Hpe Falls On Weak Ai Server Revenue As Customers Postpone Orders

By Katherine Hamilton

Hewlett Packard Enterprise is trying to take on more big customers, but the complexity of those customers' ambitious artificial-intelligence projects is weighing on sales.

The server and cloud-software company logged lower-than-expected revenue in the fiscal fourth quarter because customers are hitting delays in the development of their AI products, Chief Financial Officer Marie Myers said. During the quarter, some of the larger-scale customers HPE has been trying to add to its portfolio weren't ready to receive and pay for the company's products on time.

"You'll see a lot more of that with AI. It tends to be a lot more lumpy," Myers said.

While challenges from rising costs and uneven timing are expected to continue, HPE did back its revenue outlook and raised its adjusted earnings view for fiscal 2026. Myers also said she expects the second half of 2026 to be stronger than the first. The benefits from its recent acquisition of Juniper Networks will start to have a bigger effect later in the year, and Myers said commodity costs for items such as memory chips could improve by then, as well.

During the most recent quarter ended Oct. 31, revenue rose 14%, to $9.68 billion, below the $9.9 billion analysts polled by FactSet expected. Server revenue fell 5%, to $4.46 billion, and Hybrid Cloud sales fell 12%, to $1.41 billion.

Networking revenue more than doubled--bolstered by the company's $14 billion acquisition of Juniper in July--to $2.81 billion.

Timing is becoming a bigger issue for HPE because the company is taking on more government and big-business customers, Myers said. The company has been working to shift its portfolio toward higher-growth, higher-margin businesses to improve long-term profit.

These customers are building large-scale AI products, which are hitting supply-chain snags and other delays. As a result, some customers are not ready to accept and pay for HPE's products on time, Myers said.

"Governments tend to be more bureaucratic, there's a lot more criteria they're going to go through," Myers said. "Plus, there are also just delays with chips, etc., because export controls come into play for some of these international bids."

Profit was $175 million, or 11 cents a share, compared with $1.37 billion, or 99 cents a share, a year earlier.

Stripping out certain one-time items, adjusted per-share earnings were 62 cents, ahead of the 58 cents anticipated by analysts, according to FactSet.

The high cost of commodities such as memory chips is also creating pressure in the industry, and could create challenges, especially for its server business, Myers said.

For the current quarter, HPE expects revenue to be $9 billion to $9.4 billion, compared with Wall Street's estimate of $9.87 billion. It anticipates adjusted earnings will be 57 cents to 61 cents, while analysts were projecting 53 cents.

HPE reaffirmed its sales guidance for the full fiscal 2026, which it shared in October. It raised its annual adjusted earnings per share range by 5 cents, to $2.25 to $2.45.

HPE also raised its quarterly cash dividend by 1 cent, or 7.7%, to 14 cents a share.

Write to Katherine Hamilton at katherine.hamilton@wsj.com