When Antonio Neri got on the line, he didn't hold back.
"We could have executed better," the president and CEO of Hewlett Packard Enterprises (HPE) told analysts during the company's first quarter earnings call.
Shares of the data center equipment maker fell to as low as $14.93, a 52-week low, on Friday after the company issued quarterly and full-year guidance that came in below consensus. The shares finished at $15.81, still down 12% on the day.
HPE, the services-focused division spun out of the former Hewlett-Packard in 2015, said it would be reducing its headcount by 2,500, or 5%, when including expected attrition.
“This tough decision will help streamline our organization, improve productivity, and speed up decision making,” said Chief Financial Officer Marie Myers. "We will support affected team members with resources and assistance during this transition."
Myers said HPE expects to see at least $350 million in gross savings by fiscal 2027, with about 20% of the savings achieved by the end of this year.
CEO: HPE fully committed to Juniper Networks deal
"Near the end of the quarter, we saw that our traditional server pricing did not adequately account for the evaluation of our inventory, which resulted in incremental server margin pressure," Neri said.
"Higher discounts due to aggressive pricing competition in the market compounded this issue," he said.
In addition, HPE's server margins were further pressured by the higher than normal AI inventory caused by the rapid transition of demand to next generation GPUs and related components.
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"We have already implemented aggressive actions to address these issues and are already seeing the positive effects of doing so," Neri said.
"However, we do expect to see continued pressure over the next one to two quarters before we realize the full benefit of these measures including expected higher AI revenue conversion," he added.
Neri began the call by addressing the U.S. Department of Justice's lawsuit seeking to block HPE's $14 billion acquisition of Juniper Networks (JNPR) .
The DOJ said in January that the proposed transaction “would eliminate fierce head-to-head competition between the companies, raise prices, reduce innovation, and diminish choice for scores of American businesses and institutions.”
"The DOJ’s analysis of the market is fundamentally flawed," Neri said. "We strongly believe this transaction will positively change the dynamics in the networking market by enhancing competition."
HPE and Juniper remain fully committed to the transaction, Neri said, which the company expects will deliver $450 million "in gross annual run rate synergies to shareholders within three years of the deal closing."
"The court has set a trial date of July 9," he said. "We believe we have a compelling case and expect to be able to close the transaction before the end of fiscal 2025."
The company reported adjusted earnings of 49 cents per share, up 2% from a year ago, while analysts were calling for a profit of 50 cents per share.
Revenue totaled $7.9 billion, up 16% from a year ago, compared with Wall Street’s call for $7.82 billion.
Analyst says gross margin miss concerning
The backlog for AI systems rose 29% quarter-over-quarter to $3.1 billion and total server revenue came to $4.29 billion.
HPE forecast second quarter earnings of 28 cents to 34 cents, with revenue ranging from $7.2 billion to $7.6 billion.
Analysts were looking for earnings of 50 cents per share on $7.93 billion in revenue.
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For the 2025 fiscal year, HPE guided to $1.70 to $1.90 in adjusted earnings per share, while Wall Street was looking for $2.13 per share.
HPE's stock is down 27% year-to-date and shares are off roughly 15% from a year ago.
Several investment firms issued research reports following HPE's earnings announcement.
Barclays lowered the firm's price target on HP Enterprise to $20 from $27 while maintaining an overweight rating on the shares.
The firm said that while most of the fiscal Q1 report was as expected, the gross margin miss of 200 basis points is concerning.
HP Enterprise's artificial intelligence server metrics "were okay" but a lower gross margin profile will pressure the shares in the near-term, Barclays said.
Morgan Stanley lowered the firm's price target on HP Enterprise to $24 from $28 and kept an overweight rating on the shares.
The first quarter brought focus back to the core business, with gross margins and execution being worse than expected, the firm said.
In order to achieve the firm's revised price target, the Juniper deal needs to close, both because of accretion potential and the ability to see the multiple expand, Morgan Stanley added.
Bank of America Securities analyst Wamsi Mohan lowered the firm's price target on HP Enterprise to $20 from $26 and keeps a buy rating on the shares.
The analyst said that he views FY25 guidance for margins and EPS as "particularly disappointing" in light of the revenue growth expected.
Mohan said that a new cost takeout initiative despite revenue growth "signals a much worse competitive pricing dynamic, which we view as structurally more bearish and a modest impact from tariffs."
However, the announced cost takeout plan of $350 million and an additional $450 million if the Juniper acquisition closes successfully provides almost $800 million, or roughly 60 cents in EPS, in total savings, which is "extremely meaningful," he added.
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