HPE Q3 Deep Dive: Networking Integration and Cost Initiatives Offset Mixed Segment Results

Enterprise technology company Hewlett Packard Enterprise (NYSE:HPE) missed Wall Street’s revenue expectations in Q3 CY2025, but sales rose 14.4% year on year to $9.68 billion. Next quarter’s revenue guidance of $9.2 billion underwhelmed, coming in 6.4% below analysts’ estimates. Its non-GAAP profit of $0.62 per share was 6.5% above analysts’ consensus estimates.

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StockStory’s Take

Hewlett Packard Enterprise’s third quarter was met with a negative market reaction as revenue missed Wall Street’s expectations despite strong year-over-year growth. Management attributed the mixed performance to the delayed timing of AI server shipments and a decline in U.S. federal spending, while emphasizing robust order momentum in networking and storage. CEO Antonio Neri described the quarter as “transformative,” highlighting the completed Juniper Networks acquisition and the integration progress across core business units. Management acknowledged that disciplined pricing actions and continued investment in higher-margin segments shaped the quarter’s results.

Looking ahead, Hewlett Packard Enterprise’s guidance reflects a cautious approach amid rising component costs and a more back-end loaded revenue mix. Management signaled that ongoing cost inflation in memory components (DRAM and NAND) will be largely passed through to customers, but warned of potential demand elasticity. CFO Marie Myers noted, “Our guidance really reflects the best estimate of the impact of commodities and the actions as of now.” The company expects networking to be the primary driver of profit, supported by continued synergy realization from the Juniper integration and an expanding software subscription base.

Key Insights from Management’s Remarks

Management cited the Juniper Networks acquisition, networking momentum, and disciplined cost controls as key influences on quarterly results.

• Networking integration gains: The Juniper Networks acquisition accelerated HPE’s transformation, with networking segment revenue up sharply and operating margins benefiting from initial synergy realization. Management stressed ongoing integration of sales teams and unified compensation models to drive efficiency.
• AI server shipment delays: Some AI system shipments were pushed into the next quarter, mainly due to customer readiness and extended procurement processes in large sovereign deals. These delays impacted server revenue but did not diminish overall demand, as orders outpaced revenue.
• Storage and GreenLake traction: The Alletra MP Storage platform experienced double-digit growth in both orders and revenue, while GreenLake’s annualized revenue run rate expanded with the addition of Juniper’s software subscriptions. Management highlighted that over 80% of ARR now comes from software and services.
• Cost structure optimization: The Catalyst initiative delivered ahead-of-plan cost savings, with management targeting $1 billion in annualized structural savings by 2028. Non-GAAP operating expenses, excluding Juniper, declined modestly year over year, reflecting ongoing efficiency measures.
• Component cost inflation: Management identified rising DRAM and NAND prices as a significant headwind, especially in servers and storage. Pricing actions have already been taken to offset these pressures, and further adjustments are anticipated as market conditions evolve.

Drivers of Future Performance

Hewlett Packard Enterprise’s outlook is shaped by networking growth, integration execution, and the impact of commodity cost pressures on margins.

• Networking as profit engine: Management expects networking to contribute more than half of total operating profit, driven by the combined Juniper and Aruba portfolios, expanded sales coverage, and continued demand for AI networking solutions.
• Commodity cost pass-through: The company plans to offset memory price inflation by implementing price increases, but recognizes the risk of demand sensitivity as customers adjust to higher costs. Management is closely monitoring elasticity and shaping demand as needed.
• Back-end loaded AI revenue: A significant portion of AI server backlog is tied to large sovereign and enterprise deals with extended lead times, resulting in a heavier revenue and profit contribution in the second half of the year. Timing of these shipments remains a critical variable for full-year performance.

Catalysts in Upcoming Quarters

In the coming quarters, the StockStory team will be monitoring (1) progress on the full integration of Juniper Networks and resulting synergy realization, (2) the pace and profitability of AI server and networking backlog conversion, and (3) the company’s ability to pass through memory component price inflation without materially impacting demand. Success in expanding GreenLake’s software subscription base and continued execution of cost-saving initiatives will also be pivotal for tracking Hewlett Packard Enterprise’s strategic progress.

Hewlett Packard Enterprise currently trades at $20.78, down from $23.05 just before the earnings. At this price, is it a buy or sell? The answer lies in our full research report (it’s free for active Edge members).

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