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Hewlett Packard Enterprise HPE shares have lost 36.1% in the past three months, underperforming the Zacks Computer - Integrated Systems industry, Zacks Computer and Technology sector and the S&P 500 index’s decline of 7.9%, 13.6% and 5.6%, respectively.
HPE 3 Month Price Performance Chart
Image Source: Zacks Investment Research
The recent decline in HPE’s stock price stems from broader market weakness. Investor sentiment has soured amid rising trade tension, with additional tariffs raising fears of escalating costs.
As Hewlett Packard Enterprise’s manufacturing facilities are concentrated in a dozen countries, among which China and Mexico contribute a significant part, the additional tariff imposed by the Trump government has raised the price of the components imported from these countries, pressuring HPE’s margin.
Furthermore, HPE missed the fiscal first-quarter earnings due to unexpected pricing pressure from aggressive discounting on traditional servers and normalization of post-pandemic backlog orders in its high-margin Intelligent Edge division. A combination of these factors pushed HPE stock down.
HPE-Juniper Debacle Added to Investors’ Concerns
Another factor that added to investors’ pessimism is the obstruction posed by the U.S. Department of Justice (DOJ) in the acquisition of Juniper Networks JNPR. At present, the networking market comprises HPE, Juniper Networks, Arista Networks ANET and Cisco CSCO.
Arista Networks currently manufactures networking solutions, including Arista 7000 Series, 7300 Series, 7500 Series and 7800 Series switches, which are similar to Juniper’s EX Series and QFX Series switches.
In the router space, Arista manufactures 7800R4 Series, CSCO has Cisco ASR and Cisco ISE solutions that are similar to Juniper’s MX Series, PTX Series and ACX Series routers. Cisco also manufactures the Catalyst Series and Nexus Series switches for both the enterprise and data center customers like Juniper.
Due to the presence of a handful of players in the Networking space, the DOJ filed a lawsuit against HPE with concerns that the HPE-Juniper merger will eliminate competition and stifle innovation in this space.
In fiscal 2024 annual filings, HPE reported that the charges related to acquisitions and other activities increased by $135 million, mainly due to costs from the pending acquisition of Juniper Networks. Rising acquisition costs due to delays will undermine HPE’s earnings performance. The Zacks Consensus Estimate for HPE’s fiscal 2025 earnings is pegged at $2.04 per share, indicating a 2.5% decline year over year.