Hewlett Packard Enterprise (HPE, Financial) experienced a significant 20% drop in its stock price following its earnings report, which highlighted several challenges impacting its future profitability. The company cited tariffs from the Trump administration, weak server sales margins, and execution issues as key factors affecting its financial outlook. To counteract these pressures, HPE announced plans to cut approximately 3,000 jobs to reduce operating costs and enhance profitability.
In its latest earnings report, HPE projected its adjusted earnings per share for the fiscal year ending in October 2025 to be between $1.70 and $1.90, falling short of analysts' expectations of $2.12. CEO Antonio Neri attributed the decline in profitability to challenges within the company's server business, including discount pressures, unexpected cost impacts, and semiconductor inventory backlogs. These issues, compounded by tariffs, are expected to erode profits over the coming quarters.
HPE, a global provider of enterprise IT solutions, focuses on technologies and services ranging from edge to cloud. The company offers a variety of server products optimized for AI workloads, including the HPE ProLiant series, which are favored by enterprises due to their efficiency in handling high-density AI tasks. Notably, HPE's fanless direct liquid cooling system has significantly reduced server energy consumption and operational costs.
Despite the rising demand for AI servers, HPE's gross margin has been under pressure, partly due to the high costs of integrating advanced AI GPUs from companies like Nvidia (NVDA) into their hardware. This has created a "double-edged sword" effect, as the demand for AI-capable servers grows but profit margins remain under strain.
HPE's recent financial performance showed a 16% increase in total revenue to $7.85 billion for the first fiscal quarter, slightly surpassing market expectations. However, the company's adjusted gross margin fell nearly 7 percentage points to 29.4%, missing analysts' forecasts. Additionally, HPE's adjusted earnings per share of 49 cents were below expectations.
Amid these developments, the U.S. Department of Justice has filed a lawsuit to block HPE's planned $14 billion acquisition of Juniper Networks, citing concerns over competition in the enterprise wireless equipment market. HPE remains committed to completing the acquisition by the end of the fiscal year, with antitrust trial proceedings set for July.
