Good afternoon, everyone. Welcome. I'm Jeff Kvaal, and I'm part of the Investor Relations team here at Hewlett Packard Enterprise. I'd like to welcome you to the 2022 HPE Securities Analyst Meeting. Thank you. I'm happy to say that we're hosting this event, obviously, from our beautiful new headquarters here outside Houston. It's good to see so many of my analyst friends in the audience. I will tell you the view is also very nice up here. It's nice. For those of you tuning in virtually, thank you very much for attending as well. Before we start our executive presentations, I'd like to run through the agenda. First, Antonio will kick us off. He will discuss how HPE's Edge-to-Cloud Strategy and leading position in the growing hybrid cloud market will deliver shareholder value.
Tarek will provide details about our financial progress in 2022 and our transition towards a software-rich, as-a-Service model. He will then delineate fiscal 2023 and long-term guidance for our key financial metrics. Following their remarks, we'll have about 45 minutes to answer all of your questions. Once the webcast concludes, we'll issue a press release and a complete set of presentation materials. Those will of course be available on our IR website at hpe.com. Also we'll have a replay of the webcast uploaded shortly after the meeting concludes. Lastly, let's get to the disclosures. This event may include forward-looking statements that involve risk estimates and assumptions. HPE assumes no obligation to update such statements. With that, it is now my pleasure to welcome to the stage HPE's president and CEO, Antonio Neri.
Well, thanks, Jeff, and good afternoon. Thank you for joining us today. We are pleased to welcome you to HPE's new headquarters here in Texas. You can see it's beautiful. We designed this for our customers, our partners, and our employees. Where we'll be hosting this meeting, believe it or not, after three years. Time has flown since we met last in person in New York. We also welcome those who are joining us virtually via our webcast. In our update today, Tarek and I will demonstrate how our strategy is creating value for HPE shareholders. I'm also joined, by the way, by executive committee, which sit in probably row three and four, you know, in the back of the room. They will be available later on to answer any questions you have during the Q&A section. Let's start.
Over the last few years, new mega trends around edge, cloud, and data have emerged to shape customer expectations for the enterprise technology market. Knowing these changes, which will be long-standing, long-lasting, in 2016, we declared the world will be hybrid. Think about it, more than six years ago. In 2019, HPE committed to make all of our solutions available as a service through our differentiated edge-to-cloud experience. Our management team has deployed a strategy that capitalizes on those mega trends and enable HPE to deliver what we call a data-first modernization approach to our customers. As organizations around the world continue to adapt to the post-pandemic world and accelerate their own business transformations, we are really focused on being their technology provider of choice.
We have shifted both our product and services mix, as well as how we deliver that mix to our customers. I'm personally incredibly proud that we have taken decisive and important actions to transform HPE. Our evolution to a platform-based model, fueled by a software and services-rich portfolio, is already delivering strong results that translate value for our shareholders. Let's talk about that. Our total HPE orders, including as-a-Service bookings, are the highest ever this year, demonstrating enduring demand for our differentiated edge-to-cloud portfolio. We are on track to deliver the largest annualized revenue run rate ever. At the midpoint of our non-GAAP earnings per share guidance that we, you know, provided at end of Q3, we will achieve the highest annual EPS since we became an independent company in 2015, based on continuing operations.
I believe this is impressive given our severe ongoing supply constraints that we all live in the industry, our forced exit from Russia and Belarus, obviously, as well as a very challenging foreign exchange and inflationary environment. When you think about that and putting that in the context of profitability, our profitability through the third quarter as measured by both gross and operating margin, was amongst the highest since 2019, proving that our strategy is working. We have delivered all of this in a very tight supply environment. By the way, we have a very long tail, which we call the backlog.
Through productive measures like guiding you know the specific demand to specific products, component engineering design, by the way, here in this building we have amazing engineering, and also multi-sourcing with our indirect procurement team in the supply chain. We have translated all that enduring customer demand into profitable growth for the company. One thing I'm really proud of it is our distinctive innovation. Our distinctive innovation, combined with our strong execution, continues to drive customer demand across our entire portfolio, which will deliver higher recurring revenues, expanded gross and operating margins, and increase free cash flow for the years to come. As we work with our customers across different sectors, we continue to see growth in the what we call the Hybrid Multi-Cloud market.
Think about this, 50% of customers today prefer open Hybrid Multi-Cloud to other proprietary models, and that share is expected to grow according to a Bain study. Approximately 70% of customers will operate a Hybrid Multi-Cloud model in the next three years. Hybrid Multi-Cloud adoption for the most demanding workloads, and this is important, understand the workload dynamics, is accelerating across many industry verticals. While the world is already hybrid, there is no discussion about that, and is getting more so, we know the cloud experience is not yet everywhere. According to IDC, and we have here Crawford and Matt, approximately 70% of the workloads and data today reside outside the public cloud. By the way, those workloads do not share the same cloud experience. What are the reasons for that?
Factors like Application Entanglement , Locality, Data Gravity , Sovereignty, and Compliance restrict those organizations from achieving the cloud experience they need. What is the result? The result is a fragmented operating model with data silos and disconnected data sets. What customers are looking for is a way to unify, what we call the multi-generational IT strategy and journey they are on, with a consistent cloud experience across all their applications and data. These are exactly the challenges HPE's Edge-to-Cloud Strategy is designed to solve. Our HPE GreenLake Edge-to-Cloud Platform is at the center of how we implement that strategy. It provides a foundation for customers to drive that data first digital transformation to simplify, simplify, and to modernize their infrastructure with one unified hybrid cloud services experience.
It empowers customers to access, analyze, and extract value from their data across the public cloud, data centers, whatever they have, more and more in co-locations, by the way, and as we think about the future, more and more at the edge. The edge is the next frontier. From the time we first predicted the future will be hybrid, remember I said that, 2016, we were the first to bring that to market differentiated innovation to our customers. Some of you actually joined us at HPE Discover in June, and we showcased the power of our HPE GreenLake platform. I hope during the waiting time, you saw some of the stats there, right? HPE GreenLake is a unified and automated cloud experience offered through one secure platform, integrated across the edge, customers' data centers, co-locations, and the public cloud.
It delivers that consistent cloud operating model for all the workloads and data. Importantly, our HPE GreenLake platform is open because customers can take advantage of the cloud architectures of their choice. HPE GreenLake manages their workloads across the entire customer IT estates, including the public cloud. This means they can get a unified cloud experience. It is fully automated, self-service cloud, self-service cloud operations that makes it easy for enterprises to manage, optimize the performance, the cost, the security, and the compliance. What we have heard from customers, too, is that they need built-in data services, like Data Protection and Disaster Recovery Services, which we provide as a part of our HPE GreenLake platform. We also offer what we call unified analytics, including an edge-to-cloud data fabric for access and control. One of the biggest challenges customers have is that, where is all my data?
How I access that data? What type of analytics I can run to extract every bit of insights? Also, what they appreciate about our platform is that we have built what we call a security framework in the platform, with a Zero Trust enabled architecture from infrastructure, from the application layer down to infrastructure, and from edge to cloud. HPE was first to deliver Pay-as-You-Go on premises. We did that many years ago. One of the key advantages that allow us to do that was in 2017, we made an acquisition called Cloud Cruiser. It gave us true Cloud Metering capability, which is a huge difference from our competitors' traditional fixed leasing business model. It is a true metering. It actually, even I argue, is even better than the public cloud, because when you go to the public cloud, you tend to overprovision resources.
In our case, we actually can scale that resource exactly to the need of that application and meter that and charge for that. Now customers can add capacity on demand, but release it a lot of the times and only pay for the resources and services consumed. Another important advantage of HPE GreenLake is they can benefit from the proven cost advantages HPE GreenLake provides compared to other cloud models. Our platform actually offers the lowest cost per workload, and that is actually especially true when application requires significant data egress and ingress, which is the majority of the cost. It's not the cost of compute. In cases where workloads are large and predictable, which means they don't have to scale up and down all the time, or if Data Protection Services are needed.
That's one of the big advantages we have with our platform today. Now, another big advantage is our Partner Ecosystem , which is core to our strategy. We have great interest from our partners, many of whom want to build their entire business and business solutions on our HPE GreenLake platform. This includes distributors, value-added resellers, system integrators, ISVs, and service providers. Through the end of the third quarter here in 2022, we saw a 75% year-over-year growth in the number of partners that they are actively building and selling with HPE GreenLake. Why is that? Because our platform provides open cloud APIs to our partners. These APIs include security, hybrid orchestration, metering, billing, services, and also a marketplace where they can offer their unique solutions.
By the way, we have partners of all sizes, but one of them I want to highlight is a unique special case, is called Green Tea Technology. This partner is just a two-year-old partner, which was born in the cloud, that sells our HPE GreenLake solutions to startups and small and medium businesses. These companies, what they need, they need the flexibility and the scalability of IT resources, but they don't want to manage their own IT. Green Tea actually reflects a new breed of channel partners that are embracing hybrid selling because they see the demand, not just across the large enterprises, but from organizations from all sizes. You know, I personally spend probably more than 50% of my time talking to customers and partners, and I often hear another important reason they are attracted to HPE GreenLake, our platform, and it is sustainability.
