HPE Reports Record Sales and Growth

Hewlett Packard Enterprise(NYSE:HPE) reported third-quarter fiscal 2025 results on September 3, 2025, delivering record revenue of $9.1 billion, up 18% year over year, and closing its acquisition ofJuniper Networks(NYSE: JNPR). Operating profit (non-GAAP) was notably driven by the new networking segment, which comprised nearly 50% of non-GAAP consolidated operating profit, while adjusted earnings per share (non-GAAP) reached $0.44 and free cash flow rebounded to $719 million. This analysis highlights integration progress, business mix evolution, and forward financial guidance from the earnings call. The company’s fiscal year ends July 31, 2025; all fiscal period references are to this period unless otherwise noted.

Juniper acquisition reshapes HPE’s networking and margin profile

The inclusion of one month of Juniper Networks’ results raised networking revenue to $1.7 billion, a 54% year-over-year increase, but networking segment non-GAAP operating margin dropped to 20.8% due to the lower margin profile of Juniper Networks compared to Hewlett Packard Enterprise’s legacy Intelligent Edge business. The call emphasized at least $600 million in projected cost synergies from the Juniper Networks deal over the next three years, with $200 million expected to be realized next year.

"So in the quarter, as you recall, we integrated a month of Juniper's results and our intelligent edge business. We combine them now into one segment called the networking segment. And the combined operating margins were twenty point eight. If you look I think your question was focused specifically at the edge business. Edge margin, actually, I disclosed in my prepared remarks, was 22.7, and we did see a a sequential reduction, and that was really due to two primary factors. One's variable comp expense, and the other one product related costs. And I did guide the Q4 op range to the low twenties as we get into the quarter. And the reason for that Samik, is obviously Juniper's rate was a few points below our Intelligent Ed business. So just bear that in mind as you think forward to the networking margin rates."
-- Marie Myers, Chief Financial Officer

The margin impact confirms that while scale and revenue accelerate from the Juniper Networks acquisition, investors should monitor short-term dilution to networking margins as integration proceeds and synergies ramp.

AI and private cloud fuel HPE’s record server and recurring revenue growth

Server segment revenue reached an all-time high of $4.9 billion, up 16% year over year, supported by rapid AI system adoption, including completion of a large GB 200 deployment. Annualized recurring revenue (ARR) was $3.1 billion, up 75% year over year, with more than 44,000 GreenLake cloud customers now onboard, and a record AI backlog of $3.7 billion at quarter end.

"AI systems orders increased nearly 100% quarter over quarter, including Middle East sovereign winds and continued traction in enterprise. We have grown enterprise AI orders year over year every quarter. Since the beginning of fiscal 2024. From an innovation perspective, we continue to keep pace with new accelerators technology and time to market customer demands. Last month, we launched HPE servers with the new NVIDIA Pro 6,000 Blackwell and NVIDIA Blackwell Ultra accelerated computing platforms."
-- Antonio Neri, Chief Executive Officer

Strong AI demand and recurring revenue growth highlight the company’s ability to capture emerging enterprise technology trends and expand its customer base.

Cost discipline and cash flow recovery bolster HPE’s deleveraging plan

The company generated $719 million in free cash flow, aided by a $1.9 billion sequential reduction in standalone inventory. It ended the period with a pro forma net leverage ratio of 3.1x after the Juniper Networks deal, with an explicit intent to return to a 2x net leverage ratio by fiscal 2027.

"Reducing inventory levels has been a key priority and we exited q with our balance near our normalized level. Our Q3 cash conversion cycle was positive thirty-five days, up nine days from last quarter. The inclusion of Jurupa unfavorably impacted our CCC calculation this quarter as it includes only one month of Juniper's revenue and cost of sales results versus the consolidation of Juniper's July ending balances. This timing issue obscures both the progress we made improving our CCC and the positive contributions for working capital the business generated on a sequential basis when excluding Juniper. We expect our CCC will improve in Q4 four with a full quarter's consolidation of Juniper's financials. As we expect the amount of free cash flow we generate to increase sequentially consistent with typical seasonality. We returned $171 million to shareholders through dividends but were unable to repurchase shares during the quarter because we were in possession of material non-public information that we have since disclosed. As we prioritize debt reduction, we remain committed to our dividend policy and expect quarterly share repurchases comparable to levels reported in the 2025, partially offsetting share dilution resulting from stock-based compensation. At quarter end and including incremental debt associated with the transaction, our pro forma combined net leverage ratio was 3.1 times. We remain committed to our investment-grade credit rating and intend to reduce our net leverage ratio back to our target in the two times range by the 2027."
-- Marie Myers, Chief Financial Officer

Successful inventory management and disciplined capital allocation provide critical financial flexibility as the company integrates Juniper Networks and works toward restored leverage and rating metrics.

Looking Ahead

Management guided for fiscal 2025 constant currency revenue growth of 14%-16% and raised non-GAAP EPS expectations to $1.88-$1.92 for fiscal 2025, incorporating four months of contributions from Juniper Networks. Fourth-quarter fiscal 2025 revenue is projected at $9.7 billion to $10.1 billion, with networking revenue expected to be up over 60% quarter over quarter and operating margin in the low 20% range, while server revenue is expected to decline mid to high single digits quarter over quarter, reflecting a more than 30% sequential drop in AI systems revenue after a major third-quarter deal. Management reaffirmed a target of approximately $700 million in fiscal 2025 free cash flow and committed to at least $600 million in cost synergies from Juniper Networks over the next three years, with specifics on long-term financial and synergistic plans to be outlined at the Securities Analyst Meeting in October.

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This article was created using Large Language Models (LLMs) based on The Motley Fool's insights and investing approach. It has been reviewed by our AI quality control systems. Since LLMs cannot (currently) own stocks, it has no positions in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.