Timothy Long • Barclays

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CEO Satish Dhanasekaran described AI as a long-term secular trend driving strong demand in data center infrastructure, noting that Keysight's wireline business grew double digits in the first half. He confirmed that despite macro uncertainty, the company has not seen a material change in customer behavior and enters the second half with a solid pipeline that supports the full-year guidance.

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CEO Satish Dhanasekaran described AI as a long-term secular growth driver, noting that Keysight's wireline business grew by double digits in the first half, fueled by data center infrastructure expansion. He stated that despite macro uncertainties, customer behavior remains unchanged, and the company entered the second half with a solid pipeline and strong customer engagement, supporting the annual guidance.

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CEO Satish Dhanasekaran detailed Keysight's broad participation in the AI ecosystem, from compute and memory to networking and emulation, calling it a robust long-term opportunity. Regarding the software-centric transformation, he described the 40% revenue mix as a milestone in an ongoing journey, with future growth expected from both organic product introductions and inorganic additions that will expand recurring revenue.

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Executive Satish Dhanasekaran reported that the wireline business surpassed $1 billion in orders with double-digit growth, driven by AI-related hyperscaler upgrades, and noted future opportunities in protocol layer emulation. Executive Neil Dougherty clarified that software is accretive to gross margin while services are slightly dilutive, but both aid operating margin. Executive Mark Wallace added that the customer shift toward virtual simulation is driving resilience and growth.

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EVP and CFO Cooper Werner explained that second-half software growth is heavily weighted toward a substantial and highly visible renewal opportunity, consistent with initial yearly expectations. President and CEO François Locoh-Donou added that while the hardware refresh cycle is a major driver and expected to last into 2026, strength is also coming from data center modernization, AI preparation, and competitive displacements, all supported by F5's hybrid multi-cloud architecture.

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CFO Cooper Werner clarified that the second-half software growth is heavily weighted towards a substantial and highly visible renewal opportunity, which was anticipated at the start of the year. CEO François Locoh-Donou added that while the hardware refresh cycle is a primary driver, strength is also coming from durable tailwinds including data center modernization, competitive displacements, and AI workload support, all linked to customers building out hybrid multi-cloud architectures.

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CEO Antonio Neri denied any change in strategy, asserting that Q1's Server margin underperformance was caused by issues in the traditional server business—specifically, higher discounting and an inventory valuation error—not by the pricing of AI deals. He reaffirmed HPE's commitment to a balanced mix across service provider, enterprise, and sovereign segments, and expressed confidence in returning to a 10% overall server margin by Q4.

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President and CEO Antonio Neri clarified the $700 million debooking was not a competitive loss but a prudent decision due to risk concerns with a specific customer. CFO Marie Myers added that HPE employs a disciplined pricing framework for all AI deals to ensure profitable growth, balancing margin pressures with cost controls and strategic component buys. She noted profitability should improve as the sales mix shifts toward sovereign and enterprise deals with higher services attach rates.

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CEO Charles Giancarlo argued that HDD systems are near their lowest possible price, so future competition depends more on NAND prices than HDD advancements like HAMR. CTO Rob Lee added that on a TCO basis, Pure's solutions are already advantaged even if disks were free, and the long-term decline in QLC prices will only accelerate the replacement cycle.

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CFO Kevan Krysler confirmed the sequential product gross margin decline expected in Q4 is driven by the strong growth of E-family and FlashArray//C solutions, which have less price elasticity due to the cost-sensitive workloads they address. This combination of higher growth and lower elasticity is pressuring product margins.

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CFO Chantelle Breithaupt explained that Arista's 2024 revenue from Meta was influenced by Meta's 2023 'year of efficiency,' which saw a 15-20% CapEx reduction. She clarified this reflects shipment timing, not a drop in demand, and expects both Microsoft and Meta to remain strong greater-than-10% customers in 2025. The other Cloud Titans are performing well but are not individually at the 10% concentration level.

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EVP and CFO Ed Schlesinger indicated that the majority of the 50% YoY growth in the enterprise business was driven by the Gen AI data center space. Chairman and CEO Wendell Weeks acknowledged that managing capital cycle timing is a key factor in their risk-adjusted planning and noted that the current focus is on the hyperscale data center build-out cycle, with more visibility to be provided in March.

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CEO Wendell Weeks stated it is too early to confidently call a full recovery in the carrier business, but recent customer announcements are very encouraging. CFO Ed Schlesinger addressed the margin question by explaining that since the company has not yet filled all its existing capacity, he expects Optical margins to improve and accrete further as sales continue to grow.

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Executives Jeffrey Clarke and Yvonne McGill reiterated that while the margin rate on these high-ASP servers is dilutive, the rate has improved for three consecutive quarters. This improvement is fueled by adding value through services, financing (DFS), and attaching networking and storage, allowing Dell to command a premium through its engineering and differentiation.

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CFO Mike Berry explained the RPO decline was an expected seasonal pattern in deferred revenue, while highlighting that unbilled RPO, a key indicator for Keystone, grew. CEO George Kurian attributed public sector strength to long-term program spending and stated the company will adapt to any new priorities from the incoming U.S. administration.

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CFO Jim Moylan explained that traditional seasonality is now less predictable due to the high mix of project-driven webscaler business, which can cause significant quarterly variations. CEO Gary Smith attributed the Blue Planet revenue growth to successful focus on specific applications like inventory orchestration across multiple deals, not a single large one. He stated the Routing and Switching decline was a function of broader service provider spending challenges, particularly internationally.

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