Because customers can flexibly scale their IT to meet their business demands, the platform actually reduces IT inefficiencies, which are a significant source of cost and environmental impact for many organizations. This is important because our customers are actually increasingly linking digital transformation with sustainable business transformation. Let me give you an example. A multinational chemical company is transitioning to an HPE GreenLake solution that is actually expected to reduce a Carbon Reduction of over 2,000 tons of carbon dioxide per year. How that's gonna happen is because our solution only uses half of the rack space with 70% less energy, while reducing the number of maintenance contracts and cost to the customer because we offer them a complete solution. The other thing is that in a resource-constrained world, we also help customers sustainably optimize their technology life cycle from edge to cloud.
For example, our HPE Financial Services transform and repurposes IT assets into new capabilities through our Technology Renewal Center s around the world. Last year alone, of the 3 million IT assets we recovered, 85% got a second life, generating additional revenue stream for HPE while reducing customer cost, waste, and carbon footprint, feeding the Circular Economy . By the way, this business return on a consistent basis, more than 80% of Return on Equity . Now, with integration of Aruba into our HPE GreenLake platform, we now have 65,000 Customers and $7.7 billion in Total Contract Value , which demonstrates scale matters.
Today, HPE GreenLake enables more than 120,000 users, powers more than 2 million connected devices, and here is the trick, it actually manages more than 1 Exabyte of Data for our customers, 'cause I believe data is the most important part. They are receiving industry-leading operational support and managed services, which has resulted in a 96% Customer Retention rate. Not only they get all the benefits, but they're getting great experience. They love it. They renew and expand. One great example of a customer is Nokia, who turn to us to leverage the HPE GreenLake platform to help Nokia Cloud and Network Services advance its 5G strategy. The HPE GreenLake platform today offers more than 10,000 Nokia developers a flexible and elastic cloud platform, making them more agile.
HPE's leadership and differentiation has translated into business success for a rapidly growing number of customers around the globe. Brands such as the ones you see here on the page, spanning all industries and geographies, are turning to HPE GreenLake to help them tackle their most pressing challenges. Our platform draws customers in and enhances the relevance of our entire HPE portfolio. Now, looking at the markets that underpin our edge to cloud strategy, we see a Total Addressable Market opportunity growing 1x, 1.8x, which is gonna go from about $150 billion to approximately more than $250 billion by 2025. As we continue to expand our business into new segments of the IT market. Let's start with the edge. The Edge, Market Encompasses Connectivity, Edge Infrastructu re, Data Center Switching, and Security.
We anticipate we can capture a larger portion of this market as we expand into these new segments. Such as security and data center switching. Yes, we're gonna be in the data center switching because we have an integrated experience now, which will nearly double our opportunity from about $48 billion, you see there in the chart, to approximately $91 billion. Our edge portfolio is a major differentiator for HPE. I don't think anybody has the level of capabilities we do at the edge. Our HPE GreenLake Edge offerings connect and power distributed cloud infrastructure and experiences for our customers to enable real-time processing and insights. We will capture an increased portion of the expanded edge market as we introduce new offers in Private 5G, IoT, and what we call SASE, Secure Access Service Edge.
As you know, we did a wonderful acquisition with Silver Peak, which gave us a tremendous entry point. Now, cloud obviously is the largest market we play in, and will rise to $151 billion by 2025. It's a major opportunity. With hybrid Cloud Management, a new market for us, increasing at 7% CAGR. The cloud market also covers Hybrid Cloud Infrastructure and traditional infrastructure, which is obviously what people know us for. As the customers embrace hybrid, we anticipate the market for private cloud also will grow in the double digits. This summer, at HPE Discover, we launched our new offer, which we call it HPE GreenLake for Private Cloud Enterprise, which is a modern private cloud experience for traditional and cloud-native workloads, designed specifically for enterprise needs in mind. Now, let's talk about compute.
Compute today, and we are in the house of compute by the way, is for us a $54 billion market and underpins many of our cloud solutions. Everything has to compute. It is essential in accelerating the advancement of our HPE GreenLake platform. That's because in an edge to cloud platform, you require to really deliver an optimized infrastructure for the different type of deployments and workloads across your entire hybrid IT estates. This is where HPE has an advantage, because we engineer our entire infrastructure portfolio to meet the unique requirements of a hybrid cloud.
Starting fiscal year 2023, here just around the corner, we will roll out an aggressive roadmap of innovation across our core compute portfolio, expanding into new workloads to help customers accelerate their hybrid cloud transformations with HPE GreenLake, because that experience gets delivered to HPE GreenLake. Now, data obviously is a super critical market, and is poised to grow 1.6 x to $116 billion by 2025. AI at scale solutions will lead the CAGR growth of the market we plan to enter. We define the broad data market as including Data Protection S ervices, AI at scale, high-performance computing, mission-critical solutions, and storage infrastructure. They're all geared to really process that data, to store that data. Customer recognizes today how critical it is to unlock the value of their data.
I have said many times that we have entered what I call the new age of insights. This is. Data is the new currency in this digital economy. That's why it has become paramount for them to generate insights and convert quickly to action, so they can build successful, new compelling experiences for clients, and most importantly, speed critical decision making. The HPC AI market is rapidly accelerating. Our leadership in Exascale Supercomputing positions us to play an essential role to power what we call AI at scale. Now what we see is the word exascale and HPE are 100% related. We have introduced industry-first innovation like Frontier, the world's first exascale supercomputer, built for by HPE, for the Department of Energy, the Oak Ridge National Laboratory. With Frontier's performance of 1.1 exaFLOPS, the fastest in the world.
When you add even the next seven, it's still the fastest. Now the laboratory will have this amazing capability to solve some of the wide range of challenges we all live in our societal world, whether it's to advance modeling and simulation, high-performance data analytic, analytics and AI, weather forecast, and you name it. Now, the issue is that how we make that available to enterprises of all sizes. Now we can make that available, because now we can not only provide that to, call it, government agencies or high research, high-end research institutions, where we can make it available to any enterprise, to our HPE GreenLake, HPE GreenLake platform as a part of our as-a-Service offering. Now, we also provide HPE systems to a lot of customers. So let me give you a great example. We just recently delivered an HPE Cray system to ExxonMobil.
Actually, it's just around the corner, probably you went by when you came here. Now this system will power the company's proprietary and patented algorithms to pioneer new ways to conduct high-resolution seismic exploration. This system is of 20+ petaflops and will provide ExxonMobil an amazing capability to making decisions in production while also controlling costs. With HPE GreenLake for HPC, any enterprise of any size gains actually now access to the most proven market-leading HPC technology through cloud services that can be ordered on demand, managed in one unified experience. In our storage business, we continue to drive transformation to a data services business, and that's super critical. Our IP portfolio of storage products has become entirely software-defined and cloud native, and is now delivered through HPE GreenLake, which means customers have a true hybrid infrastructure to store and protect data across their entire Hybrid Multi-Cloud estate.
Early this year, we introduced the industry first block of storage-as-a-Service to deliver 100% Data Availability Guarantee built in on a cloud operational model to help organizations transform faster. We have tremendous exciting momentum across our business today, which position us really well for tomorrow. We have carefully designed a strategy that capitalizes on market trends with, I believe, an unmatched portfolio that anticipates customers' growing Hybrid Multi-Cloud needs. The one thing I'm really proud of, I see people here watching us today with us, our 60,000 team members around the globe are executing that strategy extremely well, helping us realize our ambition to be the edge-to-cloud company. Our portfolio underpins our financial success.
In pivoting to a richer mix of software and services and implementing a consumption-based business model, HPE is increasing both durable recurring revenues and higher gross margins, all of which will drive greater free cash flow. We are relentlessly focused on delivering customer-centric technology breakthroughs. With the competitive advantages that our leadership position bring, HPE is poised to deliver on the commitments we have made and maximize shareholder value. I believe HPE's transformation over the last few years has been nothing more, nothing short of remarkable. We have predicted customer expectations and leaned into exceeding them in ways that only we can. We have a strategy that others strive to emulate. We see that every day. Everybody's trying to copy what we do. The experiences we offer are distinctive, and we have created a performance culture that drive results.
I have often said HPE does not wait for the next big thing to happen. We accelerate what comes next for our customers, our company, and our shareholders. Before I pass it to Tarek, let's take a look at a great example of how innovation is doing just that.
The very near future is gonna be an explosion of innovation.
We're talking about improving health. We're talking about improving clean energy. This is a very important milestone for the nation and for the world.
This is a culmination of a long-term dream. Together with HPE and AMD, today we are announcing Frontier. It is going to be able to do 2,000 petaflops or 2 exaflops. This machine is going to change the world. This machine is going to drive how the entire industry moves forward.
I talk to our industrial partners, for example. They tell me that they're really excited because Frontier provides them with that ability to do an engineering design cycle within a finite amount of time. That's when we're doing real science.
Frontier is gonna allow us to design even more efficient, cost-effective, reliable, and powerful wind turbines, which ultimately helps us be more sustainable in terms of our energy footprint globally. That's really what this is about. It's like putting a superpower in the hands of your engineers around the world.
