CCS business going forward, specifically whether the compute opportunity and ancillary opportunities like Optical will be bigger drivers than switching over the next 3+ years. He also asked for expansion on a new hyperscaler application in storage for 2026, what the customer is looking for, and Celestica's contribution.

Answer

Rob Mionis (President and CEO) stated that Celestica aims to grow its share of wallet with hyperscalers beyond networking into AI/ML compute and other HPS solutions. Jason Phillips (President of Connectivity and Cloud Solutions) highlighted strength in hyperscaler digital native portfolios (networking, AI/ML custom side), incremental opportunities in scale-up and merchant AI/ML, and a disciplined approach to expanding into the enterprise space with branded products and services. Regarding storage, Jason Phillips noted it's an opportunity with AI, seeing traction in hyperscaler space for specific use cases and continued high-end storage business in enterprise. Steve Dorwart (SVP and GM of Hyperscalers) added that they are selective in storage engagements, focusing on differentiation and building on existing success.

David Vogt sought details on the 800g ramp, asking which hyperscaler customers were driving growth, and inquired about the end-verticals within capital equipment that led to an H1 pull-forward. He later asked about the timeline for future capacity adjustments.

Answer

President and CEO Rob Mionis explained that while a couple of customers are ramping 800g faster, the Q2 volume mix was roughly 50/50 between 400g and 800g. On capital equipment, he noted H1 strength was from inventory normalization, with an expected H2 moderation. CFO Mandeep Chawla added that major capacity expansions have a 12-month lead time and decisions are already made for key sites, fitting within their 1.5-2.0% of revenue CapEx target.

David Vogt asked about the level of customer visibility in the CCS segment amid macro uncertainty and the expected magnitude of the enterprise segment's reacceleration in the second half of 2025.

Answer

President and CEO Rob Mionis stated that visibility from hyperscaler customers remains strong and has not changed due to the tariff environment, with full-year outlooks firmed up quarterly. CFO Mandeep Chawla added that design work for programs one to two years out continues unabated. Regarding the enterprise ramp, Rob Mionis confirmed a large customer's AI/ML compute program will ramp in Q3 and Q4, though overall enterprise numbers are somewhat suppressed by dynamics in the storage business.

David Vogt sought clarification on the new 1.6T switching program, asking if it was with a new or existing customer and if there were opportunities to expand the relationship. He also asked if the new digital native customer was transitioning from InfiniBand to Ethernet technology.

Answer

President and CEO Rob Mionis confirmed the 1.6T win is an extension of the relationship with an existing hyperscaler customer, moving into a full liquid-cooled networking RAC with opportunities to expand share of wallet. He clarified the digital native customer's project is not an InfiniBand-to-Ethernet shift but a completely custom data center design with unique requirements.

David Vogt posed a multi-part question on pricing, demand, and margin. He asked if price increases were fully filtering into FY2026 revenue, if the guidance raise was solely due to multi-million-dollar deployments, and if product gross margins (adjusted for installations) were down compared to three months prior. He also inquired about the timing and magnitude of pricing's impact on FY2027 margins and demand.

Answer

President and CEO Ed Meyercord clarified that pricing impacts revenue relatively quickly, and product margins are expected to increase. EVP and CFO Kevin Rhodes added that price increases implemented in Q2 would have a more significant effect on results in Q3 and Q4. Rhodes confirmed that the FY2026 guidance reflects both the installation revenue (and its lower associated margins) and all pricing decisions made to date. Meyercord reiterated the company's ability to use pricing as a lever and the industry trend of passing through supply chain cost adjustments.

David Vogt posed a multi-part question concerning pricing, demand, and margin, asking if recent price increases are fully reflected in fiscal 2026 revenue, if the raised guidance is solely due to multi-million-dollar deployments, and if product gross margins (adjusted for installations) are down from three months ago. He also asked about the expected impact of pricing on 2027 margins and demand.

