HPE To Reduce Workforce By Five Percent In Midst Of Server Margin Pressure, Tariff Impact

‘These are not easy decisions to make as they directly affect the life of our team members,’ said HPE CEO Antonio Neri. ‘We will treat all those transitions with the highest level of care and compassion.’

Hewlett Packard Enterprise is reducing its workforce by five percent, or about 2,500 employees, over the next 12 months to 18 months, with another 500 positions eliminated through attrition.

The job cuts are part of a $350 million cost reduction program that will be implemented over the next two years. HPE had 61,000 employees at the end of its last fiscal year Oct. 31, 2024.

HPE CEO Antonio Neri told analysts Thursday that the layoffs and expected attrition will “better align” the company’s cost structure to “business mix” and “long-term” strategy.

“These are not easy decisions to make as they directly affect the life of our team members,” said Neri. “We will treat all those transitions with the highest level of care and compassion.”

HPE shares plummeted 20 percent, or $3.57, to $14.39 in after-hours trading.

The cost reduction program comes as HPE grapples with server margin pressure, the impact of tariffs and a decision by the U.S. Department of Justice to challenge HPE’s $14 billion acquisition of Juniper Networks.

HPE reported $4.3 billion in server revenue in the first fiscal quarter, ended January 31, a 29 percent year-over-year increase. Operating profit margin for that business dipped to 8.1 percent, down from 11.4 percent in the year-ago quarter.

Higher Than Normal AI Inventory

Among the issues that impacted server margins were higher-than-normal AI inventory caused by the rapid transition to next-generation Nvidia Blackwell GPUs and related components, said Neri.

HPE also felt the impact of higher discounts due to “aggressive pricing competition in the market,” which compounded the server margin pressures, said Neri.

Finally, near the end of the first quarter, HPE saw that “traditional server pricing did not adequately account for the valuation” of existing HPE inventory which also resulted in “incremental server margin pressure,” said Neri.

Neri—who admitted HPE could have “executed better”—said the company has already implemented “aggressive actions” to address the server margin issues and is already seeing the “positive effects” of its actions.

“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 said.

HPE CFO Marie Myers, for her part, said that in the wake of the pricing and discount “challenges” faced by the company in the traditional server business, HPE has implemented a “more rigorous discount framework” and will be more heavily scrutinizing deal mix.

“These changes will take time to impact our P&L as we work through our backlog,” she said. “In addition, we expect pricing adjustments may negatively impact top-line growth in the near term.”

HPE Expects Sequential Decline In Server Sales

In fact, Myers said, HPE expects a sequential decline of mid- to high-single digits in server sales in the current quarter with a “modest” decline in AI systems revenue. “[The second quarter] will be the trough for server operating margin in the mid-single digits due to both the timing of tariff implementation and the corrected actions we are taking in the business," she said.

Even though overall sales and profits were within HPE’s guidance, Myers said, given server margin pressure, the company decided to take “immediate actions” to limit hiring, travel and discretionary expenses.

Myers said the “tough decision” to implement workforce reduction and attrition management will “help streamline our organization, improve productivity and speed up decision making.”

Myers said HPE plans to achieve about 20 percent of the $350 million in savings by the end of the current fiscal year. “The timing of reductions will vary by geography,” she said.

As to the impact of U.S. tariffs, Myers said the recent tariff actions on Mexico, Canada and China have “created uncertainty” that primarily impacts HPE’s server business.

“We are working on plans to mitigate these impacts through supply chain measures and pricing actions,” she said. “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.”

Evaluating Tariff Mitigation Strategies

Neri, for his part, said HPE has been evaluating “numerous scenarios and mitigation strategies” with regard to the tariffs since December.

“We intend to leverage our global supply chain to mitigate aspects of the expected impact, with pricing adjustments also expected,” said Neri.

Among the bright spots in the quarter was HPE signing $1.6 billion in net orders for AI systems with a 40 percent increase in enterprise AI orders.

C.R. Howdyshell, CEO of Advizex, a Fulcrum IT Partners company, and a leading HPE AI solution provider, said he could not be more optimistic about AI sales in the year ahead.

“AI activity remains strong,” said Howdyshell. “I am extremely bullish about the future growth with AI and our services. We are seeing tremendous AI activity.”

Howdyshell said he is also “optimistic” that the HPE-Juniper Networks acquisition will go through, leading to increased networking sales.

Overall, HPE reported non-GAAP earnings per share for its first fiscal quarter of 49 cents, which was within its guidance of 47 cents to 52 cents per share.

Sales for the quarter were $7.9 billion, up 16 percent from the year-ago quarter of $6.75 billion.

“We delivered a solid quarter, but we could have executed better,” said Neri. “I am really proud of the demand that we’ve seen. That tells me the innovation and strategy is right. But ultimately we could have executed better in the server operating margin side where a couple of things were under our control. Obviously we are committed to go fix that.”

Last but not least, Neri said HPE is totally committed to completing the Juniper Networks acquisition. “We believe we have a very strong case, and we expect to close that transaction in the second half of 2025,” he said. “The good news is the trial date is now set for July 9. We believe we have a compelling case to get a federal ruling.”