"HPE Stock Crashes: CEO Weighs in on Job Cuts, Earnings Miss, and DOJ Lawsuit"

Hewlett Packard Enterprise (HPE) shares plummeted 19% in extended trading on Thursday, March 6, 2025, as the company reported its first-quarter earnings and announced significant job cuts. The tech giant's stock has been on a rollercoaster ride, and the latest developments have left investors scrambling for answers. Let's dive into the key factors driving this volatility and what it means for HPE's future.

Earnings Miss and Job Cuts

HPE's first-quarter earnings report revealed a mixed bag of results. While the company achieved its fourth consecutive quarter of year-over-year revenue growth, increasing revenue by double digits, the earnings per share (EPS) fell short of expectations. The adjusted EPS was $0.49, within the guidance range but down 16% sequentially. The company's gross margins also took a hit, with GAAP margins dropping 720 basis points from the prior-year period and 160 basis points sequentially.

To address these challenges, HPE announced a cost-cutting program involving layoffs over the next 18 months. The company plans to reduce its workforce by approximately 5%, or about 2,500 employees, with an additional 500 positions eliminated through attrition. This program is expected to save HPE $350 million over the next two years, with annual savings of the same amount by fiscal 2027.

The Impact of Tariffs and AI Inventory

One of the primary factors contributing to HPE's earnings miss was the higher-than-normal inventory for AI servers. The company had an unusually high inventory of AI servers due to the transition to Nvidia's next-generation Blackwell GPUs. This inventory buildup led to increased costs and reduced profitability. Additionally, HPE faced extensive discounting in the traditional server market, which negatively impacted its top-line growth and profitability. The impact of U.S. tariffs also weighed on the company's financial performance, increasing the cost of goods and services.

DOJ Lawsuit and Juniper Networks Acquisition

The U.S. Department of Justice's lawsuit to block HPE's $14 billion acquisition of Juniper Networks has added another layer of uncertainty to the company's financial outlook. The lawsuit, filed in January 2025, argues that the deal would harm competition in the enterprise wireless equipment market. This legal challenge has introduced potential delays in the acquisition process, which was initially expected to close by early 2025. The trial for the antitrust lawsuit is set to begin in July 2025, with HPE expecting the deal to close by October 2025.

Strategic Implications and Future Outlook

The job cuts and cost reduction measures at HPE are part of a broader strategy to align the company's cost structure with its long-term business goals. These actions are aimed at addressing several challenges, including server margin pressure, the impact of tariffs, and the uncertainty surrounding the Juniper Networks acquisition. HPE's cost-cutting program is expected to have a positive impact on future earnings, with the company estimating fiscal 2025 revenue growth of 7% to 11% in constant currency and non-GAAP operating profit growth to be negative 10% to 0%.

Conclusion

HPE's stock crash highlights the challenges the company is facing, including earnings misses, job cuts, and legal hurdles. However, the company's strategic actions and long-term outlook suggest that it is taking proactive steps to address these issues. Investors will be closely watching HPE's performance in the coming quarters to see if these measures pay off. As always, it's crucial to stay informed and make data-driven decisions when navigating the volatile world of tech stocks.