Hewlett Packard Enterprise reported fiscal first-quarter earnings that missed estimates while revenue beat as its core computer server business struggled with margin pressures. HPE stock plunged on Friday amid revenue guidance that came in well below expectations.
The maker of computer servers, networking equipment and data storage systems reported fiscal Q1 earnings after the market close on Thursday. The company said a cost-cutting program will reduce its overall headcount by about 5%, or about 2,500 job cuts, over the next 12 to 18 months.
"(Fiscal Q1) Gross margins missed with a weak outlook as well," Barclays analyst Tim Long in a report. "There are a number of contributing factors, including pricing and discounting in general servers, rising commodity prices, inventory and GPU transition in AI servers, and the soon to hit tariff issues."
For the January quarter, HPE earnings rose 2% to 49 cents on an adjusted basis. Revenue rose 16% to $7.9 billion, the company said.
Analysts expected HPE earnings of 50 cents a share on sales of $7.814 billion.
AI Server Business Growth Slows
Analysts have been focused on artificial intelligence-related server revenue growth in its data center business. Another growing business has been HPE's Greenlake cloud computing platform.
HPE said fiscal Q1 revenue from AI servers fell 40% from the previous quarter to $900 million. Competition has heated up with Dell Technologies in AI servers.
"Traditional servers were impacted by execution missteps, specifically around product that was mispriced relative to component costs," said Raymond James analyst Simon Leopold in a report. "Additionally, AI servers were impacted by working capital headwinds, as the demand for (Nvidia) Hopper GPUs relative to new Blackwell GPUs was lower than expected, and the subsequent discounting of the balance in inventory impacts AI server margins through fiscal Q2 2025."
HPE Stock: Weak Guidance
For the current quarter ending in April, the company forecast adjusted EPS of 31 cents at the midpoint of guidance, below estimates of 50 cent profit. HPE said it expects revenue of $7.4 billion, well below estimates of $7.92 billion.
At Susquehanna, analyst Mehdi Hosseini said in a report: "Unexpected pricing pressure due to aggressive discounting on traditional servers pushed operating margin (down). All in all, HPE continues to face margin pressure, despite high-single-digit year-over-year growth in revenues."
On the stock market today, HPE stock plunged 19.5% to 14.45 in early trading. Shares were down 12% in 2025 prior to the HPE earnings report.
Heading into the HPE earnings report, the tech stock had a Composite Rating of 67 out of a best-possible 99, according to IBD Stock Checkup.
The Department of Justice in January filed a lawsuit to block HPE's $14 billion acquisition of Juniper Networks. The DOJ said that the companies' proposed transaction would reduce competition, resulting in higher prices, reduced innovation and fewer choices for companies and consumers.
HPE told analysts it still expects the deal to close.
HPE and Juniper compete in the wireless LAN market versus Cisco Systems.
Follow Reinhardt Krause on Twitter @reinhardtk_tech for updates on artificial intelligence, cybersecurity and cloud computing.