Answer

President and CEO Ed Meyercord stated that pricing impacts revenue quickly, with product margins expected to increase in the current quarter and the second half of the year. He reiterated the company's ability to use pricing as a lever. Executive Vice President and CFO Kevin Rhodes clarified that the Q2 results saw minimal impact from November's price increases, with more expected in Q3 and Q4. He confirmed that the current guidance reflects both the installation revenue and all pricing decisions made to date.

David Vogt pressed for more detail on the gross margin impact from the steep rise in memory and optics prices, asking about the company's pricing strategy for the balance of the year and the likelihood of further price increases. He also questioned the sequential decline in subscription support gross margins from Q4, seeking clarification on the underlying dynamics, and followed up by asking if the company shares the Bill of Materials (BOM) percentage related to optics and/or memory.

Answer

President and CEO Ed Meyercord assured that Extreme Networks is actively engaged with suppliers and confident in its plans to recover costs, not expecting to implement further price increases beyond the current plan. EVP and CFO Kevin Rhodes explained that the sequential decline in subscription gross margins was due to upfront investments in cloud spend for Extreme Platform ONE's agentic AI, which are expected to be temporary. He expressed optimism for subscription revenue and margins to remain strong in the 80% range, driven by Platform ONE bookings and higher-margin new commercial models. Rhodes stated that the company has not publicly shared the BOM percentage for memory and components but would look into it.

David Vogt pressed for more detail on the gross margin impact from the steep rise in memory and optics prices, asking if Extreme Networks' current price increases would sufficiently cover costs for the balance of the year or if further price adjustments might be necessary. He also inquired about the gross margin dynamics on the subscription and support side, noting a sequential decline from Q4 FY25, and asked for clarification on the contributing factors.

Answer

President and CEO Edward B. Meyercord assured that Extreme Networks is actively engaged with suppliers and is confident in its plans to recover costs, stating that the current price increases are expected to cover costs for the balance of the year without needing further adjustments. Executive Vice President and CFO Kevin Rhodes explained that the sequential decline in subscription and support gross margins was due to upfront investments in Extreme Platform One, specifically increased cloud spend for agentic AI. He expressed optimism that subscription margins would remain strong, in the 80% range, driven by Platform One bookings and higher-margin new commercial models like Managed Service Provider (MSP) offerings.

Representing David Vogt from UBS, an analyst asked about the reasonable go-forward product gross margin and for an update on demand trends by vertical, particularly government.

Answer

EVP & CFO Kevin Rhodes addressed both questions. He projected that product gross margins, currently around 58%, could expand to a 58% to 60% range, driven by a higher mix of WiFi 7 products and potential freight cost savings. Regarding verticals, Rhodes stated that State, Local, and Education (SLED) constitutes about 40% of total revenue, with other key verticals like retail, manufacturing, healthcare, and hospitality each representing around 10%.

David Vogt inquired about customer feedback regarding potential tariffs, the long-term financial impact of the forecasted $1.5 million tariff cost, and any potential strategies to mitigate this impact on gross margins.

Answer

President and CEO Ed Meyercord described the tariff situation as dynamic with minimal current impact, noting Extreme is the only vendor guaranteeing prices through the quarter. CFO Kevin Rhodes confirmed the $1.5 million quarterly impact is included in Q4 guidance, representing a 50 basis point headwind, and stated that future price increases are a potential offset. Rhodes also clarified that Q4 gross margins would have been flat sequentially excluding this tariff impact.

David Vogt asked about the company's exposure to U.S. federal government funding dynamics, the expected attach rate for services and subscriptions as product revenue grows, and the drivers behind the better-than-seasonal Q3 guidance.

Answer

CEO Ed Meyercord stated that their government business is primarily state, local, and education (SLED) and they do not anticipate an impact from federal budget issues. CFO Kevin Rhodes detailed that subscription growth will be driven by higher product sales, Platform ONE adoption, the private subscription offer, and the MSP program. Meyercord explained the strong Q3 guidance, which is flat instead of the typical seasonal dip, is due to a broader market recovery and momentum in their new commercial models.

