HPE Shares Plummet 15% Amid Weak Profit Forecast and Major Job Cuts

(Bloomberg) — Hewlett Packard Enterprise Co. has seen its stock price drop by approximately 15% following a disappointing annual profit outlook that failed to meet investor expectations. The company also announced plans to eliminate around 3,000 positions as part of its restructuring efforts. In a statement released on Thursday, HPE projected earnings, excluding certain items, to be between $1.70 and $1.90 per share for the fiscal year ending in October 2025. This forecast falls short of analysts’ average estimate of $2.12 per share.

Disappointing Revenue Projections

For the current quarter ending in April, HPE anticipates sales between $7.2 billion and $7.6 billion, which is significantly lower than the average projection of $7.94 billion. The decline in profitability is primarily attributed to challenges within HPE’s crucial server unit, as explained by Chief Executive Officer Antonio Neri in a recent interview. Factors such as discounting during sales, higher-than-expected costs, and an accumulation of older-generation semiconductors are expected to negatively impact profits in the upcoming quarters. Additionally, tariffs are anticipated to further strain the profitability outlook.

Workforce Reduction and Financial Implications

To address these challenges, HPE plans to reduce its workforce by approximately 3,000 roles, with 2,500 positions being cut and the remainder achieved through attrition. As of the end of October, HPE employed around 61,000 individuals, according to regulatory filings. The workforce reduction is projected to cost HPE about $350 million over the next two years, although the company estimates that it will save the same amount annually by fiscal 2027.

AI Demand and Server Revenue Challenges

The surge in demand for powerful servers driven by artificial intelligence has created opportunities for hardware manufacturers like HPE, Dell Technologies Inc., and Super Micro Computer Inc. However, this demand has also posed challenges due to lower profit margins, primarily stemming from the necessity to equip these servers with costly AI chips from companies like Nvidia Corp. In the fiscal first quarter, which concluded on January 31, HPE reported AI Systems revenue of approximately $900 million, a decline from $1.5 billion in the previous quarter. Despite this, quarterly orders for these systems soared to $1.6 billion.

Enterprise Orders and Quarterly Performance

Neri noted a significant increase in orders from enterprises, a customer segment typically expected to yield higher margins. HPE’s total quarterly sales rose by 16% to $7.85 billion, surpassing analysts’ average estimate of $7.81 billion. Server revenue reached $4.3 billion, also exceeding expectations. However, adjusted gross margins for the quarter fell nearly 7 percentage points from the previous year to 29.4%, falling short of the anticipated 31.3%. Profit, excluding certain items, was reported at 49 cents per share, just below estimates.

Legal Challenges and Future Outlook

In addition to its financial struggles, HPE is facing legal challenges as the US Justice Department has filed a lawsuit to block its $14 billion acquisition of Juniper Networks Inc. The department argues that the merger would harm competition in the enterprise wireless equipment market. Neri expressed the company’s strong commitment to the transaction and remains optimistic about closing the deal by the end of the fiscal year. A trial date for the antitrust lawsuit has been set for July, according to HPE’s statement.

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