HPE Systems Rebound As Juniper Brings A Further Boost

Sales of GPU-accelerated servers are still hurting margins at Hewlett Packard Enterprise, as they are doing at all OEMs and probably the ODMs, too, but the good news is that they will be hurting less and less as sales of beefier and more profitable general purpose servers are on the rise and as sovereign clouds and neoclouds turn to HPE for iron and pay higher unit prices for gear.

In the third quarter of fiscal 2025, which ended in July, HPE completed a big deal involving an untold number of racks using Nvidia’s GB200 pairing of the “Grace” CG100 Arm server processor and the “Blackwell” B200 GPU, which is aimed at AI training as well as inference.

“In the Server segment, market demand is robust across our portfolio,” explained Antonio Neri, chief executive officer, said in a conference call with Wall Street analysts to go over the numbers. “Revenue of $4.9 billion was an all-time high, increased 15 percent year-over-year and 21 percent quarter-over-quarter, driven by strong conversion of AI orders and solid demand for traditional servers. AI system revenue of $1.6 billion was also an all-time high as we completed the delivery of a large GB200 system.”

Later in the call, Marie Myers, HPE’s chief financial officer, said that looking ahead to Q4 F2025, the company was projecting a greater than 30 percent sequential decline in AI server sales because of the bump that big deal have to HPE in fiscal Q3.

We did a bunch of math on that in our model for HPE, which said its Server division had $4.94 billion in sales, up 15.4 percent year on year (to be more precise) and up 21.7 percent sequentially. If you look on the HPE charts, it shows $1.6 billion in sales for AI products and services, and most of that is for products and most of that is for GPU servers. We eyeball that at $1.54 billion in our model, up 18.1 percent year on year, and that means traditional servers accounted for $3.41 billion, up 14.1 percent. We did some more math on the Q4 projections, and we think that means HPE expects to book a little more than $1 billion in AI server sales in the final quarter of fiscal 2025, which would be a 28 percent decline year on year and a 32 percent decline sequentially. That would put traditional server growth at 1.5 percent, reaching $3.3 billion in Q4 F2025.

Add it all up for the year, which we think is the best timeframe to measure HPE on given the lumpiness of the AI and HPC businesses, and HPE looks to have $13.3 billion in traditional server sales, up 9.4 percent, and AI server sales of $4.36 billion, up 7.3 percent. Operating margins will be back up to around 10 percent as it exits Q4, after hitting a low of 6.4 percent in Q3 thanks to that big deal. (If you back the numbers out and assume the difference between Q3 and Q4 revenues is that single, big GB200 deal, then that deal could have been worth just shy of $500 million and been driven by more than a hundred racks of liquid-cooled GB200 NVL72 or more than two hundred racks of regular GB200 SuperPOD air-cooled configurations.

What we know for sure is that in Q3, the Server division’s operating income was $317 million, down 31.7 percent year on year but a heck of a lot better than the $241 million operating income in Q2 against $4.06 billion in sales.

Things are improving, and that is without Juniper Networks being added to the fold.

In the quarter, one month of revenues and profits from Juniper helped drive HPE’s Networking division, which includes the old Intelligent Edge division where Aruba networking accounted for a lot of the revenues and most of the profits. The newly constituted Networking division had $1.73 billion in sales, up 54.3 percent, with operating income of $360 million, up 43.4 percent.

Hybrid Cloud had $1.48 billion in sales in the current quarter, up 14.2 percent, and includes various storage products, notably the Alletra MP disaggregated storage arrays, which are given HPE block storage and Vast Data object storage and which are growing in the triple digits for the third quarter in a row. Hybrid Cloud also includes various HPE middleware for clouds and GreenLake utility-priced IT gear.

During the quarter, HPE added more than 2,000 new GreenLake customers, bringing its total to 44,000 worldwide. And with Juniper’s software subscriptions added to the mix, HPE now has a $3.1 billion annualized revenue run rate for subscriptions for hardware, software, and services, up 41 percent sequentially.

If you add it all up, including financial services, HPE had sales of $9.14 billion in revenues, up 18.5 percent, with $247 million in operating income, down 54.8 percent. Net income fell by 46.1 percent to $276 million.

As best we can figure, the core systems business at HPE, which we have tracked over the decades and which includes servers, storage, switching, systems software, services, and financing for HPE systems but none of that higher level stuff, was up 13.3 percent to $7.06 billion, with operating income of $475 million, down 20.2 percent.

Clearly, Neri & Co want to grow sales and also extract more profits. And that may mean walking away from some big AI deals, much as HPE walked away from trying to sell servers to hyperscalers and cloud builders back in October 2017. HPE said last December that it had already walked away from a $700 million AI deal it deemed was too risky.