Speaking on behalf of David Vogt, Brian asked for quantification of the revenue and margin impact from projects that closed earlier than expected. He also inquired about the accounts receivable balance, customer concentration, and the outlook for collections.

Answer

CFO Kevin Rhodes clarified that the early-closed deals had a normal margin profile and were not the primary driver of the sequential gross margin increase. He quantified the revenue impact as being between $4 million and $9 million. Regarding receivables, he stated the balance is normal with a healthy DSO of 35-40 days, and while concentration with large distributors is typical, there are no concerns about collections.

David Vogt asked about the implied meaningful deceleration in growth for the second half of Jabil's fiscal year, questioning if it's due to rev rec issues, capacity, or other factors, given strong underlying demand. He also asked CFO Greg Hebard why the adjusted free cash flow outlook of $1.3 billion plus remained unchanged despite the raised revenue, margin, and EPS guidance, considering potential increases in CapEx and working capital.

Answer

CEO Mike Dastoor explained that a large part of the $900 million revenue increase will materialize in Q3 and Q4, with Q2 also seeing an uplift. He cautioned against direct year-over-year comparisons for Q3 and Q4 due to the significant growth from new facilities in the prior year. Dastoor confirmed there are no rev rec or other issues, and the company is being 'appropriately conservative,' expecting good upside in the second half. CFO Greg Hebard affirmed the $1.3 billion plus free cash flow guidance, noting that while CapEx is expected to tick up slightly (remaining within range) and working capital will also increase due to second-half growth, the current guidance is considered prudent.

David Vogt with UBS asked about the implied deceleration in Jabil's second-half fiscal year growth (around 10%) despite strong underlying demand, questioning if this is due to a 'red rec issue,' capacity constraints, or other factors, and how investors should interpret this. He also asked CFO Greg Hebard why the full-year free cash flow outlook remained unchanged at $1.3 billion+ despite increased revenue, margin, and EPS guidance, inquiring about any impacts from CapEx or working capital.

Answer

CEO Mike Dastoor explained that the second-half growth reflects a large part of the $900 million added to guidance, with Q2 also seeing an increase. He cautioned against direct year-over-year comparisons for Q3 and Q4 due to significant growth in those quarters last year from taking over additional facilities from a competitor. Mike Dastoor denied any 'red rec' or other issues, stating Jabil is being 'appropriately conservative' and expects good upside in the second half. CFO Greg Hebard confirmed the $1.3 billion+ free cash flow guidance, noting that while CapEx is slightly ticking up (but within range) and working capital will increase with back-half growth, the guide is considered prudent and will be updated as the year progresses.

David Vogt asked about the potential revenue opportunity supported by the new $500M U.S. investment and whether this capacity is critical for future growth. He also inquired about networking business trends when excluding the weak 5G market.

Answer

CEO Mike Dastoor described the revenue potential from the new site as 'considerable' over the long term, with a material impact not expected until fiscal 2027, but noted Jabil has a growth path even without it. He stated that excluding the dilutive 5G business, the networking segment has accretive margins, driven by strong growth in photonics, which is expected to grow from ~$400M in FY25 to over $750M in FY26.

David Vogt asked for clarification on year-over-year revenue comparisons after accounting for the divested Mobility and legacy networking businesses. He also questioned if the implied Q4 revenue deceleration reflects specific demand weakness or general prudence.

Answer

CFO Greg Hebard clarified that excluding the exited legacy networking business, Q2 year-over-year revenue growth would have been 8.5%, and Intelligent Infrastructure growth would have been 37%. Hebard confirmed that the implied deceleration in the full-year guidance is a reflection of broad-based prudence across all end markets rather than a specific, observed change in demand.

David Vogt from UBS Group AG requested clarification on the pro forma year-over-year revenue growth rates after accounting for both the Mobility divestiture and the exit from a legacy networking business. He then questioned if the implied revenue deceleration in the back half of the fiscal year guidance was due to specific demand weakness or general conservatism.

