HPE is facing some of the same problems as rival Dell. HPE saw a drop in server sales last quarter as customers waited for systems with Nvidia’s Blackwell GPUs.
HPE also has other problems within its systems business, according to The Next Platform. Aggressive pricing strategies by competitors depressed operating server profits in Q1 2025. CEO Antonio Neri and CFO Marie Meyers additionally indicated that there were inventory problems. That presumably involved older CPU and GPU systems whose sales were falling short of expectations. HPE previously expected an operating margin of 10 to 11 percent, but stuck at 8.1 percent.
Substantial round of layoffs
In all, this means HPE is laying off 2,500 employees over the next 12 to 18 months, taking a charge of about $350 million. The company will realize about $70 million of the savings in fiscal 2025, while spreading the remaining $280 million over 2026 and 2027.
Meyers stated during the figure presentation that the quarter’s results were within expectations. But but given the performance in the server business, the company took immediate steps to reduce recruiting, travel and discretionary spending.
In addition, HPE is taking additional measures, such as staff reductions and natural attrition, to better align its cost structure with current business needs. According to Meyers, these difficult decisions are helping to drive efficiencies and accelerate decision-making. HPE will support affected employees during this transition.
While that sounds vague, it seems AI is taking over more and more tasks, as IBM previously did with its supply chain and back office functions.
Margin pressure and AI transition
For the second quarter of 2025 and the rest of the fiscal year, HPE expects only a few percent annualized revenue growth in its server division. On a quarterly basis, revenue will actually decline, including a slight decline in AI server sales. Operating margin is expected to remain in the mid-single-digit range, pressured by import duties, competitive discounts and the limited availability of AI accelerators.
HPE did book $1.6 billion in new AI server orders, 70 percent of which were for Blackwell systems. But it is unclear whether these systems are more profitable than earlier generations such as Ampere A100 and Hopper H100/H200.
Frustration over Blackwell delay
The delay in the availability of Blackwell GPUs frustrates OEM and ODM manufacturers, who have been anticipating these chips for a year and would rather wait than purchase older H100 or H200 GPUs. Nvidia is prioritizing hyperscalers and cloud providers, which means OEMs are at the back of the queue.
HPE is focusing heavily on enterprise AI: 40 percent of orders in Q1 2025 came from enterprise customers. In addition, HPE is chasing government agencies, national AI initiatives and telecom companies, which need smaller AI systems than hyperscalers are building.
CEO Neri expects AI server sales to rebound in the second half of 2025 and for the server division to return to a 10 percent operating margin by Q4 2025.
Rising revenue, falling profits
In Q1 2025, HPE’s revenue rose 16.3 percent to $7.85 billion, but operating profit fell 17.5 percent to $433 million. Thanks to a one-time sales gain of $244 million, net profit came to $627 million, or 8 percent of revenue. HPE closed the quarter with $13.42 billion in cash and cash equivalents, giving the company financial maneuvering room to stabilize its IT business.
The server division posted $4.29 billion in revenue, up 29 percent year over year, but down 8.8 percent from the previous quarter. Operating profit fell 9.1 percent to $348 million and as much as 36.1 percent on a quarterly basis, showing the pressure on HPE’s servers.
Sales of traditional servers – excluding GPU accelerators – grew 15.2 percent to $3.39 billion and accounted for 79 percent of total server sales. AI servers generated $900 million in sales, up 2.2x from a year ago, but down sharply 40.2 percent from the previous quarter.
HPE’s AI order book stood at $3.1 billion at the end of Q1 2025, with a total order backlog of $8.3 billion. According to Neri, the pipeline is much larger, but many deals consist mainly of hardware with a small amount of software and service.
Completing Juniper acquisition
HPE wants to complete the $14 billion takeover bid for Juniper Networks , despite a lawsuit from the U.S. Department of Justice to block it. HPE does not need Juniper per se – it already owns AI and HPC switching technology through Cray’s Rosetta Slingshot interconnect – but Juniper could help HPE compete with Cisco and Arista in data centers.
The lawsuit against the acquisition starts July 9. Without legal hurdles, this could possibly have been resolved with one visit by CEO Neri to President Trump.