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Hewlett Packard Enterprises (HPE) was likely hoping the first earnings call for its fiscal 2025 would be an operational celebration, but instead the vendor announced plans to cut thousands of jobs due to poor performance execution that it expects to continue in the near term and that it’s now preparing to argue its case for acquiring Juniper Networks in front of a court.
HPE CEO Antonio Neri said the vendor would be cutting approximately 2,500 jobs – 5% of its current workforce – over the next 18 months. This will include actual job cuts and attrition.
“We see additional opportunities to take incremental corporate cost actions to further strengthen our financial profile,” Neri said, adding that the job cuts “will better align our cost structure to our business mix and long-term strategy.”
HPE’s operating performance for the quarter was a mixed bag.
Neri explained that the vendor reported a “near record” 17% increase in overall revenues compared to the same quarter last year and that it met its growth expectations. The executive touted growth of HPE’s server, storage, hybrid cloud, and campus switching businesses; and boasted of $900 million in artificial intelligence (AI)-related revenues.
However, he also admitted “we could have executed better.”
Neri noted that HPE’s “traditional server pricing did not adequately account for the evaluation of our inventory, which resulted in incremental server margin pressure.” That pressure was compounded by “higher discounts due to aggressive price and competition in the market.”
HPE’s server margins were also compressed by “higher than normal AI inventory caused by the rapid transition of demand to next-generation GPUs and related components.” Neri explained that HPE has taken action to counter these issues, but that those challenges will remain over the next couple of quarters.
HPE gets its Juniper court date
Neri also continued to press HPE’s case for acquiring Juniper Networks.
That $14 billion deal was initially announced in early 2024, with Neri forecasting close by early this year. However, the Department of Justice in late January filed a lawsuit to block the deal, noting that a consolidation of the wireless LAN (WLAN) ecosystem’s No. 2 and No. 3 vendors would hurt market choice and innovation.
HPE and Juniper management have both strongly argued against those concerns. “I think the DOJ is just wrong,” Juniper Networks CEO Rami Rahim told SDxCentral in an interview following the DOJ decision.
Neri during the earnings call bolstered that assessment, stating that the “DOJ analysis of the market is fundamentally flawed.”
HPE in its detailed filing pointed specifically to the deal allowing it to be more competitive against market heavyweight Cisco and providing an international alternative to China-based vendor Huawei. HPE also highlighted a handful of “other credible competitors in the U.S., including Extreme, Arista, Fortinet, Ruckus, Ubiquiti, Nile, and Meter.”
“We strongly believe this transaction will positively change the dynamics in the networking market by enhancing competition,” Neri added during the call. “HPE and Juniper remain fully committed to the transaction, which we expect will deliver at least $450 million in gross annual run-rate synergies to shareholders within three years of the deal closing.”
Jennifer Rie, senior litigation analyst for antitrust at Bloomberg Intelligence, said that the unusual aspect of the DOJ’s claim is that the consolidated market power is only anticompetitive when it’s combined with Cisco’s dominant position in the market.
Rie explained that the government uses the Herfindahl-Hirschman Index (HHI) to determine market concentration. If a proposed deal hits an HHI limit, it typically triggers a government review, which Rie noted is when a proposed deal could provide that combined entity with at least 30% market share.
However, analysts have noted that a combined HPE and Juniper would control less than 30% of the WLAN market, which is dominated by Cisco and its control of more than 40% of the market.
“You have an unusual situation here where you have the HHI that trigger this presumption, but it seems like the combined shares of the two companies are actually below 30% and that’s why I think it’s close,” Rie said. “You have one piece in favor of the DOJ arguments against it, but one piece that suggests, well, how can a company that when combined is less than 30% exert enough market power that they could harm a market, especially when they’ve got this great, big competitor in Cisco. So I feel like this case, I feel like the DOJ had enough to bring the suit, because it did, based on their guidelines, trigger a presumption of harm.”
HPE will get a chance to argue its case beginning July 9. HPE’s lawyers had initially filed to have the case begin on June 16, while the DOJ wanted the case to begin September 8.
That timing could play a critical role in how the deal concludes.
Terms of the deal allow Juniper to pull out of the agreement before its expected closing but doing so would require it to pay a $407.5 million termination fee to HPE. Juniper would also receive an $815 million termination fee should HPE not be able to close the deal by October 9.
Rie had explained that the DOJ’s initial trial date request was “absolutely not enough time to get through trial and to allow the judge to decide by October 9.”