That is extremely rewarding, knowing that we are preparing the next generation. We give them the tools they need to make the next leap.
It moves the future toward us faster.
There's just gonna be an explosion of not only results, but an explosion of new questions.
Ultimately, this achievement challenges each of us across all our industry to ask, "What is the next frontier?
That was quite something. Hopefully, you would agree. Well, good afternoon, everyone, and thank you for joining us today for our SAM 2022. I look forward to providing my insight into how the vision and strategy that Antonio laid out will translate into a financial profile that will maximize value for our shareholders. At our SAM presentation last year, I took you through how our edge to cloud as a service strategy is delivering revenue and free cash flow growth that is increasingly recurring at higher margins. At SAM 2022 today, I'm very pleased to say our financial thesis remains intact, and HPE is well-positioned for even broader Value Creation. Today, I will provide an update on our fiscal year 2022 progress versus our SAM 2021 targets.
We will then offer a segment-by-segment view of how we're shifting our portfolio mix to accelerate growth while delivering solid and consistent financial performance. I will also share our fiscal year 2023 outlook, three-year long-term financial targets, and the capital allocation framework we stand by, all of which are designed to maximize shareholder value. We have been pleased year to date with our performance in fiscal year 2022 in what has proven to be another very dynamic year, given supply constraints, our forced Russia-Belarus exit, and rising foreign exchange headwinds. As stated during our Q3 earnings call, we continue to see sustained demand and solid momentum. This gives us confidence in achieving our original SAM 2021 guidance for fiscal year 2022, and this in spite of Russia and FX fluctuations now at 300 basis points since the beginning of fiscal year 2022.
To put things in perspective, FX and Russia have impacted our Revenue Growth, EPS, and free cash flow approximately by $700 million, $0.16, and 250 million respectively. Today, we are very pleased to confirm our fiscal year 2022 outlook of 3%-4% revenue growth adjusted for currency, GAAP EPS guidance of $1.20-1.28, non-GAAP EPS guidance of $1.96-2.04, and free cash flow in the range of $1.7 billion-1.9 billion, which attests to the resilience of our business. Specifically for Q4, we are tracking to our Q4 guidance of revenue growth of at least 5% sequentially and non-GAAP EPS in line with guidance of $0.52-0.60.
In summary, as 1 billion analysts put it during the Q3 earnings call, maintaining SAM 2021 guidance for FY 2022 in spite of these headwinds equates to taking of guidance. In terms of capital returns for fiscal year 2022, we expect to pay dividends of roughly $625 million to shareholders, which represents a yield near 4% at the current market price. We're also on track to repurchase at least $500 million in shares. I'll also like to note that our Cost Optimization & Prioritization Plan announced in fiscal year 2020 because of the global COVID-19 pandemic is nearing completion.
We're very happy to be able to report that despite unforeseen inflationary pressure, we have achieved annual cost reductions of approximately $1.1 billion on the last twelve-month basis, of which we can attribute $820 million to the fiscal year 2020 plan. We have over-delivered on our pandemic restructuring target of $800 million and expect to attain savings well above our target by the end of our fiscal year 2022. Now let me walk you through the math. Starting from fiscal year 2019, our last 12-month reported cost of sales through Q3 of fiscal year 2022, excluding material costs, is down roughly $705 million, of which $390 million is attributable to the Cost Optimization & Prioritization Plan.
Equally, the non-GAAP OpEx saving attributable to the plan totaled $430 million when adjusting for the consolidation of the cost related to four acquisitions such as Cray, Determined AI, Zerto, and Silver Peak, which together added nearly $550 million in OpEx. In summary, our Cost Optimization & Prioritization Plan has already delivered a total of approximately $820 million of annual savings. Again, by the time we cross year-end fiscal year 2022, we will exceed this figure. Please refer to the detailed calculation reconciliation in the appendix for further details. To achieve these savings, we will have spent slightly above the $1.3 billion budget that we announced back in fiscal year 2020.
The conclusion is that we have executed well our Cost Optimization & Prioritization Plan following the pandemic, and Antonio and I now consider the business to be right-sized. Our message to investors and the team members is the same. We will remain disciplined, and we will maintain our productivity focus moving forward. Given that we do not anticipate further restructuring programs moving forward from now on, we can expect our non-GAAP EPS and free cash flow per share to converge as cash restructuring costs diminish rapidly. More on that later. I'll cover that with you. Let's now discuss the key tenets of our strategy. Please let me remind you of our long-term Value Creation Drivers. First, we are improving our growth and margin profile through our mix shift to higher growth and higher margin segments across our portfolio.
Second, our accelerating as-a-Service momentum is driving ARR growth and further lifting our gross margins through software-rich offerings. Third, our capital allocation priorities balance investments to drive further longer-term revenue and free cash flow growth while consistently returning capital to shareholders. Customers find great value in the richness and breadth of the HPE portfolio. We believe our edge, cloud, and data end markets in the hybrid world are particularly receptive to new high margin, software-intensive offerings delivered as-a-Service through our HPE GreenLake cloud platform. We intend to continue to drive adoption of our HPE GreenLake cloud platform for years to come, as in parallel, we extend our market leadership and expand into profitable market segments with each of our BU segments, such as Edge, Compute, HPC/AI, Storage, and Financial Services. Let us first discuss our cloud business, HPE GreenLake.
Our pivot to an as-a-Service model is gathering momentum, with HPE GreenLake being the foundation of our as-a-Service strategy. Customers have spoken. Their view is that the world is hybrid. In this hybrid world, they envisage their infrastructure to be distributed with multiple edges to multiple clouds, connected to their private and colo data centers. This is precisely why Antonio said nearly four years ago, the enterprise of the future will be edge-centric, cloud-enabled, and data-driven. As you've seen from Antonio's presentation, the hybrid cloud market is large. We estimate it to be growing 9% from $78 billion today to $101 billion in 2025. We are capturing that growth through our HPE GreenLake Edge to Cloud platform, which permeates across all our business segments.
It is worth noting that our estimates in the hybrid cloud market include consumption of solutions as-a-Service for Hybrid Cloud Infrastructure, such as server, storage, and support, as well as Cloud Management software and services. This is because more and more customers prefer to consume hybrid infrastructure as-a-Service with a robust partner on a service level agreement basis, as opposed to managing that infrastructure by themselves. This is why we're seeing substantial growth in hybrid cloud. Our as-a-Service order levels has shown a growth of 86% year to date. This above market trend growth attests to the lead our HPE GreenLake platform has today over the competition, and we have every expectation this will continue as we strengthen and scale the services we offer. This includes operationalizing these services through not only our direct sales force, but also our indirect partners.
We are expanding our TAM into hybrid Cloud Management Software and Managed Services , and expect our ARR growth to be a 35%-45% CAGR over the fiscal year 2022 to fiscal year 2025 period. Most importantly, our ARR gross margins are already well in excess of the corporate average of 35%, and we expect our HPE GreenLake business to drive further margin expansion as we continue to build and deliver greater mix of software-rich solutions. I would like to accentuate the point that our mix of software and services was 61% at this point last year and was 64% in Q3 this year. We expect that mix improvement to continue at a healthy pace as we expand our HPE GreenLake cloud platform and anticipate software and services to reach 74% of the ARR mix by fiscal year 2025.
The key takeaway is that our as-a-Service products are resonating and gaining traction in the market. With that, now, let us transition and deep dive into each of our BU segments, their Total Addressable Market, their operating priorities, and fiscal year 2022 to 2025 outlook, starting with our Edge business, Aruba. As we transition to the next slide, I would like to highlight that in order to facilitate your analysis of the market opportunity, we have included in appendix to this presentation that will be posted online, a detailed reconciliation of market estimates. Our Edge business, Aruba, continues to perform very well. Our Q3 revenue growth accelerated to 12% year-over-year in constant currency, and our margins improved to 16.5%. We're extending our share gains in switching, Wi-Fi at scale, and SD-WAN, and pushing further into Automation, Security, and Network-as-a-Service .
We have great confidence about the growth runway for Aruba, and we will continue to invest behind this growth. Aruba operates today in a $48 billion market that is growing at a 9% CAGR. We're pushing further into adjacent market, such as data center switching, Private 5G together with our CMS units as Wi-Fi and 5G converge, and SASE, Secure Access Service Edge. This is to target a greater TAM that today totals $69 billion growing at 10% per year to $91 billion by fiscal year 2025. In parallel, we are continuing to take market share aggressively by executing on our extensive order book. In summary, we believe Aruba is poised to become a Rule of 40 business over the next three years with mid-teen sales growth and mid-twenties operating margins.
This will bring the segment's revenue to 15%-20% of the corporate total revenue by fiscal year 2025. Let's now discuss our DataBU segments, more specifically Storage and HPC/AI. In storage, the TAM, which includes storage infrastructure and data protection, is a $64 billion market growing at 4%. We're continuing to shift our portfolio to our margin-rich owned IP offerings. The growth in our owned IP offerings and revenue was above 10% in the most recent quarter. Even within our owned IP offerings, we are migrating our portfolio to more software intensive as a service products. This gives us increasing confidence in our mid-teens operating margin with top line growth at or above market over the next three years with our own IP products growing faster than market.
