HPE Leverages AI to Boost Efficiency and Transform Operations Amid Restructuring Efforts

Hewlett Packard Enterprise (HPE) recently announced another restructuring to reduce costs and streamline operations, marking a shift towards using artificial intelligence (AI) to enhance efficiency and customer engagement. This restructuring, part of an internal program called Catalyst, aims to flatten management layers, improve agility, and leverage AI across various business functions. Antonio Neri, HPE's CEO, stated that the plan involves laying off 2,500 employees and reducing another 500 through attrition over a period of 12 to 18 months, aiming to eliminate $350 million in annual costs by the end of the fiscal year, which concludes in October. Neri emphasized the role of AI in the restructuring, noting that it is being integrated to simplify offerings, streamline sales processes, and make internal teams more responsive to customer needs. One notable example is the collaboration with Deloitte and Nvidia to develop an AI initiative for finance, called Zuora AI CFO insights. This project, running on HPE's private cloud AI platform, is designed to transform executive reporting by accelerating reporting cycles by about 50 percent and reducing processing costs by an estimated 25 percent. While specifics about the AI models and their impact on human workforce replacement are not disclosed, the implications for operational efficiency are significant. In the May quarter, HPE reported sales of $7.63 billion, representing a 5.9 percent increase year-over-year. However, the company booked an operating loss of $1.11 billion, primarily due to a $1.4 billion impairment of goodwill related to inventory of Nvidia’s H100 and possibly H200 GPUs. This write-off equates to about 7,000 eight-way HGX nodes with nearly 56,000 GPUs. The inventory shift was caused by the rapid customer demand for Blackwell GPUs over Hopper, despite Hopper being older technology. Neri mentioned that HPE is now adopting a prepayment model to manage inventory risks, ensuring that they only purchase when customers commit financially. Despite the impairment, HPE continues to sell the older H100 and H200 GPUs, hoping to find markets where cost is a more critical factor than performance. The company's Server business had sales of $4.06 billion, up 4.9 percent, but operating income plummeted by 43.4 percent to $241 million. This decline in operating margins, currently at 5.9 percent, highlights HPE's struggle to balance discounting strategies amid fierce competition from Dell, Lenovo, and original design manufacturers (ODMs). The Hybrid Cloud division, encompassing HPE storage products and the GreenLake utility-priced gear, performed robustly with $1.45 billion in sales, a 15.7 percent increase. Operating income soared to $78 million, up by a factor of 7.8 compared to the $10 million recorded in the year-ago period. GreenLake customer growth is slowing, with only 1,000 new customers added in the quarter, bringing the total to 42,000 worldwide. The annualized run rate for GreenLake increased to $2.2 billion, slightly up from $2.1 billion in Q1 2025 and significantly higher than $1.5 billion a year ago. HPE's AI systems business is a critical focus area, generating a little more than $1 billion in revenue in the second quarter, with a $3.2 billion backlog and $9.34 billion in cumulative orders since the inception of APU System Revenue metrics in Q1 2024. Notably, 33 percent of AI system revenues came from enterprises, a substantial increase from the previous quarter and reflecting growing enterprise interest in AI solutions. Neri mentioned that HPE plans to deploy one of the largest GB200 AI system installations worldwide in Q3. Traditional, general-purpose servers contributed $3.05 billion in revenues, a 3.1 percent increase but a 9.7 percent sequential drop, as HPE exercises pricing discipline. AI systems accounted for 24.8 percent of total sales, indicating a balanced approach between AI and conventional server markets. When considering the core systems business, including hardware, software, and financing, HPE generated $6.13 billion in revenues, up 6.2 percent, but operating income fell by 23.1 percent to $391 million. Industry experts view HPE's AI-driven initiatives positively, recognizing the potential for significant operational improvements and cost savings. However, concerns about the sensitivity of workforce reductions and the competitive landscape remain. HPE's prepayment model and strategic focus on high-margin deals suggest a cautious yet ambitious approach to navigating the AI market. With the acquisition of Juniper Networks pending and over $11 billion in cash reserves, HPE is well-positioned to adapt and capitalize on emerging opportunities in the AI and hybrid cloud sectors. The company's history of resilient performance and strategic restructuring indicates its ability to remain competitive in a rapidly evolving tech landscape.