Hewlett Packard Enterprise has amended its contract terms so that it can change the price of hardware after a quote has been issued. The change follows sharp price increases for memory and storage components, among other things, which account for an increasingly large proportion of server costs.
This was reported by The Register. During the presentation of the quarterly results, CEO Antonio Neri explained that HPE has expanded its agreements with semiconductor and memory suppliers. With these multi-year agreements, the company wants to secure sufficient production capacity to meet customer demand. At the same time, HPE is trying to give customers and partners earlier insight into delivery times, price developments, and alternative configurations.
According to Neri, the company is also opting for a more flexible pricing strategy. Quotes will remain valid for shorter periods and prices can be adjusted more frequently. The revised terms also allow HPE to reprice orders when component costs rise between the issuance of a quote and delivery.
The pressure on prices is mainly due to the role of memory in servers. Neri indicated that DRAM and NAND now account for more than half of a traditional server’s material costs. That share is expected to increase further as component prices rise.
Customers continue to buy despite price increases
Despite these cost increases, HPE has noticed little reluctance among customers. Neri said he spoke with several European customers and got the impression that organizations are prioritizing delivery time. Some customers are adjusting their configurations or choosing a lower-end model to get hardware faster, but he believes that price increases are not leading to widespread postponement of purchases.
The impact of more expensive components varies across the company. HPE’s networking division, which now includes Juniper Networks, showed strong growth. Revenue rose 150 percent year-on-year to $2.7 billion. Pre-tax profit in this segment was $640 million.
HPE’s other activities fall under the Cloud & AI division. This branch achieved revenue of $6.3 billion, a 3% year-on-year decrease. Pre-tax profit amounted to $645 million.
According to Neri, the results confirm that the strategy surrounding network activities is working. The division now accounts for almost a third of total revenue and generates more than half of operating profit.
According to HPE, the slight decline in Cloud & AI was expected. The company is seeing demand for traditional servers pick up, and currently has an order backlog of approximately $5 billion. CFO Marie Myers expects that a large share of AI hardware orders will not be delivered until the second half of 2026.
HPE is also trying to capitalize on market changes in virtualization. Revenue from VM Essentials, the virtualization platform that HPE is positioning as an alternative to certain VMware products, grew for the third consecutive quarter. According to the company, interest is increasing because the cost of existing virtualization solutions is rising for many organizations.
For the second quarter, HPE expects revenue of between $9.6 billion and $10 billion. The figures were well received on the stock market. In after-hours trading, the share price rose by about three percent.