Our HPC & AI business plays in a $10 billion market, which includes HPC solutions, mission-critical systems, and AI at scale. That market is growing at 5%, and the trends are in our favor, and we are uniquely positioned. Demand is rising for AI machine learning workloads and big data analytics. We had nearly $3 billion in backlog exiting Q3, which gives us confidence our share gains will continue in fiscal year 2023. Let me reiterate the key takeaways for HPC/AI. First, this is a business with very high barriers to entry. Second, we are the only company on the planet with these set of capabilities. Over time, we intend to make HPC more accessible to enterprise customers by offering it as a service. We expect this business to grow faster than the market and to deliver double-digit operating margins.
With respect to our Compute segment, we estimate the compute TAM to be a $54 billion market. For consistency's sake, we present the market including China, but not tier one hyperscale customers. We capture tremendous value from China far beyond our peers through our unique joint venture structure, H3C. We shall return to H3C in a moment, and I know you have questions. Please note that our Compute segment does not consolidate H3C. IDC considers the three-year world market CAGR outside of China to be 2%. We expect to grow in line with that view, and in doing so, to capture the majority of the value share in the most profitable segments of the market. The Compute segment is a critical component of our Bridge to the Future as it enables our businesses in Edge Compute, GreenLake cloud, and data storage.
At SAM 2021, we lifted our operating margin target for Compute from 10%-12% to 11%-13%. We are pleased to note that we have operated above this range for much of the year as our flexible pricing has allowed us to respond rapidly to input and freight cost shifts. Despite the outperformance thus far in fiscal year 2022, we consider it prudent to maintain our three-year operating profit margin target at 11%-13% to reflect the cyclical nature of this business. Having said so, that is plenty of margin to allow both reinvestments in Compute and enable investments in businesses we expect to grow at faster rates in the future. Let's discuss now our HBFS business. Our captive financial services business, HBFS, is an incredibly well-run business, delivering a consistent Return on Equity , even in adverse macroeconomic cycles and high interest rates environments.
Furthermore, it facilitates our as a service pivot in multiple ways. HBFS creates the investment capacity that allows customers to accelerate their digital transformations. It is particularly critical in providing financial capabilities in support of our GreenLake as a service offerings. Again, HBFS also plays a major role in accelerating our pivot as a service with its best-in-class asset management business by creating that investment capacity that our customers need, and in doing so, it is also promoting the Circular Economy . HBFS's track record in managing the entire life cycle of infrastructure assets from certified pre-owned down to recycling is second to none.
This opportunity is large because according to a 2021 Capgemini survey, nearly 90% of enterprises are only recycling less than 10% of their IT hardware today. Many of you are likely to have questions about the performance of the financial services business in a rising rate environment and an economic downturn. The answer is that we price on a spread. When the cost of money rises, we adjust our lending rates to preserve our gross profit dollar. Most importantly, our historical loss ratio in this business and where we are now is just over 50 basis points on our total portfolio value in the amount of approximately $13 billion. During the height of the pandemic, the loss ratio hit 94 basis points, which attests to the solidity of this business, for which we continue to see a long-term Return on E quity of at least 18%.
Let's now discuss our H3C business in China, in which we own a 49% stake. China remains at the top of the list of the largest and fastest-growing IT markets in the world. We are participating in that through our H3C joint venture. H3C is a very strong player in a fragmented market. In fact, as we show on this slide, H3C has expanded its share in the China market by six percentage points in just the past four years and delivered substantial profits to its shareholders, such as ourselves. This contrasts with the performance we have seen in China from any other multinational firm in our sector. I would like to emphasize that we are not passive partners in this structure.
We consult regularly with management on material issues and are actively involved in setting H3C's strategic course, including review and approval of budgets, product roadmaps through board oversight. I would like to remind you that we appoint the board chair and the CFO. We're very pleased with this structure, as it has contributed a substantial amount of earnings through our commercial contracts with H3C and equity interest to our EPS and free cash flow. As previously disclosed, we extended our existing put option that is struck at 15-time trailing 12-month earnings through October 31st, which is just a few days away. We have been negotiating with our new partners, JAC Capital and Wise Road Capital, for the past few months a potential extension of our put option, and the discussions are progressing well.
We now have an agreement in principle with our partners to further extend our put option until December 31st, 2022, subject to final approval in China to allow our partners to finalize their engagements with their own stakeholders and make a final decision regarding our stake in H3C. We will obviously keep you up to date. Let me now turn to our outlook for fiscal year 2023. We are guiding for revenue growth of 2%-4% adjusted for currency. This is in line with our long-term revenue growth expectation. Our view remains one of enduring market demand given the mega trends of digital transformation and the explosion of data. We also believe our own portfolio differentiation will allow market share gains.
Our guidance incorporates current thinking on the macroeconomic picture and FX risks, and also assumes that our backlog will contribute to our revenue growth in fiscal year 2023. We expect our operating profit growth to exceed revenue growth again. We are guiding to 4%-5% growth in operating profit, which translates to GAAP EPS from $1.38 to 1.46, and non-GAAP EPS from $1.96 to 2.04. This is flat year-on-year at the midpoint, which we consider an achievement given headwinds such as FX that I will discuss in the next slide. For modeling purposes, you can consider OI&E to be a $20 million-40 million headwind for the full year. We also currently expect a non-GAAP tax rate of 14%, which is consistent with prior years.
We expect rising operating profit and declining restructuring charges to allow us to increase our free cash flow generation again in fiscal year 2023. We're guiding to $1.9 billion-2.1 billion in free cash flow. We expect free cash flow to follow our typical seasonal pattern, which I will remind you is a use of cash in the first half of the year and a significant free cash flow generation in the second half. Let's now deep dive on our EPS guidance for fiscal year 2023. Please let me illustrate some of the moving pieces in our FY 2023 guidance. At the midpoint of our FY 2022 range, we will deliver $2 in earnings per share.
This includes $0.03 that we earned from Russia in Q1 prior to our exit from the country, and thus, this will be a headwind to EPS in 2023. It also includes a return to our standard levels of OI&E after a strong year of gains for our Pathfinder investment portfolio. With more than 50% of our revenue denominated in foreign currencies, we also are facing significant currency headwinds. The U.S. dollar has strengthened materially against our primary international currencies such as the euro, the yen, and the pound sterling. We expect currency to be at least a $0.30 headwind in fiscal year 2023. We have a plan in place to offset these headwinds through portfolio mix shifts, our as-a-Service pivot, pricing and operational execution as long as FX rates in FY 2023 do not deviate significantly from current FX spot rates.
Let's now pivot to discuss our free cash flow outlook for the next two to three years. Further expanding our free cash flow, and by extension, our free cash flow conversion ratio, is a top priority of the company. We're very pleased with the free cash flow growth that we have shown in recent years, and we are on track for free cash flow growth in fiscal year 2022 to our guidance range of $1.7 billion-1.9 billion, despite challenges such as supply constraints, currency, and Russia. The free cash flow we generated from Russia is now out of our numbers for the future, and we are facing FX Headwinds , which we believe will take a good couple of years to subside.
Despite these headwinds, we are still forecasting our fiscal year 2022 to fiscal year 2024 free cash flow guidance to attain at least $6.5 billion for the same period instead of $6.5-7 billion previously communicated at SAM 2021. Let me break down for you the key drivers of free cash flow for the next two to three years. One key driver is expanding earnings. We expect sales growth and earnings to grow faster than sales growth through 2024. A second driver is our declining cash restructuring costs. We have substantially finished our next restructuring program announced in fiscal year 2017, and our Cost Optimization & Prioritization Plan announced in fiscal year 2020 as a result of the global COVID-19 pandemic.
Our cash restructuring costs related to these programs are declining materially and will represent an immaterial amount by fiscal year 2024 and fiscal year 2025. As we work through our substantial backlog, we expect a reduction in inventory levels over the next two years, which will drive an improvement in cash flow over the same period. This is why, with the cash impact of our restructuring programs receding, we expect that in the next two years, we will finally see the conversions of non-GAAP EPS and free cash flow per share. It's now time to recap our investment thesis. We believe HPE is well-positioned to maximize shareholder value. First, we have the right portfolio of assets to capitalize on the mega trends of edge, cloud, and data with our differentiated edge to cloud strategy, and we're driving strong performance across the portfolio.
Second, we are pivoting our business towards HPE GreenLake and higher margin as a service revenue. Along the way, we're winning customers as we help them bridge multigenerational IT environments. All of this translates into an attractive long-term financial profile. We expect sustainable long-term growth of 2%-4% led by healthy growth in Aruba and HPC/AI. These businesses are 20%-25% of our revenue this year and will be 30%-35% of our revenue by fiscal year 2025. We expect now, after a major transformation of our offering, our storage for business performance to improve, and we are forecasting revenue in line or above the market overall growth for storage with our own IP products growing faster than the market. In addition, we continue to expect our ARR to grow at a CAGR of 35%-45%.
