Victor Chiu

Victor Chiu from Raymond James asked for an expansion on how scaling the hyperscale business could change gross margin dynamics, specifically inquiring about potential structural expansion and the leverage and expectations for the next fiscal year.

Answer

CFO Tarek Robbiati clarified that while hyperscaler revenue, currently high-margin software licensing, positively impacts overall gross margins, Pure Storage is exploring new revenue models for FY27. These alternative models, potentially involving different revenue streams, could alter the gross margin economics of the hyperscaler business, with further details to be provided in the Q4 earnings call.

Victor Chiu, asking for Simon Leopold from Raymond James, sought further explanation on how scaling the hyperscale business might alter gross margin dynamics, including the leverage involved and expectations for the upcoming fiscal year.

Answer

CFO Tarek Robbiati explained that product gross margins, excluding hyperscalers, typically range from 65% to 70%. He noted that current hyperscaler revenue, primarily from high-margin software licensing (90%+ gross margin), positively impacts overall gross margins. However, he foreshadowed exploring new revenue models with hyperscalers in fiscal year 2027 that could change the gross margin economics of that specific revenue stream, with more details to be provided in the Q4 call.

Victor Chiu of Raymond James, on behalf of Simon Leopold, inquired about the potential materiality of the recent Microsoft AI infrastructure award. He also asked if A10 expects to see tailwinds from increased telco CapEx driven by government programs.

Answer

President, CEO & Board Chair Dhrupad Trivedi explained that the Microsoft announcement validates A10's strategic position in AI infrastructure with a key long-term partner, rather than signaling a specific material revenue event. Regarding telco CapEx, Trivedi noted that while A10 would benefit from increased network build-outs, the company's strategy is also to grow its share of wallet by selling security solutions, which are somewhat decoupled from traditional CapEx cycles.

Victor Chiu, on behalf of Simon Leopold, asked if demand for NVIDIA's Blackwell has helped the AI server recovery and improved visibility, and what steps HPE has taken to optimize AI server inventory.

Answer

CEO Antonio Neri confirmed that order demand shifted rapidly to Blackwell. He explained that inventory risk is managed through customer prepayments for certain large deals, which ensures HPE does not purchase components without a commitment. He also noted that exposure to older generation inventory has been significantly reduced and is adequately reserved.

Victor Chiu, on behalf of Simon Leopold, asked if a lower TCO could be a tailwind offsetting slower decision-making, whether B2 Overdrive requires material hardware changes, and what the primary use cases are for the new offering.

Answer

CEO Gleb Budman agreed that Backblaze's value proposition is a strong draw for budget-conscious customers. CFO Marc Suidan added that some customers are opting for pay-as-you-go models, which offsets any slowness in larger contract commitments. Budman explained that Overdrive is mostly a software optimization with some hardware tuning, not a material infrastructure change. He identified AI, high-performance compute, and analytics as the primary use cases.

Victor Chiu, on behalf of Simon Leopold, asked for color on the sequential improvement in the Public Cloud segment and its sustainability, and inquired about the customer mix for initial AI-related demand.

Answer

CFO Michael Berry attributed the Public Cloud strength to 40% year-over-year growth in first-party and marketplace storage services, noting that headwinds from subscription services are moderating. He expects this will lead to accelerating growth through the year. CEO George Kurian added that AI demand is primarily coming from large enterprises for use cases across data lakes, model training, and inferencing.

Victor Chiu, on for Simon Leopold, asked about the ease of migration for VMware customers on 3-tier infrastructure to Nutanix HCI and the comparative economics of the platforms.

Answer

President and CEO Rajiv Ramaswami explained that the vast majority of applications on VMware/3-tier can run well on Nutanix HCI, with primary barriers being hardware refresh cycles and ecosystem certifications, not technical limitations. He reiterated that migrating to HCI provides substantial TCO savings of 30-40% or more, and the transition from a competing HCI solution is much easier as it often avoids a hardware refresh.

Victor Chiu, on behalf of Simon Leopold at Raymond James, questioned whether the Q1 shortfall in 6 GHz shipments would primarily shift to Q2 or be spread throughout the year. He also requested an update on the market adoption of Cambium's 60 GHz products.

Answer

CEO Morgan Kurk explained that the 6 GHz revenue ramp is expected to occur throughout the year rather than just in Q2, as customers navigate a learning curve with the new technology and AFC system. Regarding 60 GHz products, he noted they are finding surprising success with enterprise customers but anticipates a slow, steady build in adoption rather than a sudden increase.