HPE Gives Weak Profit Outlook and Will Eliminate 3,000 Jobs

(Bloomberg) — Hewlett Packard Enterprise Co. gave an annual profit outlook that fell short of investor expectations and announced plans to eliminate about 3,000 positions. The shares dropped in extended trading.

Earnings, excluding some items, will be $1.70 to $1.90 per share in the fiscal year ending in October 2025, HPE said in a statement Thursday. Analysts, on average, estimated $2.12 a share. In the current quarter ending in April, sales will be $7.2 billion to $7.6 billion, compared with an average projection of $7.94 billion.

The lower profitability is due largely to issues in HPE’s closely watched server unit, Chief Executive Officer Antonio Neri said in an interview. Discounting during sales, higher-than-realized costs and a buildup of older-generation semiconductors will dent profit in the coming quarters, he said. Tariffs will also weigh on the profitability outlook. 

The company is working through these problems, Neri said. Part of that will be a reduction of about 3,000 roles — 2,500 of which will come through job cuts and the rest through attrition, he said. HPE employed 61,000 people as of the end of October, according to regulatory filings. The workforce reduction will cost HPE about $350 million over the next two years, the company said in the statement, although it estimates annual savings of the same amount by fiscal 2027. 

Artificial intelligence has fueled a wave of demand for powerful servers from hardware makers like HPE, Dell Technologies Inc., and Super Micro Computer Inc.. Still, this business line has been a double-edged sword due to lower margins because of the need to fill those servers with expensive AI chips from Nvidia Corp. and others.

The issues in the server unit leading to lower profits were present in both traditional and AI equipment, Neri said.

The shares declined about 10% in extended trading after closing at $17.96 in New York. The stock has dropped 16% this year.

For the fiscal first quarter, which ended Jan. 31, HPE reported sales increased 16% to $7.85 billion. Analysts, on average, estimated $7.81 billion. Server revenue was $4.3 billion, also just ahead of estimates.

Adjusted gross margins in the quarter slipped nearly 7 percentage points from the prior year to 29.4%, short of the 31.3% anticipated by analysts. Profit, excluding some items, was 49 cents per share, just shy of estimates.

Last month, the US Justice Department sued to block HPE’s $14 billion acquisition of Juniper Networks Inc., arguing the tie-up would harm competition in the market for enterprise wireless equipment.

Neri said the company remains “very committed” to the transaction and expects to close the deal by the end of the fiscal year. A trial date for the antitrust lawsuit has been set for July, HPE said in the statement.

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