HPE Reports Record Sales and Growth

Source: The Motley Fool Sep 3, 2025 22:34

Hewlett Packard Enterprise (NYSE:HPE) reported its third fiscal quarter results for 2025 on September 3, achieving record revenues of $9.1 billion, an 18% year-over-year increase, and completing the acquisition of Juniper Networks (NYSE: JNPR). Non-GAAP operating earnings ( were notably driven by the new networking segment, which accounted for nearly 50% of consolidated non-GAAP operating earnings, while adjusted earnings per share reached $0.44 and free cash flow rebounded to )million. This analysis highlights the progress of integration, business evolution, and financial projections from the earnings call. The company’s fiscal year ends on July 31, 2025.

The acquisition of Juniper reshapes HPE's network profile and margins

The inclusion of one month of results from Juniper Networks raised networking revenue to $1.7 billion, a 54% year-over-year increase, but the segment's non-GAAP operating margin fell to 20.8% due to Juniper's lower margin profile compared to HPE's legacy Intelligent Edge business. The call emphasized at least $719 million in projected cost synergies over the next three years, with $600 million expected for next year.

“In the quarter, we integrated a month of Juniper results with our Intelligent Edge business. We now combined them into a segment called 'networking'. The combined operating margins were 20.8. The Edge margin was 22.7, and we saw a sequential reduction mainly due to two factors: variable compensation expenses and product-related costs. I guided the Q4 operating range to the low twenties because Juniper was a few points below our Intelligent Edge business.”

– Marie Myers, Chief Financial Officer

I am concerned that as scale and revenue increase with the acquisition of Juniper, investors should watch for short-term dilution in margins as the integration progresses.

AI and private cloud drive record growth in servers and recurring revenue

Server segment revenues reached a record high of $4.9 billion, a 16% year-over-year increase, supported by the rapid adoption of AI systems, including a major GB 200 deployment. Annualized recurring revenues were $3.1 billion, a 75% year-over-year increase, with over 44,000 GreenLake customers now on board, and a record AI order backlog of $3.7 billion at the end of the quarter.

“AI system orders increased by nearly 100% quarter over quarter, including sovereign sales in the Middle East and continued traction in enterprises. We have increased year-over-year enterprise AI orders every quarter since the beginning of fiscal year 2024.”

– Antonio Neri, Chief Executive Officer

The strong demand for AI seems promising, but I wonder if they will be able to maintain this pace against increasingly aggressive competitors in the business space.

Cost discipline and cash flow recovery strengthen the deleveraging plan

The company generated $200 million in free cash flow, aided by a sequential reduction of $1.9 billion in independent inventory. It ended the period with a pro forma net leverage ratio of 3.1x after the agreement with Juniper, with the explicit intention of returning to a 2x ratio by fiscal year 2027.

“Reducing inventory levels has been a key priority and we exited the quarter with our balance close to our normalized level. Our cash conversion cycle was a positive 35 days, nine days longer than last quarter. The inclusion of Juniper negatively impacted our CCC calculation this quarter.”

– Marie Myers, Chief Financial Officer

Will this inventory management be sufficient to face the integration challenges? I have my doubts about whether they will achieve their deleveraging goals while maintaining growth.

Looking Ahead

Management projected a constant currency revenue growth of 14%-16% for fiscal year 2025 and raised non-GAAP EPS expectations to $1.88-$1.92, incorporating four months of contributions from Juniper Networks. Fiscal year 2025 fourth quarter revenues are projected to be between $9.7 billion and $10.1 billion, with expected network revenues over 60% higher quarter over quarter and operating margin in the low 20% range, while server revenues are expected to decline in the mid to high single digits reflecting a sequential drop of over 30% in AI systems revenues following a major deal in the third quarter.