(Bloomberg) — Hewlett Packard Enterprise Co. plunged about 15% after providing an annual profit outlook that fell short of investor expectations and announcing plans to eliminate about 3,000 positions.
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Earnings, excluding some items, will be $1.70 to $1.90 per share in the fiscal year ending in October 2025, HPE said in a statement Thursday. Analysts, on average, estimated $2.12 a share. 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.
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, 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, according to regulatory filings. 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 shares dropped to a low of $14.87 in extended trading after closing at $17.96 in New York. The stock has declined 16% this year.
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.
