US tariffs dampen earnings forecasts for AI server maker in competitive sector
Hewlett Packard Enterprise (HPE) saw its stock price plummet by 20% in premarket trading on Friday, after the company warned that its annual profit outlook would be impacted by recently imposed US tariffs, amid fierce competition within the market.
Earlier this week, the US administration, led by President Donald Trump, implemented a 25% tariff on imports from Canada and Mexico, although some goods were exempt under the North American trade pact until April 2. Additionally, the US introduced a 10% tariff on Chinese imports, which follows the previous 10% levy imposed on February 4. These changes have sent shockwaves through various sectors, including technology.
Despite the tariffs only being applied this week, HPE’s comments indicate the immediate effect they are having on US businesses. Analysts warn that escalating trade tensions may lead to price hikes across industries such as tech and automotive. CFO Marie Myers acknowledged the strain on the company’s server business, stating, “Recent tariff announcements have created uncertainty for our industry, particularly affecting our server operations.”
To address these challenges, HPE plans to implement cost-cutting measures, including job reductions, as it faces mounting competition from companies like Dell and Super Micro Computer. With the increasing demand for AI-optimised servers, HPE is also struggling with margin pressures caused by high production costs and the transition to more powerful chips.
Morningstar analyst Eric Compton indicated that, while the second and third quarters could prove challenging, HPE expects to recover in the fourth quarter. “We believe these are short-term issues,” he said. “After revising our forecasts, we expect to see improvements by year-end.”
HPE’s market valuation could drop by over $4 billion if the premarket losses persist, reflecting the company’s current earnings multiple of 8.19, which is lower than Dell’s 9.74 and Super Micro Computer’s 10.71.