Answer

Chief Financial Officer Greg Hebard clarified that excluding the legacy networking business, Jabil's Q2 year-over-year revenue growth would have been 8.5%, and the Intelligent Infrastructure segment's growth would have been 37%. Hebard confirmed that the cautious outlook for the remainder of the year, which implies a deceleration, is a reflection of broad-based prudence across all end markets rather than a specific negative demand signal.

Asked about the margin profile of the growing cloud business and the company's M&A strategy, particularly regarding the healthcare segment and capital allocation priorities.

Answer

The cloud and data center business operates at the enterprise margin level and is not dilutive. The company's overall margin outlook is healthy. M&A remains a focus for acquiring capabilities in growth markets like healthcare and intelligent infrastructure, with a general capital allocation plan of 80% for buybacks and 20% for M&A.

David Vogt questioned the margin profile of the growing cloud and data center business and its impact on the company's overall margin outlook. He also asked about the M&A strategy beyond buybacks, specifically if healthcare was a focus area for acquisitions.

Answer

CEO Mike Dastoor asserted that the cloud and data center business operates at enterprise-level margins and is not dilutive, with the semi-cap business being accretive. He noted the 5.4% FY25 margin guidance is healthy, considering hurricane impacts and new site costs. CFO Greg Hebard confirmed that M&A focus remains on capability acquisitions, highlighting healthcare and intelligent infrastructure as key areas of interest, while maintaining the capital allocation mix of 80% to buybacks and 20% to M&A.

Asked about the interplay between the cloud/data center and networking/comms businesses, visibility amid concerns of a potential digestion period, and sought clarification on the drivers of the implied back-half weighted EPS ramp for FY25.

Answer

Management explained that AI is a major driver for the networking business (e.g., liquid-cooled switches) but less so for comms (5G), making the segments less adjacent than before. The back-half weighted earnings (40/60 split) is the new normal seasonality for the company post-mobility divestiture, typical of the EMS business. This ramp is driven by mix, higher second-half margins, and new program ramps, not just the opportunistic $1 billion share buyback.

David Vogt from UBS Group AG requested more detail on the quarter's demand drivers, asking how the macro environment progressed and which verticals demonstrated particular strength.

Answer

CEO Charles Giancarlo described demand as steady and strong throughout the quarter, with linearity that was above typical levels. He pointed to an increasing pipeline of large deals and a growing willingness from customers to expand their use of the Pure platform as strong demand signals. He concluded that this indicates both secular tailwinds for Pure's technology and a solid macroeconomic backdrop.

David Vogt of UBS requested more detail on the two Fortune 50 companies mentioned that are migrating from VMware to Red Hat OpenShift using Portworx, asking about the rationale behind the move.

Answer

CEO Charles Giancarlo explained the move is driven by a desire to consolidate application management onto Kubernetes for both future container environments and existing virtualized solutions via KubeVirt. He noted this offers a compelling, integrated future, acknowledging that KubeVirt is still an immature technology compared to VMware but is attractive for its long-term vision.

David Vogt asked for details on the planned FY26 investments that will keep operating margin flat at 17%, inquiring where the investment dollars are specifically going and if the rate of OpEx growth will be similar to recent years.

Answer

CFO Kevan Krysler outlined that the incremental investments will focus on accelerating the DirectFlash density roadmap, expanding supply chain capabilities, qualifying more NAND suppliers and manufacturing sites, and integrating Pure's technology with the hyperscaler's hardware specifications. He also noted that significant CapEx investment is already occurring in the current year.

David Vogt asked a thematic question about the hyperscaler opportunity, seeking to understand the specific workloads and use cases hyperscalers are considering for Pure's technology.

Answer

CEO Charles Giancarlo described it as a fundamental architectural shift for hyperscalers, with discussions covering a broad set of use cases to replace both high-performance and low-performance workloads, including disk. CTO Rob Lee added that the long-term opportunity is to provide value across the board, but the initial focus is on replacing disk-based infrastructure.

