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Does HPE Have a Clear Path to Profitability after Acquiring Juniper?
HPE's revenue jumps, but profitability and future guidance raise questions about the Juniper integration and market headwinds.
By the numbers:
- Revenue: $9.1 billion, up 19%
- Non-GAAP EPS: $0.44, down $0.06
- Annualized Revenue Run-rate (ARR): $3.1 billion, up 77%
- Networking Revenue: $1.7 billion, up 54%
- Fiscal 2025 Revenue Growth Outlook: 14% to 16%
Key Highlights:
- HPE saw record revenue, driven by strong demand in its Server and newly named Networking segments.
- The Juniper Networks acquisition, which closed in July, is already contributing to the top line.
- The Networking segment experienced a significant revenue increase, benefiting from the Juniper deal.
- Despite strong revenue, GAAP and non-GAAP EPS declined year-over-year.
- The company's full-year outlook for GAAP operating profit growth is negative, highlighting integration costs.
The News:
HPE announced its third-quarter fiscal 2025 financial results, reporting a record $9.1 billion in revenue, a 19% increase from the prior year. The company's performance was bolstered by strong demand in its Server and Networking segments, the latter of which now includes contributions from the recently closed Juniper Networks acquisition. While revenue and cash flow grew, profitability metrics like GAAP and non-GAAP EPS declined. For a deeper dive into the numbers, you can read the full press release here.
Analyst Take:
HPE's Q3 fiscal 2025 results present a complex picture. On the one hand, the headline numbers look great. A 19% revenue jump is significant, especially in the current macroeconomic climate. This growth is a testament to the strong demand for their core hardware, specifically servers, and the immediate impact of the Juniper acquisition on the newly rebranded Networking segment. The company's annualized revenue run-rate (ARR) also saw a massive 77% increase, a clear signal that the shift to consumption-based models is gaining traction, a key pillar of the company's long-term strategy. The increase in Hybrid Cloud and Financial Services revenue also shows a broad-based positive trend.
However, the headline numbers don't tell the whole story. Profitability is a major concern. The company's GAAP diluted net earnings per share dropped by $0.17 year-over-year. While some of this can be attributed to the integration costs of the Juniper acquisition, the decline in non-GAAP EPS is also notable. This suggests that even when you strip out one-time charges, the underlying profitability is under pressure. The drop in gross margins, both on a GAAP and non-GAAP basis, also points to potential pricing pressures or a shift in product mix toward lower-margin offerings.
The strategic rationale for the Juniper acquisition is clear: it's about building a formidable networking and cloud-native portfolio to compete with major networking rivals Cisco and key networking rivals such as Extreme Networks and Arista. The immediate revenue contribution is promising, but the real test lies in the execution of the integration. The company's outlook for a negative GAAP operating profit growth for the full year, primarily due to the goodwill impairment and acquisition-related charges, underscores the scale of this challenge.
The market's reaction to the acquisition has been mixed, and the stock's performance reflects that uncertainty. The question is not just whether HPE can successfully integrate Juniper, but whether they can do it without cannibalizing their existing business or losing key talent. The long-term success of this deal hinges on more than just combining two product portfolios. It requires a seamless merger of cultures, sales channels, and go-to-market strategies.
What was Announced:
HPE's announcements in the third quarter were primarily centered on its financial performance and strategic moves. The company highlighted record-breaking revenue and an improved sequential operating profit. A major talking point was the official closure of the Juniper Networks acquisition on July 2, 2025. This acquisition immediately impacted the company's financials, with Juniper's results being consolidated into HPE's for the month of July. As a result, the Intelligent Edge segment was renamed "Networking" to better align with its expanded market and business focus.
The company's financial outlook for both the fourth quarter and the full fiscal year was also provided, signaling a path of continued revenue growth but also highlighting significant one-time charges related to the Juniper deal that will impact profitability in the short term. The company also declared a regular cash dividend, maintaining its commitment to shareholder returns.
Q3 Fiscal 2025 Results: Segment Breakout
HPE's Server revenue reached $4.9 billion, marking a 16% increase from the prior year in both actual dollars and constant currency. Despite this growth in revenue, the operating profit margin for this segment decreased to 6.4%, down from 10.8% in the previous year.
In the Networking segment, which was recently renamed from Intelligent Edge to better reflect its market focus, revenue was $1.7 billion. This represents a substantial 54% increase from the prior-year period in both actual dollars and constant currency. The segment's operating profit margin was 20.8%, a slight decrease from 22.4% in the previous year.
Hybrid Cloud revenue grew to $1.5 billion, an increase of 12% in actual dollars and 11% in constant currency. This segment's operating profit margin saw a positive trend, increasing to 5.9% from 5.2% in the prior year.
Finally, the Financial Services segment reported revenue of $886 million, a 1% increase in actual dollars but a 1% decrease in constant currency. However, its operating profit margin improved to 9.9%, up from 9.0%. This segment also saw its net portfolio assets grow to $13.2 billion and delivered a return on equity of 17.7%.