We'll also have a better margin profile driven by the mix shift towards more software content throughout our offerings. All of this is supported by a transformed go-to-market engine with better resource allocation, optimized to drive superior levels of productivity as attested by order growth at 10% as of Q3 of fiscal year 2022 year to date. We are driving sustainable, profitable growth with our unique assets and strategic investments. This will deliver EPS growth of 3%-5% and at least, again, $6.5 billion of cumulative free cash flow between fiscal year 2022 and fiscal year 2024. With that, let's now discuss our capital allocation moving forward. We plan to deploy cash within our capital allocation framework to maximize shareholder value. To do this, we always follow a disciplined return-based capital allocation framework.
We have a rigorous investment evaluation process that balances investments for growth with capital returns to shareholders. Our top priority remains investing in high ROIC growth areas to capture the edge to cloud opportunity as much as possible while remaining committed to dividends and opportunistically repurchasing a significant amount of shares. We have invested both organically and inorganically to fuel innovation, drive revenue growth, and expand free cash flow. We will continue to prioritize our higher growth, higher margins businesses, and you will see further internal investments in our as a service business, next generation storage with cloud data services, and the edge. On the inorganic side, we have built a very successful track record of acquisitions going back to Aruba and more recent examples like Cray, Silver Peak, Determined AI or Zerto.
Our acquisitions have followed a disciplined ROI-based framework, and we intend to stick with the discipline even though valuations are more attractive today. Beyond investments, returning consistent capital back to our shareholders remains a critically important element of focus in maximizing value. To conclude, we have the right strategy, we are aligned to dominant market trends, and we have the right financial architecture that will maximize value for our shareholders. Now with that, I'll turn it back over to Jeff. Jeff?
Nicely done, Tarek.
Good luck.
Great. Thank you, Antonio and Tarek, both. We'll take a little pause. We'll do a little tap dance to allow the crew here to reset the stage for Q&A. I'd like to remind you all that all the materials that we've shared today will be available on the website, if you wish to review them. You'll also see our press release, where we've highlighted some of the major themes that we've discussed, and messages from the day. Looks like we're in business, so please, let me welcome back Antonio and Tarek.
Thank you.
All right. Perfect. You wanna sit here?
No. Perfect. All right. I'd like to sit over here.
Okay, so to get started with Q&A, we'll take some questions from guests in our live audience. We also have analysts listening virtually. If you are here in person and would like to ask a question, just raise your hand and we'll have a mic runner come over. If you're on the webcast, we'll submit it to the online platform. Please, introduce yourself and hold yourself to a single question and a follow-up. Why don't we start with Tim. Right behind you, Tim.
Thank you. Tim Long at Barclays. Thanks for the presentation. Was hoping you could talk a little bit about, there were several areas in there, looks like more aggressive market entrance data center switching, SASE, Cloud Management. Can you talk a little bit about, how you see, you know, kind of investment to further into those businesses and what type of, you know, ramp of revenues and market share you could achieve? Most of them seem pretty comparable to what your sales force and channel is selling now, so I'm assuming that's not a big part of it. But if you could just walk us through kind of cost and success outcomes in some of those newer areas. Thank you.
Sure. We have Phil Mottram here too to answer some of those questions, some aspects of that question. For us, the data center switching market is a natural extension of what we do today. Think about it, you know, we provide a very comprehensive portfolio in the campus and branch with switching, Wi-Fi. As I think about, you know, the edge of the data center and then eventually the core data center, we have architected this over the last few years, an operating system that allows us to bring those those featuring capabilities and functionality into the same operating system. That allows us to really build a modularized set of product offerings for the top of rack and eventually in the data center itself.
We believe we have the right to play there, and customers are asking us to manage that on a consistent experience. That's where the Aruba experience really brings to table because the way we manage those ports, whether it's in the branch, on the campus or in the top of rack, it's the same thing. That's one example. The other example, obviously, SASE, as we deploy SD-WAN in this massive distributed enterprise, customers want to deploy that with security built in the core. SD-WAN and SASE are totally synergistic, and so we continue to invest in that market as well. Phil, why don't take it from here and add your thoughts how we're doing that from the R&D perspective and how we are shifting investments?
Yeah, sure. It's Phil Mottram. I look after the Aruba business. In terms of the data center area, that's not a big step from where we are today. If you take the portfolio that we already have today, we're about 80% there from a starting perspective. It's just adding more features and functionality that large enterprises would want in the data center space. Data center market is somewhat around enterprise customers and then also somewhat around hyperscale customers. I think we'll start more with the enterprise customers. As I say, it's not a big step away from where we are today. It's probably about an 18-month investment.
When you get to the end of the product, and we already have some products and business there today, by the way, but when you get to the end product, you know, it leads to incremental sales, not only for Aruba, but it also supports the storage and the compute business as well. So I think from a company investment perspective, it's a good call. On SASE, as Antonio mentioned, there is a convergence in the market between networking and security, so the market's more heading towards secure connectivity. Today, we partner there and have some of our own products. We're evaluating whether we should invest further there. Then the other area that was mentioned in the presentation was Private 5G.
You know, when you see customers today deploying networks, they use most of our products such as campus switching, SD-WAN, and Wi-Fi for the deployments. You start to see some customers considering Private 5G for outdoor use cases. Today we have a partnership relationship supporting our activities in Private 5G, and we're evaluating whether we should do more either on a build, buy or continued partner basis. They're the areas of expansion.
Okay. Next, I think Shelby's got Simon over there.
And then you've got Aaron.
Okay. Thank you very much. Simon Leopold with Raymond James, over here on the right.
Hey.
You talked about the foreign exchange headwind in terms of your revenue. Maybe you could help us a little bit by unpacking the impacts on your gross margin and your operating expenses. I assume you've got a large number of employees outside the U.S., therefore not paid in dollars, and maybe you've got some natural hedges. Anything you can offer to help us understand how to think about these assumptions beyond the sales line. Thank you.
Okay, it's obviously a complex question to answer, but let me try and dissect that for you. First, Simon, I would say from a cost structure standpoint, we believe the company is right-sized. You cannot fight any more FX Headwinds through cost reductions. We can maintain the discipline and the productivity focus. We probably can be a little bit more efficient, but the vast majority of the EPS growth will come from the top line and also the portfolio mix shifts with higher gross margins. Having looked at what has happened to foreign exchange rates more recently, you can relate to that too, better than I do.
Look at the pounds, look at the euro, look at the yen, and if you look at our geographic mix, we have to deliver the top line to be able to make up the foreign exchange headwinds. We're confident we can do so, and the reason why we're confident we can do so is that the demand, unlike other players who have talked about the demand in Q3, we see the demand to be enduring and sustained, number one. Number two, we have a substantial backlog that will contribute to the realization of revenue in fiscal year 2023. In some cases, in some parts of our company, we don't think that the backlog will decline materially by the end of fiscal year 2023, and this is why we're giving you guidance on a CAGR basis on revenue of 2%-4%.
No one can predict foreign exchange rates with great accuracy in the long run. That's why our view is that over the next two years, we're not gonna see material appreciation. We may be wrong, and that's why I said in my speech, as long as the FX rates in fiscal year 2023 do not deviate substantially from current FX spot rates, we feel comfortable with our guidance. Antonio Neri, do you wanna add something to that?
No, I think, he's asking the question about cost. We believe we are right-sized. Listen, we went, Simon, out in the first quarter of the pandemic with an aggressive plan to drive the optimization and the reallocation of resources. We have done that, both at the R&D level, in the capabilities, and now in the go-to-market. This is a very important year for us in 2023 to accelerate that journey. We have a big transactional business that's executing well. I argue the compute business has done a remarkable job in our pricing, capturing profitable share. At the same time, you know, when we think about the pivot to become the edge-to-cloud company, we are also making investments.
That investment is to drive the rich mix of software and services, which, as Tarek said, is already above the corporate average of what we deliver. I think our global footprint is an advantage because you can actually distribute work where it makes sense. Ultimately, we continue to upskill and reskill. We feel good. I mean, the demand at this point in time continues to be there, is enduring. I think one point of differentiation we have against our competitors is actually HPE GreenLake, because if there is a recession environment of sorts, customers don't want to deploy CapEx, but they can still continue with their digital transformation and do what they need to do and only pay for what they consume. If you're already on GreenLake, that's a natural extension. There's nothing unnatural for them.
While I was using GreenLake for that, now I'm gonna use it for the other stuff that maybe require CapEx expenses that now they maybe don't want to do. I feel that, you know, with the big backlog that we have, which is a long tail, and Tarek said it's elongated, because even as we make progress on that, it's still big. The enduring demand we continue to see, HPE GreenLake, and the fact that customers, even in recessionary environments, will need to continue with their digital transformation. We feel pretty good about that guidance we gave to you. Okay.
Yes, Simon.
I think it was Aaron that has been waiting for.
