HPE Plunges Most Since 2020 on Weak Profit Outlook, Job Cuts

(Bloomberg) — Hewlett Packard Enterprise Co. fell the most since 2020 after it said profit in the coming year would be hurt by tariffs, weak margins on server sales and execution issues. The company also said it would eliminate about 3,000 jobs.

Earnings, excluding some items, will be $1.70 to $1.90 per share in the fiscal year ending in October 2025, HPE said Thursday in a statement. Analysts, on average, estimated $2.12 a share. 

The shares dropped 12% to $15.81 at the close Friday in New York, the biggest single-day decline since March 2020. The stock has plunged 26% this year.

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, which included “execution performance,” 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. 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 weak outlook suggests problems at the company may go beyond tariffs and weak margins on AI systems, wrote Woo Jin Ho, an analyst at Bloomberg Intelligence. “The company’s cost actions, including job cuts, suggest meaningful inefficiencies.”

Tariffs also weighed on the profit guidance issued last week by computer and printer maker HP Inc., which said it would cut as many as 2,000 jobs.

In the fiscal first quarter, which ended Jan. 31, HPE’s AI Systems revenue was about $900 million, down from $1.5 billion in the previous quarter, the company said in a presentation. Quarterly orders of these systems surged to $1.6 billion. Neri said there was a jump in orders by enterprises, a customer category generally expected by analysts to provide higher margins.

HPE reported total quarterly 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.

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.

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.

(Updates with closing shares in the third paragraph.)

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