Hewlett Packard Enterprise (HPE) has established itself as a prominent player in the technology landscape, characterized as a global edge-to-cloud company that delivers open and intelligent technology solutions as a service. Founded in 2015 as a spin-off from HP Inc., HPE has since focused on a diverse range of technology services that include cloud services, high-performance computing, and artificial intelligence.

HPE's extensive product offerings are divided into several segments: Server, Hybrid Cloud, Intelligent Edge, Financial Services, and Corporate Investments. The Server segment stands out as the backbone of HPE's revenue, accounting for approximately 53.8%. This segment comprises general-purpose servers designed for multi-workload computing, optimized servers tailored for specific tasks, and integrated systems that combine various functionalities.

In addition to the Server segment, HPE's Hybrid Cloud segment contributes about 17.88% of its revenue, providing cloud-native and hybrid solutions that span storage, private cloud, and infrastructure software-as-a-service. Meanwhile, the Intelligent Edge segment, which comprises wired and wireless local area networks and various switching solutions, represents 15.04% of the company's earnings. HPE also explores flexible investment solutions through its Financial Services segment, offering leasing, financing, IT consumption programs, and asset management services.

On the investment front, Elliott Management, a prominent activist investment firm, has taken a keen interest in HPE. Known for its strategic approach, Elliott's team includes analysts from leading tech private equity firms, experienced engineers, and former technology executives. The firm has a notable history of engaging in governance-oriented activism, particularly within the technology sector. Through careful observation and analysis, Elliott often identifies potential investment opportunities and demonstrates an impressive track record in creating value from board-level involvement.

Despite its strong product portfolio, HPE finds itself in a challenging position within the market. Its current valuation is notably low, trading at less than five times its earnings before interest, taxes, depreciation, and amortization (EBITDA). In contrast, Dell Technologies, a key competitor, trades at over seven times EBITDA, indicating a significant valuation gap of around 30%. This undervaluation is largely attributed to inconsistent execution and a perceived loss of credibility in the marketplace. In the first quarter of the year, HPE reported a concerning decline in net revenue within its core Server business, citing mispricing issues related to inventory costs that were not addressed until late in the quarter. Following this disappointing news, HPE's stock experienced a sharp sell-off.

As HPE navigates these challenges, it is crucial to acknowledge the comparative performance of competitors like Dell. Since re-entering the New York Stock Exchange in late 2018, Dell has significantly outperformed HPE, delivering returns that exceed HPE's by over 200%.

While the Server business is integral to HPE's operations, the potential for expansion lies prominently in its networking sector, which is characterized by higher profit margins. The Intelligent Edge business, which contributes one-third of HPE's profits, has the potential to command a valuation similar to that of networking peers like Cisco, which trades at 12 times EBITDA. If HPE's Intelligent Edge business were valued at comparable multiples, it could significantly enhance the company's overall enterprise valuation, providing a substantial buffer even if its core Server and Cloud Storage businesses continued to trade at lower multiples.

However, HPE faces additional uncertainties regarding its pending acquisition of Juniper Networks, another player in the networking space. The $14 billion deal, announced in January 2024, has encountered significant regulatory hurdles as the Department of Justice seeks to block it on antitrust grounds. The outcome of this acquisition poses a critical inflection point for HPE, as the market typically reacts unfavorably to uncertainty, especially when management has a spotty track record of execution. If the deal is blocked, HPE could find itself with over 25% of its market capitalization in net cash, raising concerns about potential hasty acquisitions or mismanagement of cash reserves. Conversely, should the acquisition proceed, investors may remain skeptical about HPE's capacity to effectively integrate Juniper, given its recent operational missteps.

Amidst these challenges, Elliott Management's involvement may serve as a critical factor in restoring confidence among investors. If Elliott succeeds in securing sufficient board representation, it could instill trust that HPE will prioritize shareholder value, turning potential uncertainties into opportunities. In the event that the Juniper acquisition is blocked, a well-represented board could ensure that the substantial cash reserves are deployed thoughtfullywhether through strategic acquisitions or share buybacks. Conversely, if the deal goes through, a refreshed leadership team could enhance the integration process, alleviating investor concerns.

Historical data supports Elliott's capabilities as a successful activist investor. Over the past decade, the firm has engaged with 25 technology companies, resulting in an average return of 20.60%, compared to the Russell 2000's 8.56% during the same period. Notably, in the six instances where Elliott secured board representation, the firm achieved an average return of 45.53%, significantly outperforming the Russell 2000's 15.35% return.

Additionally, Elliott's prior experience with Juniper Networks from 2014 to 2015 provides valuable insights. During that time, Elliott advocated for various capital allocation strategies and governance reforms that ultimately resulted in board representation, a connection that could be beneficial for HPE's future if the acquisition proceeds.

In light of ongoing geopolitical tensions and tariff considerations, HPE may be better positioned than Dell to navigate certain challenges. The bulk of HPE's servers are manufactured in compliance with the United States-Mexico-Canada Agreement (USMCA), mitigating exposure to tariff risks that significantly impact Dell, a large portion of whose products are manufactured in China.

As the founder and president of 13D Monitor, an institutional research service focusing on shareholder activism, Ken Squire highlights the need for strategic oversight in these uncertain times. Ultimately, the future trajectory of HPE will depend heavily on effective management execution, strategic decision-making, and shareholder engagement.