Thanks, Antonio. Aaron Rakers at Wells Fargo. I just wanna kinda unpack a little bit of Simon's question in specific to the compute segment. Can you talk about what you're seeing there from a backlog perspective, given the constraints that you and everybody in the industry's operated under over the past couple of quarters? When do you think backlog peaks there? How are you thinking about that growth profile of that business as we look through fiscal 2023? I think in that same context, I'm curious, 'cause you brought it up, the flexibility of your pricing model. As we see some component pricing rolling over quite meaningfully, remind us again of what gives you comfort of sustaining that operating margin. How do you flex that model in a down pricing environment? Thank you.
Sure. I'll start, and I'll certainly ask Antonio and my colleague.
Neil.
Neil MacDonald, who is in the room, to elaborate on this. We've done phenomenally well with compute. There's no question about it. If you look at the profitability of our compute business and our nearest competitor, Dell, we, from a margin standpoint, make more money in compute than they do across compute, storage, and networking taken together. We are navigating carefully the supply chain constraints, and what we are starting to see from a supply environment is that some commodities are being redirected towards the B2B sector. The reason why we say that, it's because if you think about mobile phone industry globally, it's probably in a mid-single digit decline. If you cover the PC industry, the decline that has been forecast, I think by IDC, and we have Crawford and the team here, the PC industry is declining 15%.
Some companies have announced for specific components such as RAM, shrinkage of capacity, but the rest of the industry capacity hasn't shrunk. Therefore, that flow of goods and materials is being redirected, and we feel comfortable that we can resume our manufacturing and shipment, and fulfill the demand that we have with the backlog that we have. We don't comment on the backlog or business unit by business unit. As you can imagine, it's not something we wanna do. We're not a backlog company. By the way, by next year, I'm gonna stop giving you orders by BU and backlog because this isn't any more a point. We need to focus on revenue and how we convert what we've got in orders to revenue moving forward. I don't know, Antonio, if you wanna add something.
No, actually, Neil is here. Neil is here.
There he is.
Thanks. Demand has continued to be robust for our compute solutions. Our customers are embracing compute in companies of all sizes for all kinds of workloads as they continue on their digital transformations, wanting to have that cloud experience operationally, but with aspects of private cloud. Across many different workloads, many different data formats, many different use cases, we continue to see robust demand. Longer term, of course, you've heard how compute is central to what we're doing with HPE GreenLake, and it's also got a core role to play as customers continue to evolve their architectures to a modern edge to cloud approach. That's resulted for us in a very strong record backlog position, which consists of healthy increases both in AUP and in underlying units. Our revenue performance in fiscal 2022 has been driven by strong AUPs and constrained units.
In FY 2023, we expect to see more balance in those drivers of our growth in the following year. On the commodity side, we're very comfortable with the success of our dynamic pricing approach that we put in place through the whole pandemic and through FY 2022, and the success that that's delivered for us. We are seeing some moves in commodity costs, as you highlighted in your question, some of which are quite modest, some of which are maybe a little more significant. However, we continue to see other suppliers increasing costs, and inflationary pressures across the cost structure remain a pricing consideration for us. As we move into the new year, we expect to continue the disciplined approach that we've had to a very dynamic approach to forward costing and pricing, which has yielded the financial results that you've seen.
As Tarek indicated earlier in his remarks, we maintain our guide moving forwards on the operating margin range of 11%-13%. We see that as prudent given both our recent history and trajectory here, but also some of those pressures moving forward. Thank you.
Okay.
Thank you, Neil.
I think we've got Shelby with Wamsi on the side over here. We'll come back to you.
Thank you so much, Wamsi Mohan, Bank of America. Thanks for hosting us in your lovely headquarters. It's a beautiful building. I was wondering if you could unpack maybe the revenue growth from a different way. You know, we're seeing the various geos going through different types of challenges, whether it's FX or global issues. I'm wondering, when you think about the performance of the company, is it going to be similar to historical years, or are we seeing a big divergence across the geos? When you think about, I know you said you're still expecting, Tarek, the backlog to remain fairly elevated, but are you talking about the non-HPC backlog specifically to remain elevated in this instance?
Why should that be the case given that, you know, the global economy is seeing, you know, some material slowdown? What gives you the confidence? Are you not seeing any order cancellations yet, but are you know, as you look through over the next six months, are you expecting that there to be any deceleration? Is that baked into your guidance?
Yeah. Go ahead, and then I will chime in. All right. Or the other way around.
Yes. Thanks for the clarification question. We feel that our backlog will remain elevated across segments, and that obviously is not just a matter for the HPC segment, which is by itself having a different dynamic with contracts that are incredibly long in their fulfillment. We do believe that the demand will remain solid. You know, the IT infrastructure industry is counter-cyclical to a large extent. Antonio highlighted that. You gotta get to be more efficient if you're facing a downturn. So far, the signals that we have with our global sales team, headed by Heiko, who is here in the audience, is that the demand across all segments in our portfolio remains pretty solid, right? We're not seeing that.
You can expect backlog to continue to be elevated during fiscal year 2023, which gives us good momentum into fiscal year 2024 as well. Now the question is, how stable the supply environment is, and what are the pricing dynamics that we're gonna observe in this environment? Because the inflationary pressures are real. Yes, you know, you have effects with dislocation, but you also have inflation, and that opens up opportunity for pricing differently, and this is across the board in our company. Make sense?
The way I think about this, Wamsi, is the following. First, let me start with the product to geos and then to route to markets or customer segments. From the product perspective, as Tarek said, we continue to see enduring demand, and the backlog is not HPC, it's across the board. We quoted some of these numbers in Q3. We said that the Edge business is 20 times historical levels. When you think about digital transformation in a distributed enterprise, you need connectivity. We believe that business will continue to perform really well. On the back, not just on the need of the customer, on the back of the fact that Aruba has a winning value proposition.
It was architected for a mobile-first, cloud-first approach, is delivered to the cloud, and now is part of HPE GreenLake, which give us a point of differentiation because the Edge, the core data center, and the cloud are now part of the same architecture. That's point number one. As Phil said, he's now entering new markets in many ways with very little friction. It's just a natural extension of what he's doing, and that's why through the reallocation of funding, we prioritize those new segments, which obviously come with very high margin, as you know. Second piece of this is that, as I talk to customers, which I do more than 50% of the time, there is no one of them has said, "You know what?
I'm gonna stop what I'm doing." Yes, I need to be judicious how I spend the money, where I make the capital investments, but now every business is an IT business, and if you are not innovating on your data, you're left behind. Our marketing team have done a wonderful analysis of brands that have accelerated their journey. They're winning in the market because they're operating in a new business environment, which basically automation, you know, cloud experience, e-commerce, all of that has to come in place. Now, they may decide to deploy CapEx or maybe do it as an OpEx, but we provide that capability through our HPE GreenLake platform. Now, when we think about geos, it's no question Europe has a little bit more challenges because of, you know, currency or because of the war, but it has been steady.
It's not like it has fall off the cliff. In fact, I think the analogy he used is, which I like, it is the sea level has risen and it's kind of there. It's not like it's been dropped onto the pond. It's still solid. I think because we have the opportunity to provide an end-to-end solution, we are uniquely differentiated in that space. Now, listen, if the currency go to hell in a handbasket, that's nothing I can do. At this point in time, I'm not a forecast on currency. I would not be here. I would be doing something else. But the fact of the matter is that we believe that customer needs still there and our portfolio is unique and differentiated. You know, listen, even compute for that matter.
Well, I think one area which I want the analysts to think about. Don't think compute's just a server. Compute goes everywhere. Private cloud has a compute, right? The edge has a compute processing. Everything is some sort of compute. We have the ability to put compute anywhere. There is a lot of things you today don't see. If you buy a GE, for example, MRI system, there is a compute there. It's called Hewlett Packard Enterprise. There's many others.
We've got a bunch-
Wamsi, apologies. I didn't mean to ignore the question on cancellations.
Y es, that's a good one.
Cancellations are really minimal. They were minimal in Q3 of 2022. They're minimal to this day. No change.
We've got a bunch in the front here. Why don't we go with Shannon to start?
Thank you. Shannon Cross, Credit Suisse. Is that right? So I'm curious, when you think about your business from an as-a-Service standpoint, I know for quite a while it was more of a push than a pull from a customer perspective, just as they were, you know, becoming educated and the sales and your channel was as well. What have you seen from a, maybe on a segment basis in terms of willingness to buy that way? You know, are there areas where you think they'll remain transactional, you know, for a long time?
Is there anything you can do to really accelerate it? Because it seems to me that the, you know, faster you can shift over to as-a-Service makes investors more comfortable, garners a higher multiple. I know that the growth rates of an ARR are pretty strong, but it just seems like you can't do rip and replace like Adobe did. Can you get closer than you are at this point? Thanks.
Yeah. We have Keith, because Keith talks to customers every day, and we follow a very structured segmentation in HPE as well. Maybe, Keith, you can come here as a start. Listen, you know, we see customers coming to us now. Why they're coming to us? Because they want an open Hybrid Multi-Cloud solution. The fact of the matter, workloads and data lives everywhere. They have obviously in the public cloud, they have on-prem, and they have more on the edge.
What they want is a consistent cloud operating experience with a consistent way to pay around that. The fact of the matter, the world has become more complicated, not less complicated. We can simplify all of that through the unification of that experience. I think we.. Ou r general segmentation is obviously the global accounts. As I talk, there are 100 customers already of that global accounts. 80% of them are HPE GreenLake.
