WEBVTT - Verizon's Frontier Deal and Nvidia Pushes Back 0:00:01.440 --> 0:00:06.720 From Mahart where Innovation, money and power Collie in Silicon Valley, NBN. 0:00:07.040 --> 0:00:11.280 This is Bloomberg Technology with Caroline Hyde and Ed loved Love. 0:00:25.800 --> 0:00:28.800 From New York and San Francisco. This is Bloomberg Technology 0:00:28.880 --> 0:00:33.080 coming up. Verizon agrees to buy Frontier Communications nearly ten 0:00:33.280 --> 0:00:36.200 million dollars in cash to strengthen its fiber network. 0:00:36.240 --> 0:00:37.120 We speak with the CEO. 0:00:38.040 --> 0:00:40.680 Nvidia pushes back, saying it's been in contact with the 0:00:40.840 --> 0:00:44.120 Justice Department that has not received a subpoena. 0:00:44.360 --> 0:00:48.080 An HP enterprise comes up short as disappointing margins offset 0:00:48.120 --> 0:00:51.800 AI related tailwinds. Another chief exec on the show, but first, 0:00:52.200 --> 0:00:55.800 as check in on these markets, ED the Nasdaq outperforms. 0:00:55.840 --> 0:00:56.760 Benchmarks are lower. 0:00:56.760 --> 0:01:01.440 We're anxious around labor data coming tomorrow, but video and 0:01:01.480 --> 0:01:02.400 Tesla do the work. 0:01:02.440 --> 0:01:03.120 But there's m and A. 0:01:04.319 --> 0:01:08.200 We have some MNA, and that is Verizon to buy Frontier. 0:01:08.360 --> 0:01:11.640 Really interesting. Both stocks lower. The offer is thirty eight 0:01:11.680 --> 0:01:14.280 dollars and fifty cents a share, which is a fit 0:01:14.360 --> 0:01:17.280 thirty seven percent premium to the twenty eight dollars four 0:01:17.319 --> 0:01:19.960 cents closing price on Tuesday. Because you'll remember, the reports 0:01:20.000 --> 0:01:23.959 about this deal started surfacing during the day Tuesday. That's 0:01:24.040 --> 0:01:28.440 Tuesday's closing price. Nine point six billion dollar deal value, 0:01:28.600 --> 0:01:31.000 enterprise value greater than that if you take into account 0:01:31.080 --> 0:01:34.160 debt the story carriers. You know full well it's about 0:01:34.200 --> 0:01:37.440 being more competitive in the high speed internet business. And 0:01:37.520 --> 0:01:40.880 Verizon down top percentage point. Frontier currently in the session 0:01:40.880 --> 0:01:45.319 at thirty five dollars ten cent a share down nine percent, and. 0:01:45.480 --> 0:01:47.880 We want to be digging into some of the share 0:01:47.920 --> 0:01:50.520 price reaction that we have indeed been seeing. Why is 0:01:50.560 --> 0:01:55.040 Frontier training below that current agreed price. And we're very 0:01:55.080 --> 0:01:56.760 pleased to say we can talk about it a little 0:01:56.760 --> 0:02:00.400 bit more now because we welcome to our global TV 0:02:00.560 --> 0:02:04.760 and radio audiences. Verizon agreeing to buy rival telecom operator 0:02:04.800 --> 0:02:08.079 Frontier Communications FRO about nine point six billion dollars in cash, 0:02:08.160 --> 0:02:09.600 giving an enterprise value. 0:02:09.360 --> 0:02:12.040 Of twenty billion dollars. This is the New York phone. 0:02:11.880 --> 0:02:14.799 John looks to expand its high speed internet business. 0:02:15.200 --> 0:02:18.960 Let's bring en Verizon CEO hands Versteg. We welcome you. 0:02:18.960 --> 0:02:21.760 Sir, and look, it wasn't long ago that you actually 0:02:21.760 --> 0:02:25.360 owned some of these assets. Why go back into wyline? 0:02:25.720 --> 0:02:27.720 Why are we seeing this convergence again? 