AI server "double-edged sword effect" shows! Hewlett Packard Enterprise Co. Technology (HPE.US) profit outlook falls short of expectations, leading to a large layoff of 3000 employees.

Focused on the server field, enterprise-level IT solution provider Hewlett Packard Enterprise Co. (HPE.US) saw its stock price drop by about 20% in after-hours trading on the US stock market. Prior to this, the company stated in its performance report that future annual profits would be impacted by Trump administration tariffs, weak server sales profit margins, and operational issues. The company also announced plans to cut approximately 3000 jobs in an effort to reduce operating costs and improve profitability. In its performance report released on Thursday Eastern Time, Hewlett Packard Enterprise Co. stated that for the fiscal year ending in October 2025, it expects earnings per share, excluding special items, to be in the range of $1.70 to $1.90, compared to analysts' average expectations of $2.12. CEO Antonio Neri mentioned in an interview that the company's declining profitability is mainly due to operational issues in its server business division. He pointed out that discount pressure during sales, unforeseen cost effects, and continued backlog of old semiconductor inventory will erode profits in the next few quarters, with the macroeconomic factors related to Trump administration tariffs also adding to the profit pressure. Hewlett Packard Enterprise Co. (HPE) is a global enterprise server IT solution provider specializing in a wide range of technology and services from the edge to the cloud. The company offers general-purpose and AI-optimized server products (such as the HPE ProLiant series) to support data centers, hyper-converged infrastructure, and high-performance computing applications, as well as enterprise data storage, management, and networking equipment for building robust data center infrastructure. As artificial intelligence applications continue to expand into various industries, especially with the increasing demand for AI artificial intelligence capabilities in large-scale AI model training and inference systems, Hewlett Packard Enterprise Co.'s AI-optimized server series products have gained favor among enterprises. This was a key factor in the company's 30% stock price increase in 2024. In particular, its fanless direct liquid cooling system has significantly reduced server energy consumption and AI operating costs, thereby improving efficiency in handling high-density AI workloads. The "double-edged sword" effect is starting to show Neri mentioned that the company is addressing multiple issues, including "execution performance," which involves cutting approximately 3000 positions - 2500 through layoffs and the rest through natural attrition. As of the end of October last year, Hewlett Packard Enterprise Co. had around 61,000 employees. The layoffs are expected to generate cumulative costs of up to $350 million over the next two years, but the company expects equivalent annual savings by the 2027 fiscal year. HPE's gross margin has declined in recent quarters - AI server-related sales have hurt hardware manufacturers' profits Artificial intelligence has driven a strong wave of server demand for hardware manufacturers at the AI hardware end like Hewlett Packard Enterprise Co. (HPE), Dell Technologies, Inc. Class C (Dell Technologies), and Super Micro Computer, Inc. (Super Micro Computer). However, due to the need to equip full lines with NVIDIA Corporation's Blackwell architecture or Hopper architecture AI GPUs, as well as other expensive AI hardware devices introduced by other chip companies, profitability is lower for some server vendors. This AI server business line is a double-edged sword for long-term profitability in the increasingly competitive server industry and has gradually begun to manifest in financial results this year. In the AI craze that has swept the world since 2023, while the strong demand for AI servers has led to significant sales growth for hardware manufacturers such as servers and high-performance network equipment, it has also led to an obvious negative effect on the profitability of server manufacturers like Hewlett Packard Enterprise Co. Neri stated that the issues in the server business department exist in both traditional data center equipment and AI high-performance equipment fields. Woo Jin Ho, an analyst from Bloomberg Intelligence, pointed out that the weak outlook suggests that the problems of this server company may go beyond tariffs and AI system profit margins, and that there are significant inefficiencies, including cost-cutting measures such as layoffs. With a significant decrease in profitability, Hewlett Packard Enterprise Co. has initiated a layoff plan The stock traded at a low of $14.32 after hours, having closed at $17.96 during regular trading hours on the New York Stock Exchange, marking a 16% year-to-date decline mainly due to increased competition in the AI server field. NVIDIA Corporation has begun providing a full set of AI server racks to its customers, and Dell Technologies, Inc. Class C and Super Micro Computer, Inc. are gaining more AI server market share due to their deep partnership with NVIDIA Corporation over the years and technical advantages in server clusters. A week prior, computerThe printer manufacturer HP Inc. has also lowered its profit guidance due to the impact of tariffs brought by the Trump administration, and announced plans to lay off up to 2000 employees.Financial report data shows that in the first fiscal quarter ending on January 31, Hewlett Packard Enterprise Co.'s revenue related to technology artificial intelligence systems was approximately $900 million, a significant decrease from the previous quarter's $1.5 billion. However, the quarterly order size in this field surged to $1.6 billion. Neri emphasized that enterprise customer order data showed significant growth, with such customer-type orders typically believed by analysts to bring higher profit margins. Hewlett Packard Enterprise Co.'s total revenue for the first fiscal quarter increased by 16% to $7.85 billion, slightly exceeding the market's general expectation of $7.81 billion. Revenue related to the server business reached $4.3 billion, also slightly surpassing market estimates. Hewlett Packard Enterprise Co.'s management expects revenue guidance for the current quarter (ending in April) to be in the range of $7.2-7.6 billion, lower than the analysts' average forecast of $7.94 billion. The company's gross margin after adjustments for the first fiscal quarter decreased by nearly 7 percentage points year-on-year to 29.4%, falling short of the analysts' average expectation of 31.3%. Earnings per share excluding special items were 49 cents, slightly lower than analysts' expectations. Last month, the U.S. Department of Justice filed a lawsuit to block Hewlett Packard Enterprise Co.'s $14 billion acquisition of Juniper Networks Inc., alleging that the transaction would harm competition in the enterprise wireless equipment market. Neri reiterated the company's commitment to moving forward with the deal and expects to complete the acquisition by the end of the fiscal year. The statement mentioned that the antitrust lawsuit hearing is scheduled for July.