We land and then we expand. We go down to the top-tier accounts, which allows us to get into new accounts. Some of them have never done business with us. As we go down into more of the commercial SMB, the partner plays a big role. What they like is the access to the platform, because then we provide them all the capabilities without them building it, but they can leverage our services, or they can use their own services. Keith, maybe you can?
No, I think you nailed it. You asked about customer segments, and majority of our business is up in the enterprise and above space. The focus has really been sort of fourfold. One is you heard it. We talked a lot about shifting our dialogue with our customers to be much more about cloud, data and edge, because they're looking for solutions from us. What that's done is that's really flipped the page with our customers, where we're now partners with them on their transformation, on running their environment versus just being transactional type scenarios. That's that relevancy has been significant. We've leveraged our advisory and professional services and our Partner Ecosystem to do that. The second is where Antonio just touched on, which is we're selling through and with our ecosystem.
The solution is with SAP, it's with Microsoft, it's with Google, it's with Veeam, it's with Nutanix and the others, because that's again the solution that's being asked for, all done in an as-a-Service way, right? VDIs, virtual desktops as a service, SAP as a service, backup and recovery as a service. That's been the sort of the second. The customer success aspect has been very successful, so we now have customer success architects with over 500 of our top customers. That ends up driving a significant amount of continued value out of the platform and additional usage out of the platform, which has done that. Then you asked about scale, and our real focus on scale down into the sort of mid-market small SMB space has been both through the cloud and managed service providers.
They're providing solutions to the customer, dental patient records to a dentist office, retail point of sale to the deli markets or whoever. That big push has really driven, it's everything's powered by GreenLake through the service provider to that customer. Then now as Antonio talked about early in the pitch, he talked about us creating APIs for our partners to leverage. We're now landing in all of our top distie marketplaces for them to sell solutions to their value-added resellers to get to that scale engine. That's where you'll see us really kick up scale outward. We've targeted our sales force on both new logos, and so you hear us talk about the new logos we secure every quarters. That's going up and up and up, and we'll have an even higher target next year. That customer success is driving the majority of our expansion within the customer set.
Yeah. Thank you, Keith.
Thanks.
Maybe Fidelma, you're there. I can't see you, but maybe you can talk a little bit about, Shannon, because it goes with that, about how we are building the experiences and the capability inside HPE GreenLake.
Yeah. I'm Fidelma Russo, and I partner with the teams here as the CTO. Over the last number of years, we've built the GreenLake cloud platform. You know, we've put a lot of investment, development investment into it. All of our cloud offers now are located on the platform. What that means is, you know, if you go out to a customer and let's say they're using Aruba on the platform, when they log into the platform, they now see our catalogs for compute, our catalogs for storage, our catalogs for private cloud and other services. That gives us an ability for customers to see other services that they may not have seen before when they were looking at each offer independently.
A lot of work going on to make sure that those are, you know, refreshed, and we give the different options like managed as a service, deliver the APIs through a common API developer portal for customers, integration with partners. We do it once, it gets all of the offers versus doing it multiple times. All of this, I think, is a great foundation for us to really do what you're looking for, Shannon, which is, you know, how do we accelerate this? We accelerate this by continuing to invest in the platform. Okay.
Why don't we stay up.
By the way, there is a whole back-end investment which we're not gonna talk today, which is, you know, to do this at scale, you need a lot of capabilities in billing and invoicing and so forth. Anyway. Kyle, right behind you. Yeah.
Thanks very much. Kyle McNealy at Jefferies. You mentioned that some of the impact from macro uncertainty, rising interest rate environment, potential recession risk is baked into your guidance for 2023. I just wanted to unpack a little bit about what that may look like for you, across your businesses. Which ones are more or less impacted? How much total revenue could that be, at least in terms of how conservative you are being for 2023? How much EPS? And then, you know, are you seeing any of the evidence of the behaviors from the customer showing some hesitation due to macro, which is giving you that insight? Anything you can share would be helpful there. Thanks.
Good to know. All right. I would say the impact is overall roughly the same across businesses with respect to inflationary pressure, FX and so on, right? Even if you take Aruba nowadays, it's incredibly global business. It wasn't the case just a few years ago, but it became completely global, just like anything else that we have. Really what we have modeled, and that's why you see my EPS bridge, is that we can offset, say about $0.40 total headwind coming from normalization of Q1 for Russia, which is $0.03, 0.08 from OI&E, $0.11, and then the rest is FX. I think we feel that there is at least a $0.40 headwind. We have plans to offset that at the EPS level.
Should FX rates deteriorate even further, then it's a different debate. We feel reasonably comfortable offsetting $0.40 of EPS with the current momentum we have coming from the demand, the backup that we have, portfolio mix shift, pricing, and quite frankly, brutal execution.
The other thing I would say, listen, I mean, we have plans in place to offset all of that. I mean, if you ask me upside of any sorts, which obviously we can give you a definite. We know when it goes back and forth all the time. Right now, that's our best view. You know, over time, that may shift one way or the other way. It depends, you know, specific time in the quarter and whatever. Right now, we are giving you our best insight, which is the $0.40 that he talked about, and that's what we have operationalized in our plan, and we have line of sight to deliver that. Which if you use Shannon analogy in Q3, I said, "Well, it looks like you're increasing guidance.
That was brilliant.
It was brilliant.
Are there any other separate impacts from macro demand environment-related risks that would be outside of your FX guidance within your guidance impact?
Well, you know, of course, inflation is partly reflected in FX, and it's reflected in the cost structure that we're seeing, right? That is something that we also have to factor into account. Labor inflation is not over, and it's not a U.S. phenomenon anymore. It never was a U.S. phenomenon. It becomes more and more acute now, even in parts of the world, like remote emerging markets, where we have our operations. Look, I have, in finance, like, 6,000 people working in finance, and they are distributed between Poland, United States, Mexico, India. We do feel that, as a global operation, pressures on labor inflation everywhere. We factor that in our guide, and so far we feel good about it.
I think the takeaway you should have is that, you know, we believe we can deliver this number, A, because the enduring demand that we see today, the fact that we have a, an organization that's right-sized, that we have a significant backlog, therefore there's a lot of tailwind into that momentum. I think as well the quality of the leadership team that executes day in and day out, as we have demonstrated here, you know, in my tenure, almost 20 quarters. Who believed that? 20 quarters. I think we have the confidence to deliver that.
Here on Samik up front.
S orry. Hi, Samik Chatterjee from JPMorgan. I just wanted to go back to the as-a-Service pivot that you have, c learly, the growth numbers there have been really impressive. When I try to look at that side by side with your ARR growth, I think what you had was, like, 22% year-over-year growth year to date.
Yeah.
What you're expecting for software and services out in 2025 seems a bit lower mix than what you had expected last year. Is there a different sort of adoption of the portfolio that you're seeing relative to what you had expected, relative to when you sort of think about the as-a-Service pivot itself? Because the Software & Services Mix is sort of coming down a bit. Does that have a margin implication of how you're thinking about it? Separately, just Intelligent Edge, you're guiding to a very steep ramp in operating margins now. Can you just talk about. I mean, I know Phil talked about the scaling of the business now being very incremental, but is there still linear ramp in margins from here on?
Sure. First of all, as you can see from the ARR slide that was presented, we're targeting about $1 billion in ARR at the end of this year. I wanna remind you that, at the end of Q3, we explained that due to supply constraints, there were certain-
Yeah
Installations that could not take place. Again, I wanna remind you that our year-to-date as-a-Service order growth is in the 86% level, right? All we have, and Antonio showed it in his presentation, $7.7 billion of total contracted value on our balance sheet related to as-a-Service. All of that will unwind, and we feel comfortable about the CAGR of 35%-45% for our ARR that I gave you. With regards to the mix, I think it's very comparable, 74% versus 76%. I think that's what you're referring to, 74% in 2025 versus what we had previously. It's, there's no change there. The goal is to enrich the offer. One thing that is super important that I would like to underscore is what Fidelma has highlighted.
'Cause once you now have in the cloud access to all the offerings, the cross-selling opportunity through the platform is substantial. That will fuel further order growth, further software-enabled solutions, particularly in areas that we just started to scratch, such as storage. There we have a pretty big transformation on the way, and that's why in my speech, I think you heard me say that we expect our own IP products to grow faster than the overall business unit because of that.
It's very simple, right? Our roughly, you know, directional for this year is $1 billion in ARR, a little bit south of that. If you take $7.7 billion, 1 billion to 7.7 billion, there is a long way, and it takes time because of the unwind in the balance sheet. The 35%-45%, assuming consistent delivery on the supply chain going forward, is very reasonable.
The other thing is to understand is that as we introduce even traditional infrastructure as we know it, like Neil, for example, there is a SaaS component associated with that, which is the software to deploy that compute. The entire storage portfolio, there is a subscription to the operating system to deploy that storage. There is a SaaS element, which is the software piece that comes potentially even by selling CapEx products. It doesn't need to be the whole thing, OpEx. It can be a component of SaaS plus CapEx, and obviously, when you go to the full consumption, it's the full as a service. We get the benefits on both sides. The architecture of our solution is designed to all transact to HPE GreenLake and deliver the value prop, whether it's CapEx or OpEx, even if it just includes SaaS.
