HPE reports revenue loss and server count decline

hewlett packard enterprise reported fourth-quarter sales that were lower than analysts expected, and the stock price initially fell by 9%. Stocks rebounded on Friday and were mostly flat.

The company released its results after Thursday’s close, with sales of $9.68 billion, up 14% from a year earlier, but falling short of analysts’ estimates of $9.94 billion compiled by LSEG.

HPE’s server division’s revenue was $4.46 billion, down 5% from $4.68 billion in the year-ago period. The fourth-quarter figure was below the $4.58 billion expected by analysts on Street Accounts.

Chief Financial Officer Marie Myers addressed the shortfall on a conference call with analysts Thursday, saying it was due to slower-than-expected shipping times for artificial intelligence services and government spending.

“Despite these headwinds, we are encouraged by strong server order growth for both traditional servers and AI products, with demand significantly exceeding revenue during the period,” she said.

Server revenue was down 10% from the third quarter.

HPE beat expectations with adjusted earnings of 62 cents per share, beating LSEG’s estimate of 58 cents per share.

Myers said the adjustment was due to “amortization of intangible assets, Juniper-related acquisition costs, stock-based compensation expense and cost reduction program costs, partially offset by taxes and other adjustments.”

The company expects fiscal 2026 first-quarter revenue in the range of $9 billion to $9.4 billion, short of the $9.87 billion expected by FactSet analysts.

Escalating costs, seasonality, and the timing of AI server transactions were all factors in the guidance.

The drop in sales from the fourth quarter is “consistent with historical seasonality,” Myers told analysts. He also noted the continued rise in the cost of DRAM, dynamic random access memory, and NAND memory, which is flash memory typically used in memory cards.

He said the majority of these costs will be passed on.

Orders for AI systems reached $1.9 billion in the fourth quarter, and Myers said he expected AI demand to be “uneven” and that large sovereign customers were ordering with extended lead times, potentially delaying shipments into future quarters.

CEO Antonio Neri pointed to several factors contributing to the delay, saying some of the AI ​​deals are government-related and the government shutdown will impact timing. He said one contract did not have a data center ready.

Neri said the company expects the largest portion of AI revenue transformation to occur in the second half of fiscal 2026.

HPE reported fourth-quarter net income of $146 million, or 11 cents per share, which was significantly lower than net income of $1.34 billion, or 99 cents per share, in the year-ago period.