HPE networking shines while servers dim and Alletra glistens

HPE revenues rose in its final fy2025 quarter, with a Juniper-inspired leap in networking revenues, but server revenues declined despite the market seeing increased AI server demand.

Revenues for what is now, CEO and President Antonio Neri said, “a network-centric company”, were $9.7 billion, up 14 percent year/year and just underneath its low-end guidance, due to some AI shipment pushouts, with a GAAP profit of just $146 million, down 89.1 percent Y/Y. It was HPE’s seventh consecutive growth quarter. Full fiscal 2025 revenues were $34.3 billion, 13.8 percent more than last year, with a profit of just $4 million, following the second fy2025 quarter’s $1 billion GAAP loss. Its GreenLake subscription business ARR rose to $3.2 billion, up 3.2 percent Q/Q and 68.4 percent Y/Y, and it’s amassed more than 7,000 Alletra MP storage array shipments in the year.

Neri said: “HPE finished a transformative year with a strong fourth quarter of profitable growth and disciplined execution.” He added this in the earnings call: “Stronger profitability also resulted in higher-than-expected free cash flow of $1.9 billion for the quarter, capping a solid fiscal year ’25 performance.”

CFO (and EVP) Marie Myers said “HPE continued to drive operational discipline in Q4, resulting in record gross profit and robust non-GAAP operating profit as well as free cash flow generation that exceeded our outlook.”

Quarterly financial summary:

• Gross margin: 33.5% up from 29.9 percent last quarter, and up 2.7 points year-on-year
• Cash flow from operations: $2.5 billion vs last quarter’s $1.3 billion and up $435 million on the year
• Free cash flow: $1.9 billion vs prior quarter’s $790 million and up $420 million from a year ago
• Capital returns to shareholders of $271 million in the form of dividends and share purchases vs last quarter’s $171 million
• Diluted EPS: $0.11 vs $0.21 last quarter, down $0.88 from the prior year

There were about 7,000 new customers for its GreenLake subscription services, taking the total to circa 46,000.

The HPE business segment revenues were mixed:

• Servers: $4.5 billion, down 5 percent Y/Y and 10 percent Q/Q
• Networking (was Intelligent Edge): $2.8 billion, up 150 percent and driven by Juniper acquisition
• Hybrid Cloud: $1.4 billion, down 13 percent Y/Y and 5 percent Q/Q
• Financial services: $889 million, flat
• Corporate Investments & Other: $191 million, down 27 percent

Myers said: “Networking emerged as a standout performer of the year. The acquisition of Juniper was instrumental in driving this success, particularly in our WAN business.” But she had to fall back on full year numbers to find good server segment news, saying: “Our AI server business also had good traction with orders totaling $6.8 billion for the fiscal year and cumulative AI orders since Q1 fiscal 2023 reaching $13.4 billion.”

She added: “Our AI server pipeline remains multiples of our backlog, underscoring the substantial interest we are seeing from sovereign and enterprise customers.”Traditional servers did well but AI servers did not.

The server revenues are not yet benefitting much from AI server sales as overall server revenues were down and AI revenue of $1 billion was down from last quarter’s $1.6 billion. In comparison, Dell’s server sales in its most recent quarter rose strongly. HPE does have a growing AI order backlog though; $4.7 billion in the quarter, up from $3.7 billion in the prior quarter, which is encouraging.

Myers said the server performance: “primarily reflects the timing of AI server shipments during the quarter and lower-than-expected U.S. federal spending.”

Hybrid cloud performance: “reflected our strategy to sharpen our focus on higher-margin HPE developed solutions while intentionally reducing our exposure to low-margin non-IP-related businesses.”

The segment operating profit as a percentage of revenue is revealing. Networking is highest at 23 percent, followed by financial services at 11 percent, then servers at 9.8 percent and hybrid cloud (which includes storage) at just 5 percent. HPE’s strategy of selling its own storage IP is a way of increasing the profitability of its storage sales ands thus the hybrid cloud segment.

HPE said Alletra MP storage orders and revenues increased by strong double-digits Y/Y in each fy2025 quarter. It shipped over 7,400 Alletra MP arrays in the year, more than double Y/Y, and added more than 1,300 Alletra array customers.

Neri set out five key priorities: “building a new networking industry leader, profitably capturing the AI infrastructure build-out opportunity, accelerating our high-margin software and services growth through our GreenLake Cloud, capitalizing on the unstructured data market growth with our leading Alletra MP Storage offerings and driving the transition to our next-generation server platforms.”

HPE has agreed to sell its 19 percent stake in the H3C operation in China for around $1.4 billion with the deal closing by July 2027.

Looking ahead, Neri said: “We expect DRAM and NAND costs to continue to increase in 2026, the majority of which we expect to pass to the market while monitoring demand.” So HPE product prices will rise in tandem with DRAM and NAND cost increases.

Myers contributed this thought: “We continue to see the impact of lumpiness in AI server revenue and expect a sequential decline in the AI server revenue with the majority of AI deals shipping in the latter half of the year.”

Next quarter’s revenue outlook is $9.2 billion +/- $200 million, a 16.5 percent Y/Y rise at the mid-point. The full year outlook is for revenues of $40.18 billion +/- $12.5 million, 17 to 22 percent higher than fiscal 2025’s $34.33billion.

Comment

It’s slightly odd that, although the bulk of HPE’s revenues come from servers; $4.5 billion this quarter vs networking’s $2.8 billion, Neri is saying HPE is now, at core, a networking-centric business. That implies that servers will get less attention and that Neri sees networking revenues eclipsing server revenues.