As a result of the segment breakout, we discern that HPE's top priority over the next 12 months should be to capitalize on the explosive growth in its Networking segment and address the declining profitability in its high-volume Server business. The Networking segment's 54% revenue growth is the standout performance, suggesting strong market demand for HPE's offerings in intelligent edge, AI-powered networking, and enterprise connectivity.
At the same time, the company must address the compression of its Server segment's operating profit margin, which has nearly halved. This decline points to a highly competitive, low-margin environment. HPE's strategic move here should be to lean into its high-value, AI-optimized servers, moving away from low-margin commodity hardware. We find that the company needs to focus on enhancing its software and services attached to server sales, which could help boost overall profitability for the segment.
HPE should also prioritize building on the positive momentum in its Hybrid Cloud and Financial Services segments. The Hybrid Cloud segment's revenue growth, combined with its improving operating profit margin, indicates a successful strategy in a key market. HPE should continue to invest in its GreenLake platform, emphasizing its ability to provide a consistent cloud experience on-premises and at the edge. By deepening integration with public clouds and expanding its as-a-service offerings, HPE can further differentiate itself.
The Financial Services segment, despite modest revenue growth, is a high-margin business with an impressive return on equity. HPE should leverage this segment's strength to fuel its as-a-service transition, offering flexible financing and consumption models that make it easier for customers to adopt its core hardware and software products. This synergy can act as a powerful enabler for sales across all business units.
HPE Juniper Networking Competitive Prowess
HPE recently introduced significant updates to its HPE Juniper Networking portfolio, which are focused on enhancing its AI-native Mist platform. These innovations aim to make network operations more autonomous, intelligent, and proactive by using agentic AIOps. The new features include AI-powered troubleshooting to swiftly resolve issues, greater visibility and control over self-driving actions, a new Large Experience Model (LEM), and new AIOps features for data centers. All of these enhancements are designed to simplify IT complexity and ensure a rewarding user experience from the client all the way to the cloud.
These new features enhance GreenLake Intelligence, HPE's unfolding strategy for autonomous IT and agentic AIOps. This approach uses specialized AI agents throughout the IT architecture, enabling real-time problem-solving, proactive optimization, and smarter decision-making for networking, storage, and compute environments. The agentic AI capabilities in Juniper Mist allow IT to move from a reactive to a proactive management style, targeted at enabling major improvements in performance and efficiency.
HPE needed to meet customer requirements by using AIOps and agentic AI to manage their entire IT stack, regardless of the vendor. This includes everything from networking and compute to storage and applications. As a result, the new Marvis data center features work with HPE OpsRamp, an AIOps-powered platform that simplifies and automates hybrid, multi-cloud, and on-premises IT environments. OpsRamp provides full-stack observability and advanced agentic workflows tailored for the modern data center.
From our viewpoint, HPE Juniper Networking's new digital experience twin and agentic AI capabilities are a game-changer for today's networks. These features enable the network to do more than just connect devices - it can now understand, adapt, and act proactively. This means the network can become a true partner for IT, solving issues before they ever affect users. It’s a huge step toward truly self-driving operations, helping organizations simplify their complex networks, cut costs, and provide outstanding digital experiences on a massive scale.
Looking Ahead:
Based on what we are observing, the immediate benefit of the Juniper Networks acquisition to HPE’s top line is undeniable. The massive jump in networking revenue demonstrates how quickly this acquisition is adding scale. The key trend we will be tracking, however, is the impact on profitability. Based on our analysis of the market, the challenge will be to realize the projected synergies and drive profit accretion while managing the significant integration costs.
Our perspective is that the success of this deal will not be measured in the next two quarters, but rather over the next two years. HyperFRAME will be closely monitoring how the company performs on its promised profit accretion and whether the revenue growth can be maintained as the integration progresses. When you look at the market as a whole, this announcement positions HPE as a more direct and formidable competitor in the networking space. The question is whether they can execute the plan and create a truly unified and profitable entity. The path is there, but it is challenging.
Ron Westfall | Analyst In Residence
Ron Westfall is a prominent analyst figure in technology and business transformation. Recognized as a Top 20 Analyst by AR Insights and a Tech Target contributor, his insights are featured in major media such as CNBC, Schwab Network, and NMG Media.
His expertise covers transformative fields such as Hybrid Cloud, AI Networking, Security Infrastructure, Edge Cloud Computing, Wireline/Wireless Connectivity, and 5G-IoT. Ron bridges the gap between C-suite strategic goals and the practical needs of end users and partners, driving technology ROI for leading organizations.
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Steven Dickens | CEO HyperFRAME Research
Regarded as a luminary at the intersection of technology and business transformation, Steven Dickens is the CEO and Principal Analyst at HyperFRAME Research.
Ranked consistently among the Top 10 Analysts by AR Insights and a contributor to Forbes, Steven's expert perspectives are sought after by tier one media outlets such as The Wall Street Journal and CNBC, and he is a regular on TV networks including the Schwab Network and Bloomberg.