Hewlett Packard Enterprise just proved that sometimes the best growth strategy is buying someone else’s. The company reported fiscal Q1 earnings of 65 cents per share, crushing the Street’s 59-cent estimate, while revenue came in at $9.3 billion — up 18% year-over-year. The stock rose in after-hours trading. But the real story is where that growth actually came from, and where it conspicuously did not.
Nearly all of HPE’s revenue growth was driven by its networking segment, which surged 152% to $2.7 billion thanks to last year’s acquisition of Juniper Networks. Networking now represents about 30% of HPE’s total revenue and — here is the number that matters — roughly half of its operating profit. Data center switch orders jumped 40%. Router orders climbed 20%. CFO Marie Myers basically told MarketWatch that networking is now the heart of the business, not just a side dish.
The less flattering headline? AI server revenue actually declined 3% year-over-year, to $4.2 billion. In an era when every company with a data center is supposedly pouring money into AI infrastructure, HPE’s server business went backwards. CEO Antonio Neri explained that the company has a $5 billion backlog of AI server orders, but most come from government and enterprise customers who take longer to deploy. He said the back half of the fiscal year will see the big AI revenue conversion. Investors have heard that song before.
There is also the memory cost problem. AI servers are memory-hungry machines, and global shortages of high-bandwidth memory are driving up component costs. Neri acknowledged that “prices will continue to go up” and that shortages will likely persist well into next year. HPE is raising prices on some products to offset the squeeze, which could dent demand if buyers start comparison shopping.
HPE raised its full-year earnings guidance to $2.30–$2.50 per share, up from the previous $2.25–$2.45 range. The company guided Q2 revenue of $9.6 billion to $10 billion, ahead of the $9.57 billion estimate. Constellation Research analyst Holger Mueller put it bluntly: “HPE would have gone backwards without Juniper.” That is both a compliment to the deal’s timing and a warning about what happens if the AI server conversion keeps slipping. For now, the Juniper bet is carrying the company. The question is whether the rest of the business can eventually pull its own weight.