HPE has fallen most in weak profit outlook since 2020

(Bloomberg) – Hewlett Packard Enterprise Co., which has been the highest since 2020, since 2020, as it says profits in the coming year will be hurt by tariffs, with weaker margins on server sales and execution issues. The company also said it will eliminate about 3,000 jobs.

HPE said in a statement Thursday that earnings (excluding certain items) would be between $1.70 and $1.90 per share for the fiscal year ending October 2025. On average, analysts estimate $2.12 per share.

Stocks fell 12% to $15.81 when New York closed on Friday, the biggest single-day drop since March 2020. The stock fell 26% this year.

CEO Antonio Neri said in an interview that the lower profitability is mainly due to issues with the server department that HPE is closely watching. He said discounts over sales, over higher costs and accumulation of older semiconductors will reduce profits in the coming quarters. Tariffs will also weigh profitability prospects.

Neri said the company is addressing these issues, including “executive performance.” He said some of them will reduce by about 3,000 roles, with 2,500 of them going through layoffs and loss. By the end of October, HPE employed 61,000 employees. The company said in a statement that a labor reduction would cost HPE about $350 million in the next two years, although it is estimated that the same amount will be saved annually by fiscal 2027.

Artificial intelligence fuels the wave of demand for powerful servers from hardware manufacturers such as HPE, Dell Technologies Inc. and Super Micro Computer Inc. Still, the line of business has been a double-edged sword due to the lower profit margins, as these servers need to be populated with expensive AI chips from NVIDIA CORP. and other other servers.

Neri said there are problems in both traditional devices and AI devices that lead to lower profitable server units.

Bloomberg Intelligence Agency analyst Woo Jin Ho wrote that the company’s problems suggest that the company’s problems may exceed tariffs and weak profit margins on AI systems. “Company’s cost actions, including layoffs, propose meaningful inefficiency.”

The tariffs also weighed on profit guidelines released last week by computer and printer maker HP Inc., which would cut up as many as 2,000 jobs.

In the fiscal first quarter ending January 31, HPE’s AI system revenue was about $900 million, down from $1.5 billion in the previous quarter, the company said in a speech. Quarterly orders for these systems soared to $1.6 billion. Neri said the company has increased orders, a category of customers that analysts usually expect to offer higher margins.

HPE reported total quarterly sales rose 16% to $7.85 billion. Analysts estimate average $7.81 billion. Server revenue is $4.3 billion, which is also estimated.

In the quarter ending in April, sales were $7.2 billion to $7.6 billion, compared with an average forecast of $7.94 billion.

Adjusted gross margin for the quarter fell nearly 7 percentage points from the previous year to 29.4%, well below analysts’ expectations of 31.3%. Profit, excluding certain items, is 49 cents per share, is merely estimated.

Last month, the U.S. Department of Justice sued to block HPE’s $14 billion acquisition of Juniper Networks Inc., believing the cooperation will harm competition in the corporate wireless device market.

Neri said the company remains “very dedicated” to the deal and hopes to close the deal by the end of the fiscal year. HPE said in a statement that the trial date for the antitrust lawsuit in July was scheduled for July.

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