David Vogt asked about the status of EML wafer fab capacity expansion, the potential for price increases given supply constraints, and the expected profitability profile of the OCS business.

Answer

President and CEO Michael Hurlston confirmed the company is sold out on EMLs and is increasing capacity through a wafer size transition. He and CFO Wajid Ali acknowledged that pricing power exists and could provide upside to current financial models. Hurlston also stated that OCS margins are significantly above the corporate average and will be accretive to profitability.

David Vogt of UBS asked about the telecom business, questioning if there was channel normalization similar to prior quarters and what underlying demand looks like. He also asked for the growth rate of the core transceiver business in the March quarter.

Answer

CEO Michael Hurlston stated that the telecom business feels strong, with growth in areas like narrow linewidth lasers and pump lasers, and noted it is accretive to gross margin. He clarified that the datacom transceiver business was essentially flat sequentially in the March quarter due to a temporary execution 'air pocket' in ramping products, which has since been resolved. He expects strong growth to resume in the guided quarter.

David Vogt sought further clarification on the sequential gross margin decline, asking if a faster-than-expected transceiver ramp was the cause, and also inquired about the company's perspective on potential future tariffs affecting its global operations.

Answer

EVP and CFO Wajid Ali clarified that the gross margin pressure was not from mix but from specific headwinds: initial yield issues on new transceiver product ramps and underutilization costs in Thailand, which combined for a 100-150 basis point impact. On tariffs, he stated that the company expects a minimal impact, which is already factored into guidance, due to its small manufacturing footprint in China and the fact that most products ship from its Thailand facility.

An analyst on behalf of David Vogt at UBS asked if the new transceiver customers were already factored into the $500 million quarterly revenue target and inquired about the potential market share Lumentum could achieve.

Answer

President and CEO Alan Lowe confirmed that these customer wins are part of the multiple opportunities that contribute to the $500 million target, but they don't need to win every opportunity to get there. He explained that market share is earned over time through strong execution, quality, and supply chain resilience, as hyperscale customers always multi-source.

David Vogt delved into Hyve's performance, asking if the lower margin mix implied strength in CM services over spares, and whether the previously delayed customer orders had returned. He also asked about the tariff assumptions embedded in the guidance.

Answer

CEO Patrick Zammit noted Hyve's 45% growth was driven by its largest customer, and demand from the second customer has returned, though slightly below expectations. CFO Marshall Witt explained Hyve's margin was impacted by unrealized FX losses, which are expected to recover, and a less favorable program mix. He stated the tariff outlook remains very uncertain, similar to the situation in 2018-2019.

David Vogt from UBS asked for a deeper explanation of the issues within the Hyve business, questioning the nature of component shortages, the drivers behind the softer demand outlook, and whether it represents a temporary timing issue or a more fundamental problem.

Answer

CEO Patrick Zammit clarified that the issue was a shipment delay for a large customer, not a component shortage, and that the components are in stock. He emphasized that the business is expected to ship in Q2. CFO Marshall Witt added that the softer Q2 outlook for Hyve is due to a temporary demand pause from one specific customer, but the long-term demand environment and project pipeline remain strong.

David Vogt inquired about the macroeconomic impact on the European business and how management expects this to evolve in fiscal 2025, particularly concerning the PC and server recovery.

Answer

CEO Patrick Zammit acknowledged political and economic uncertainty in Europe but noted that the distribution market still grew 2% in Q4, with TD SYNNEX outperforming. He stated that underlying demand from their customer base remains. CFO Marshall Witt provided a broader outlook, expecting consistent growth in Q2-Q4 after the Q1 compare, with normal seasonality boosting Q4, while balancing optimism with macro uncertainties.

David Vogt inquired about TD SYNNEX's intermediate-term outlook for its cash conversion cycle, working capital, and free cash flow, particularly given the expected IT market recovery and the influence of the Hyve business.

