WEBVTT - HPE President & CEO Antonio Neri Talks Company Growth with AI Usage

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<v Speaker 1>Bloomberg Audio Studios, podcasts, radio news.

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<v Speaker 2>Antonio Nearer joints us Here, CEO of HPE. Antonio, thanks

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<v Speaker 2>so much for joining us here talk to us about

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<v Speaker 2>what are the key issues for you guys going forward

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<v Speaker 2>here to this AI story is a story that's playing

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<v Speaker 2>out across the tech stack.

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<v Speaker 3>Well, good morning, Paul, thanks for having me. Yes, of course,

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<v Speaker 3>today the narrative is all around the AI and the

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<v Speaker 3>ability to use AI to change the world. And so

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<v Speaker 3>for us as a technology company is how we accelerate.

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<v Speaker 4>The deployment of AI in the enterprise.

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<v Speaker 3>And today we talked about the you know, the evolution

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<v Speaker 3>of just large language models, introegantic models, which allows you know,

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<v Speaker 3>to increase productivity across the entire enterprise, cross processes and functions.

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<v Speaker 3>And so we have made that series of announcements here

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<v Speaker 3>which brings together the infrastructure, the software, and the cloud

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<v Speaker 3>experience into one integrated, unified operated model including governance and compliance.

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<v Speaker 3>So that build the trust with an enterprise to go forward.

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<v Speaker 1>And how does this change your growth trajectory going forward?

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<v Speaker 1>I know that you know one year out might look

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<v Speaker 1>very different from five years out versus ten years out.

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<v Speaker 1>Just walk us through how you see this changing what

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<v Speaker 1>you had anticipated to what you now think you can achieve.

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<v Speaker 4>Yeah, ask Caarli.

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<v Speaker 3>So if you go back and read our earnings and

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<v Speaker 3>Q two, we grew the company as a whole forty

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<v Speaker 3>percent year over your own revenues, and we expand our

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<v Speaker 3>margins because of the content that we bring into Our

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<v Speaker 3>revenue now has a bigger mix of networking, software and

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<v Speaker 3>cloud services, and in that context, we believe networking is

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<v Speaker 3>going to be the thesis of our company. If you

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<v Speaker 3>think about developing these frontier models, whether proprietary or open

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<v Speaker 3>source models, you need a lot of GPU power. That

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<v Speaker 3>GPU needs to be very productive, you don't want to

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<v Speaker 3>keep it idle, and the bottleneck of that is networking.

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<v Speaker 3>And so we have now with the acquisition of Juniper,

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<v Speaker 3>an amazing portfolio in the three key.

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<v Speaker 4>Elements, scale up, scale out, and scale.

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<v Speaker 3>Across, which position us to be core element of that

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<v Speaker 3>infrastructure build out. So this is why we believe the

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<v Speaker 3>company is going to grow double digits going forward and

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<v Speaker 3>will continue to expand operating margins, and that will translate

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<v Speaker 3>in free cash law. So we already guide it, which

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<v Speaker 3>is unlikely and you know in many cases for six

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<v Speaker 3>quarters ahead, So think about it because of the confidence

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<v Speaker 3>we have in a growth trajectory.

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<v Speaker 2>Antonio, where do you think this technology, this AI technology

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<v Speaker 2>story is. I mean a lot of folks are saying

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<v Speaker 2>we're still in a very very early innings, but you

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<v Speaker 2>just think about the amount of CAPEX that is being

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<v Speaker 2>spent by a variety of players within the sub stack.

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<v Speaker 2>It's just extraordinary. Where do you think we are in

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<v Speaker 2>that comparim there of AI investment.

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<v Speaker 4>I concur with that we're still early.

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<v Speaker 3>And Paul, what you have to understand that is three

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<v Speaker 3>customer segments you have to look into it. Number one

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<v Speaker 3>is the model builders and the hyper scale is the

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<v Speaker 3>neo clouds. We're building large amounts of compute capacity. We

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<v Speaker 3>believe by the end of the decade, we're going to

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<v Speaker 3>build two hundred and fifty gigawad of power that will

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<v Speaker 3>host these gibus and that's the cape you're talking about it.

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<v Speaker 3>But then ultimately, what is the mix of the capacity.

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<v Speaker 3>It's going to be shifted from training models to influencing models,

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<v Speaker 3>and that's where we're going to see the large adoption

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<v Speaker 3>of you know, AI into the enterprise to drive that productivity.

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<v Speaker 3>But if you put an context of industrial revolutions in

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<v Speaker 3>the past.

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<v Speaker 4>This actually is very small.

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<v Speaker 3>Compared to that spend that was done, you know, in

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<v Speaker 3>every inflection point, including the turn.

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<v Speaker 4>Of the past century.

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<v Speaker 3>So yes, I understand the concern about the montal capex,

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<v Speaker 3>but when you're put it in context of changing the

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<v Speaker 3>way we work, the change in our society will still

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<v Speaker 3>small relative to that.

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<v Speaker 1>You know, just looking at how you might be deploying cash.

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<v Speaker 1>I know that you tap the debt market in March

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<v Speaker 1>to refinance some upcoming maturities. You've got strong liquidity with

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<v Speaker 1>cash and equivalents of more than five billion dollars at

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<v Speaker 1>the end of the second quarter. What might prompt you

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<v Speaker 1>to go to the debt market again to raise more money.

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<v Speaker 3>Well, we do that very regularly because remember inside the

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<v Speaker 3>HPE we have an operating company. Obviously we are paying

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<v Speaker 3>down the debt and refinancing where we need to, and

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<v Speaker 3>that's the operating balance sheet you're referring to. So our

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<v Speaker 3>balance sheet is super super strong. And then we have

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<v Speaker 3>the financing company, which has thirteen billion dollars under asset management.

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<v Speaker 3>Think about the finance that we do for cass stomers

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<v Speaker 3>and we do it also surpass of the asset lifecycle

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<v Speaker 3>management services, and basically we have debt securities against those assets,

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<v Speaker 3>but the return on equity on that is super high,

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<v Speaker 3>super super high, So we use those vehicles when it's necessary.

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<v Speaker 3>But what we announced just at the beginning of this

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<v Speaker 3>month in our earning is is that we're going to

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<v Speaker 3>pay down that debt much faster.

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<v Speaker 4>In fact, we.

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<v Speaker 3>Expect a return to two times leveraged by the end

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<v Speaker 3>of this fiscal year, which is one year ahead of plan,

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<v Speaker 3>and we're going to start returning seventy five percent approximately

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<v Speaker 3>over free cash flow in twenty twenty seven to shareholders,

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<v Speaker 3>which we expect to generate at least four point five

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<v Speaker 3>billion dollars in individends.

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<v Speaker 4>And share buybacks. That's how we're going to return it.

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<v Speaker 3>So we are very strong, and that comes back to

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<v Speaker 3>the question you asked me before, where it comes from

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<v Speaker 3>the growth and the operating margets