Samsara's strong growth is accompanied by rising hardware-related costs, described by a source as a "hardware tax." Unlike pure software companies, Samsara relies on physical IoT devices like sensors and cameras. Meeting increasing demand requires higher spending on hardware, inventory, and supply-chain operations.
The company's inventory rose from $48.2 million to $57 million, reflecting the need to build up devices for future growth. CFO Dominic Phillips stated these higher device requirements, inventory buildup, and elevated supply-chain costs are expected to reduce the fiscal 2027 free-cash-flow margin by about 100 basis points compared to fiscal 2026 levels.
Samsara’s non-GAAP operating margin is guided at 21% for both the third quarter and full fiscal year, indicating no expected expansion in operating profitability despite continued revenue growth. Revenue growth is projected to slow from 30% currently to 24% in the third quarter and 26% for fiscal 2027, while hardware and supply-chain costs remain high.
The company is scaling and moving toward profitability, but the physical hardware necessary for expansion limits how much growth can translate into stronger margins and free cash flow.