Answer

CFO Marshall Witt reaffirmed the medium-term target of $1.5 billion in free cash flow but noted that continued growth, especially in the Hyve business, will increase working capital needs. He stated that a cash conversion cycle of 20-22 days is an appropriate target. Witt anticipates free cash flow for fiscal '25 will be north of the ~$1 billion expected for fiscal '24, confirming that the Hyve business is the primary swing factor for working capital.

David Vogt of UBS Group asked if the current margin trajectory from new systems and pluggables would resemble the cycle seen in fiscal 2018-2020. He also questioned the magnitude of the margin impact implied by the updated guidance.

Answer

CFO Jim Moylan clarified that he does not expect a repeat of the exceptionally high margins of 2020, which were a COVID-related anomaly. However, he does see a clear path back to mid-40s gross margins driven by the WaveLogic 6 ramp, next-gen pluggables, and cost improvements. He acknowledged the current mix pressure but projected margin improvement starting in Q4 and continuing into next year.

David Vogt sought clarity on the timing and magnitude of the short-reach coherent opportunity and asked if gross margin expansion in fiscal '26 and '27 is expected to achieve the long-term operating margin target.

Answer

Executive Adviser Scott McFeely detailed the timeline, stating that coherent plug revenue for metro DCI is ramping now, with campus-focused WaveLogic 6 revenue expected in fiscal 2026; this is included in the 3-year targets. Opportunities inside the data center are beyond that horizon. CFO Jim Moylan confirmed that yes, gross margins are expected to improve towards historical levels in fiscal '26 and '27, which, combined with OpEx leverage, will drive the company to its 15-16% adjusted operating margin goal.

David Vogt asked for a long-term perspective on service provider spending against the 6-8% growth model and how the shifting product mix, particularly with more line systems, will impact gross margins over time.

Answer

CEO Gary Smith expressed confidence that service provider spending will return to a more normalized growth pattern after the current inventory absorption period, especially in North America, which supports the company's long-term 6-8% growth model. CFO Jim Moylan stated that gross margin profiles are similar across customer types but vary by product. Line systems have lower initial margins, while routing, switching, software, and services are expected to be accretive over time.

David Vogt questioned why the Q4 outlook appears conservative given the strong Q3 guidance and asked how the workforce reduction plan specifically impacts server margins.

Answer

CFO Marie Myers explained the Q3 revenue strength is due to a large AI deal shipment, creating a non-seasonal pattern, but that year-over-year growth is still expected in Q4. She clarified the cost reduction program is enterprise-wide, not just for the server business, and that progress is on track. CEO Antonio Neri added that Q4 faces a tough year-over-year comparison from an exceptionally strong Q4 2024.

David Vogt sought clarification that the new cost restructuring savings are separate from the Juniper acquisition synergies and asked if the new savings target specific business segments.

Answer

CFO Marie Myers confirmed the $350 million in new savings is entirely separate from the anticipated $450 million in synergies from the Juniper deal and applies to the current stand-alone HPE organization. CEO Antonio Neri added that if the deal had closed as planned, the combined programs would yield at least $800 million in savings, but for now, HPE is proceeding with the stand-alone plan.

David Vogt requested more specific details about the 'risk' that prompted the debooking of a large AI systems order and asked how investors should think about order risk going forward.

Answer

President and CEO Antonio Neri explained that HPE evaluates customers on multiple factors, including end-user verification, ability to fulfill payment, and risks tied to component allocation. He stated the debooked order carried significant risk across these areas, making it a prudent decision under HPE's stringent control environment. CFO Marie Myers added that all orders are subject to changes prior to revenue recognition.

Questioned if historical seasonal patterns still apply given changes in the business mix, and asked if the normalization of backlog implies a specific revenue tailwind in the first half of 2024.

Answer

Management expects a return to traditional seasonality, with a double-digit sequential decline in Q1 followed by growth through the year, though 2024 revenue may be more back-end loaded due to uncertainty in the Cloud/SP recovery. The backlog will continue to be a tailwind, but it will lessen each quarter as it normalizes. No specific revenue dollar amount from backlog was provided.