Revenue of $12.2bn beat the $11.97bn estimate by 1.9%, and non-GAAP diluted EPS of $1.11 beat the $0.93 estimate by 19.1% -- both above the company's own $0.88-$0.93 outlook range.
Networking revenue rose 74.9% to $2.9bn on the Juniper combination, with Routing up 270.0% to $788m and Data Center Networking up 112.2% to $382m.
The profit swing is in Cloud & AI: segment operating margin of 17.0% against 7.0% a year ago, which carried non-GAAP operating margin to 16.2% from 8.5%.
Guidance went up at every horizon: Q4 revenue of $13.9bn-$14.8bn, FY26 revenue growth to 34%-37% with non-GAAP EPS of $3.75-$3.85, and FY27 revenue growth to 13%-17% with free cash flow of at least $5.0bn.
The one thing that matters: management raised FY27 as well as FY26, so the market is being asked to treat 34% growth and a 16.2% non-GAAP operating margin as a starting point rather than a Juniper-year peak.
Key metrics
Metric
Reported
Prior year
Change
Networking revenue
$2.9 billion
—
+74.9%
Cloud & AI revenue
$9.0 billion
—
+25.4%
Server revenue
$6.8 billion
—
+35.3%
GAAP gross margin
40.1%
29.2%
+1,090 bps
Non-GAAP operating profit margin
16.2%
8.5%
+770 bps
Free cash flow
$1.0 billion
$0.8 billion
+$0.2 billion
Guidance changes
Item
New guidance
Prior guidance
Q4 FY26 revenue
$13.9 billion to $14.8 billion
—
Q4 FY26 non-GAAP diluted net EPS
$1.20 to $1.30
—
FY26 revenue growth
34% to 37%
—
FY26 non-GAAP diluted net EPS
$3.75 to $3.85
—
FY27 revenue growth
13% to 17%
—
FY27 non-GAAP diluted net EPS growth
16% to 20%
—
Quality of earnings
GAAP is flattered and non-GAAP is the cleaner read. GAAP diluted EPS of $1.06 includes $0.31 per share from the $444m gain on the sale of the remaining H3C equity interest; non-GAAP EPS of $1.11 excludes it, so the two figures converge once the disposal is stripped out.
The margin expansion is operational rather than mix accounting. GAAP gross margin of 40.1% is up 1,090 bps year over year and 360 bps sequentially, and non-GAAP gross margin of 40.4% moves almost identically -- the non-GAAP adjustment is only 0.3 points.
Cash conversion lags the earnings. Nine-month operating cash flow of $4,229m came with a $5,847m inventory build funded by a $5,870m increase in accounts payable; inventory now stands at $11,823m against $6,352m at October 31.
Gotchas & watch items
Free cash flow was $958m against $1,641m of operating cash flow, and the raised FY26 target of at least $3.75bn needs roughly $1.2bn in the fourth quarter after $2,581m in the first nine months.
Inventory of $11.8bn versus $6.4bn at October 31 is being carried on payables of $13.7bn versus $7.7bn -- the working capital position, not demand, is what would show first if orders slowed.
Corporate Investments and Other swung to a -24.1% operating margin from -7.0%, on revenue of $278m that grew only 3.0%.
Financial Services revenue of $883m fell 0.3% year over year, the only line in Cloud & AI not growing.