Okay. Edge margins, Tarek? Oh, the Edge margins.
Oh, sorry, yes. I think right now, the name of the game at the edge is to continue to scale up the revenue. You do need to keep investing in the R&D areas, just like Phil mentioned, to get into those new areas that we're targeting, Private 5G, SASE, and data center networking. I feel very comfortable with the level of expenditure and investment in Aruba, and attaining those margins is a matter of revenue scale more than cost efficiency attained there, because you need to make that investment to continue to fuel the innovation in Aruba.
All right, we've got Meta in the back.
Thanks for the reminder.
Thanks. Meta Marshall, Morgan Stanley. Maybe first question, you know, in the capital structure area, you noted that you were gonna be a little bit more prudent on acquisitions, yet you guys mentioned a lot of areas in which you would potentially consider investing and expanding from partnerships. Just how are you weighing kind of a buy-build partner for strategic activity right now? Then second, just on supply chain, either the tailwind you expect from revenue or cash flow next year just from supply chain loosening?
Okay. With respect to our capital allocation framework, we really follow an ROIC-based model that allows us to prioritize decision-making between buy, build, or partner. I personally am not a fan of partners in that sense from an investment standpoint. They play a big role in driving revenue, but over time, you want to have the owner's economics. That's why it's really important that you decide whether you want to buy or you want to build. That's why you have to turn the decision in understanding really the ROIC equation. That's really critical in everything we do. With respect to supply chain, we feel that right now things are slightly improving, but we're not out of the woods.
We feel that the environment remains difficult, more difficult than it was before the pandemic for sure, but better than what was experienced for the first half of calendar year 2022. It is easing a little bit, but we're not out of the woods, and you can expect that this will be like that at least for calendar year 2023. We have our-
Mark is here.
The director of our global operations here, Mark, who is the one who lives this every day.
Thank you. Hi, everybody. Mark Bakker, Global Operations. As Tarek outlined, I think on the back of softness in demand in the PC client industry, smartphone, et cetera, we're seeing some improvements obviously, but it remains a very volatile environment. Lead times for semiconductors continue to be extremely long. And in particular, lead times for semiconductors that are produced on what we call the mature nodes continue to be very elevated, and that creates tension in the system. At the same time, to Tarek's point, supply chain environment is volatile. There is still high concerns around zero COVID policies in the China environment that could disrupt all those things. We expect that, as we enter calendar year 2023, that it will continue to be a difficult environment to navigate in despite the improvements we're seeing right now. All right. Thank you.
Thanks, Mark.
Matt, please. Yes.
Yes. Thank you. Matt Sheerin from Stifel. Just following up on that question on supply chain in inventory, you've obviously had a challenging couple of years on the supply side, but you've managed fairly well in the last couple of quarters, at least meeting guidance. Can you share any lessons learned or any material changes to your procurement strategy going forward? On the inventory reduction, you basically doubled your inventory days in the last couple of quarters from pre-pandemic levels. Do you expect to get back to those levels, or should we see some buffer inventory sort of longer term because of what's happening?
Yeah. I will share the answer with Mark. Maybe Mark, you want to start?
Obviously lots of learnings as a result of the past two years in the supply environment, the sourcing environment. I think the big learnings for us and which we'll continue to elaborate on is the need to c ontinue to strengthen and cultivate strategic partnerships with our suppliers. Diversification of supply base multi-sourcing continues to be high on our list. Engineering activities ensuring that we have optionality and usage of parts. Those are all, you know, significant learnings obviously that many of us have had as well as the ongoing focus on what we would call resiliency and agility in a supply chain environment where we need to look at where supply base is geographically and how do we ensure that we have fallback scenarios. Those are, I think, the biggest learnings which will continue to be on our focus in the years to come and work on.
Yes. Thank you. With respect to inventory levels, yes, you're correct. We're sitting on more than $5 billion of inventory. That's because we have a substantial order book, and we have buffered to be able to meet that demand. I personally think that you could see over the next two years a scenario where inventory levels will drop, and that is part of the guidance that we gave, and that is part of the reason why we feel good about cash flow generation.
I don't think that you're gonna be running supply chains in tomorrow's world, or today's world for that matter, to the same level of inventories that you used to have pre the pandemic. The world has changed. What Mark has said with respect to thinking in terms of resiliency and making sure we have contingency plans is top of mind for us, and that's a very, very important learning.
Why don't we take one last question? We have Sidney here in the middle.
Great. Thanks. I wanna first clarify. You talk about revenue growth for fiscal 2023 being 2%-4% adjusted for FX. But what would the growth rate be including FX, considering the EPS impact? I'll have follow-up question.
Yeah. This is a classic question that you have in every global business, right? The reality is your baseline is reset at the beginning of each fiscal year. Okay? Right now, if you take the FX rate that we currently observe in the market, which are the spot rates, our revenue guidance of 2%-4% is assuming the spot rates that you have today. We are October 19th. Our fiscal year finishes in less than two weeks, November 1st. We've reset the bar internally in the way we think about FX. As long as we are within the spot rate, you know, the guide that I gave you, 2%-4%, is based on those rates. Okay? When we will get together for our full year 2022 results, which is gonna be-
November 29th.
November 29th. Thank you. We will explain again where we stand on this issue. For the moment, the guide is 2%-4%.
Okay. Great. Thanks. My follow-up question is for the as a Service business. In the current environment, are you seeing more customers opting for as a Service revenue over capital spending? As you continue to grow this as a Service revenue over the next few years, how do you think as a Service could get to as a percentage of total? Finally, I understand there's a large component of software and services there in the mix, so the margin should be better, gross margin should be better. But how should we think about the steady state longer term operating margin for that business? Thank you.
First of all, I think we are gonna continue to operate in both the CapEx and the, what I call the OpEx world. The fact that we are growing 86% year to date, it tells you the adoption is accelerating. We see that. In fact, the as a Service market for on-prem is growing very, very nicely, both in the Hybrid Cloud Infrastructure and even on the traditional infrastructure. That's going very well, and that's why we have a very, very healthy pipeline. Keith talk about how we engage our customers, both from current customers and new logos that we are attracting all the time.
Today, with the addition of Aruba, which obviously was the first out of the gate to deploy an as a Service model for our networking campus and branch products, but now the Edge as a whole, we have now 65,000 Customers on the platform. We add hundreds of customers in the traditional business as we go forward. That number will continue to grow. The as a Service adoption is gonna go further and further out.
I think, you know, if you have a recession, like people trying to think about it these days, then that actually will accelerate it because people are not gonna stop and say, "I'm not gonna do anything." The people have to continue to accelerate the digital transformation, and I think that's a tailwind for us to get that adoption faster. I think that's what you're gonna see. Now, in terms of overall numbers, I don't know, Tarek. I mean, it's hard to.
I will say to you right now.
Total mix, right?
First of all, we won't tell you what we expect our as a Service revenue to be by fiscal year 2025 as percentage of total. Right now, it's about 6% of total revenue. Of course, the ambition is much more than that. We intend to grow it very, very rapidly, and we're multiplying our investments there in the platform. Just to. If you think about in terms of gross margins, as we flagged, these gross margins are much higher than the company average. In terms of OP margins today, it's a loss-making business, and that's normal. That's absolutely the right thing to do because the growth is there, the gross margin is there, and our investment in GreenLake. Next year versus this year is going up by about 27%.
We will continue to invest to capture that growth because it is coming at higher margins. To the extent that we see the growth petering off, we will modulate investments. At this stage, the runway there is measured in years. We see that the adoption of our as-a-Service model is gonna have superb traction and runway ahead of it for years to come.
The rest is a mathematical thing because you have everything deferred on the balance sheet. It will take a number of years to unwind all that bookings. You know, again, $7.7 billion. If contract durations are between three and five years, you see how long it takes.
Okay. All right. Let's hold it there. Thank you everyone, both here in the audience, on the webcast, and also to our team members upstairs. Thank you. We appreciate your attendance and questions. Antonio, let me hand it back to you to close us in.
Yeah. Well, first of all, thank you for coming. That's, you know, is very much appreciated. I hope it's worth your time. Obviously, we're gonna go upstairs here in a moment. I hope you emerge from this conversation today and the one we're gonna continue upstairs with a, you know, I believe a greater confidence. We have a unique strategy, okay? I believe this is a very compelling opportunity that HPE presents to our shareholders and new shareholders. I believe we are very well positioned to capture greater share in growing and profitable markets. You know, as we look forward, continue to demonstrate our progress and success, you know, for us, it's all about delivering that vision, which will drive long-term sustainable profit for growth for our shareholders. With that, thank you very much.
Thank you for the people on the webcast, because obviously, they are watching and listening to us. Unfortunately, we're not allowed time to take their questions, but I'm sure in follow-ups through our Investor Relations team, we can answer all those questions. Again, thank you for your time, and let's keep the conversation going upstairs for those who are staying.