HPE is feeling the effects of the Trump administration's gamesmanship, seeing shares slide after lowering earnings expectations due to uncertainty over how tariffs may affect the cost of imported parts.
The enterprise IT giant reported revenue for its first quarter of 2025 ending January 31 of $7.9 billion, up 16 percent year-on-year, but news of planned layoffs and the expectation that import taxes will affect its business cast a shadow over the financial results.
Server sales related to AI deployments have been pumping up HPE's top line for the past year or so, but the Trump administration's decision to slap tariffs on imports from Mexico and China, where many IT products and components are manufactured, is already having a negative impact.
"Recent tariff announcements have created uncertainty for our industry, primarily affecting our server business," HPE chief financial officer Marie Myers said on a conference call with analysts.
"We are working on plans to mitigate these impacts through supply chain measures and pricing actions. Through these efforts, we expect to mitigate to a significant degree the impact on the second half of the year and to a lesser extent the impact on Q2 as it takes time to implement mitigations."
With this in mind, HPE estimates revenue for Q2 2025 to be lower, in the range of $7.2 billion to $7.6 billion.
HPE's shares plunged 20 percent in after-hours trading following the earnings announcement, according to MarketWatch.
For servers, Myers forecast a "sequential decline in the mid to high single digits," including a modest decline in AI systems revenue, but she said Q2 was expected to be the trough for server operating margins, due to the timing of the tariffs taking effect and the corrective actions the company is being forced to take.
HPE also intends to lay off thousands of workers in the near future, as announced by CEO Antonio Neri, who described it as an opportunity to strengthen the corporation's financial profile.
"We plan to reduce our employee base 5 percent over the next 12 to 18 months through the reduction of approximately 2,500 positions and expected attrition. Doing so will better align our cost structure to our business mix and long-term strategy," Neri said. "These are not easy decisions to make as they directly affect the life of our team members."
Looking back over Q1, HPE said its server revenue was $4.3 billion, up 29 percent year-on-year, but Neri pointed out had taken a hit over excess inventory and higher discounts due to aggressive pricing competition in the market.
"Our server margins were pressured by higher than normal AI inventory caused by the rapid transition of demand to next-generation GPUs and related components," he explained, referring to the introduction of Nvidia's latest Blackwell-based products.
Neri took responsibility for the inventory issue, admitting the company had not anticipated it. "It's on us, it's on me. And we feel we have the corrective actions in place."
Intelligent Edge revenue was $1.1 billion, down 5 percent year-on-year, but Myers claimed it had exceeded expectations and forecast growth coming in Q2.
Hybrid Cloud revenue was $1.4 billion, up 10 percent on the same period last year, while Financial Services revenue was essentially flat at $873 million.
Neri also addressed HPE's stalled $14 billion bid for networking biz Juniper Networks, which has been challenged by the US Department of Justice (DOJ). He slammed the DOJ's analysis of the market as fundamentally flawed, and claimed the merger would boost the networking market by enhancing competition.
"HPE and Juniper remain fully committed to the transaction, which we expect will deliver at least $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. We believe we have a compelling case and expect to be able to close the transaction before the end of fiscal 2025," he said. ®