HPE misses revenue targets as AI server sales slide on customer delays and supply chain snags

HPE misses revenue targets as AI server sales slide on customer delays - SiliconANGLE

HPE misses revenue targets as AI server sales slide on customer delays Hewlett Packard Enterprise Co. is taking on more big business and government customers as it tries to grow its presence in the artificial intelligence server segment, but that strategy has temporarily impacted its sales, it said today as it delivered its latest financial results. The company reported fourth-quarter earnings before certain costs such as stock compensation of 62 cents per share, beating the analyst consensus of just 58 cents. But revenue for the period came to just $9.68 billion, up 14% but below Wall Street's target of $9.93 billion. Revenue from HPE's server business, which has grown rapidly over the last year due to increases in AI spending, surprisingly declined by 5% during the quarter to just $4.46 billion, falling short of the $4.66 billion consensus estimate. The segment's operating margin also came up short at just 9.8%, down from 11.6% a year earlier. Despite this, the company did reveal it has booked another $2 billion in orders for AI servers. In a conference call with analysts, HPE Chief Executive Antonio Neri (pictured) said the server segment took a hit because some of its larger customers have experienced delays in their AI projects, meaning they weren't ready to receive shipments of the AI servers they had ordered. HPE's finance chief Marie Myers added that such issues may become more frequent in future, because the company has been taking on many more government and big-business customers recently. "You'll see a lot more of that with AI," she said. It tends to be a lot more lumpy." According to Myers, the shift to larger customers will benefit HPE in the long term because of higher-margin sales, boosting its profitability. These customers are building large-scale AI products, but the problem is that they're often delayed, beset by supply chain snags and other issues. So they're not always ready to accept and pay for products on time, she said. "Governments tend to be more bureaucratic, there's a lot more criteria they're going to go through," she added. "Plus, there are also delays with chips etc., because export controls come into play with some of these international bids." While HPE has been focused on the AI server segment as one of its major growth drivers, it's also trying to grow its presence in the networking industry, which is just as important for AI projects. Earlier this year, the company closed on its $14 billion acquisition of former rival Juniper Networks Inc., and it's already seeing the benefits of that deal, with more expensive products and higher margins. "We are now at the core a networking-centric company," Neri told analysts. The company's networking revenue jumped 150% to $2.8 billion during the quarter, thanks to the boost from Juniper, coming in just ahead of the Street's estimates. But unfortunately the results from its other major business segments weren't so great. Hybrid cloud revenue declined 12% to $1.4 billion, while financial services revenue was more or less flat from a year earlier at $889 million. The ongoing delays with larger customers meant HPE's sales forecast for the current quarter didn't live up to expectations either. The company is forecasting first-quarter fiscal 2026 revenue of between $9 billion and $9.4 billion, with the midpoint of that range falling shy of the Street's target of $9.88 billion. It also sees earnings of between 57 cents and 61 cents per share, above the Street's 53 cent-per-share forecast. Although HPE expects issues with delayed orders to continue, the company did reaffirm its guidance for fiscal 2026, which it first shared in October. It also increases its annual adjusted earnings forecast from a range of $2.20 to $2.40 per share, to a higher range of $2.25 to $2.45. Myers said she expects that the second half of fiscal 2026 will be better than the first, when the benefits of the Juniper acquisition are expected to become more pronounced. In addition, she said she's hopeful that the costs of components such as memory chips could fall in the coming months, increasing the company's margins in the latter half of the year. Unfortunately for HPE, Wall Street investors aren't known for their patience, and they made their displeasure known, as the company's stock declined more than 9% in late trading, erasing a gain of 2% made during the regular trading session. The stock is now up just over 7% for the year, trailing the broader S&P 500 index, which has gained more than 14% this year.

HPE cuts its guidance, penalized by delays in AI server sales

Hewlett Packard Enterprise announced on Thursday that its revenue for Q1 2026 will come in below expectations, due to delays in deliveries of AI-dedicated servers. The group now expects revenue between $9bn and $9.4bn, versus $9.9bn anticipated by analysts according to LSEG. The HPE stock fell over 3% when Wall Street opened, with markets reacting to this signal of slowdown in a segment that remains in strong growth. Chief Financial Officer Marie Myers said demand for AI servers remained volatile, with some large customers delaying orders to the second half of the year. This situation weighed on its Q4 results (period ended in October): revenues from server sales declined 5% to $4.5bn, affected by both AI delivery delays and a drop in US federal spending. Hybrid cloud activity also posted a notable 12% decline, to $1.41bn.