0:02:28.639 --> 0:02:30.919 Thank you for having me first of all, I think 0:02:30.960 --> 0:02:34.160 this is very straight into our core strategy. 0:02:34.440 --> 0:02:35.520 We are sort of. 0:02:35.560 --> 0:02:39.440 Inmobility and broadband serve basically all types of customers in 0:02:39.480 --> 0:02:44.360 this market, CONSUMERSMBS, large entervice, and governments. This is just 0:02:44.520 --> 0:02:47.720 extending the offerings and optionality for the customers we have. 0:02:47.919 --> 0:02:52.400 So this is a really good decision by us to 0:02:52.440 --> 0:02:55.200 do with an economical right. And on top of that, 0:02:55.680 --> 0:02:58.800 as you mentioned, yes we own these assets before, but 0:02:58.880 --> 0:03:02.639 they weren't totally different type of assets. There was basically 0:03:02.680 --> 0:03:07.320 a copper based business. Nowadays Frontier is more than fifty 0:03:07.320 --> 0:03:10.480 percent of the revenue is fiber and more than way 0:03:10.520 --> 0:03:13.200 more than fifty percent of the DTA is coming from fiber. 0:03:13.480 --> 0:03:17.560 So a large transformation have been done and it fits 0:03:17.560 --> 0:03:18.760 in straight to our strategy. 0:03:18.760 --> 0:03:22.359 Over is on hands, Good morning, it's head in San Francisco. 0:03:22.760 --> 0:03:25.720 Frontier is trading at thirty five dollars a sherish below 0:03:25.760 --> 0:03:28.120 the thirty eight dollars fifty cents per share offer. What 0:03:28.120 --> 0:03:31.600 does that tell you about the market's reaction to the 0:03:31.639 --> 0:03:33.640 offer and what you think might happen next? 0:03:35.280 --> 0:03:37.480 I don't tell me so much is so early in? 0:03:37.640 --> 0:03:40.280 Is it two hours of training? I think first of all, 0:03:40.320 --> 0:03:45.280 we feel really good about this deal from also from 0:03:45.400 --> 0:03:48.600 closing it and seeing that this is a possible transaction 0:03:48.880 --> 0:03:52.120 from many angles, because given that we believe it's going 0:03:52.160 --> 0:03:55.920 to take eighteen months and all the regulatory bodies of 0:03:55.920 --> 0:03:59.000 course will be a thorough job, but this is improvements 0:03:59.000 --> 0:04:01.760 for customers going in more choice, and not only that, 0:04:01.800 --> 0:04:05.280 we can only bring our mobility broadband to these customers. 0:04:05.440 --> 0:04:07.440 At the same time, we also have the offerings that 0:04:07.480 --> 0:04:10.720 we have on our broadband today, which is everything from 0:04:10.760 --> 0:04:14.680 streaming services, other services that we have on insurance, etc. 0:04:15.040 --> 0:04:17.600 So we going to bring a lot on new opportunities 0:04:17.640 --> 0:04:21.880 for the custom base or frontier. So I'm really positive 0:04:21.880 --> 0:04:22.719 on this acquisition. 0:04:23.480 --> 0:04:25.360 Can you tell us a little bit about the future 0:04:25.400 --> 0:04:25.719 as well. 0:04:25.760 --> 0:04:30.800 The short term is the convergence trade is wireless wireline content, 0:04:31.120 --> 0:04:33.480 but then there's AI. Then we're talking about the Internet 0:04:33.520 --> 0:04:35.719 of things as we've been talking about for years. Hands 0:04:35.960 --> 0:04:37.039 where does that come into play. 0:04:37.920 --> 0:04:40.520 It come definitely to play in these assets, and as said, 0:04:40.839 --> 0:04:43.400 we expect this to take in a take eighteen months. 0:04:43.400 --> 0:04:47.240 We're already right now have a sort of AI prepared 0:04:47.279 --> 0:04:50.039 network with a lot of compute and storage at the 0:04:50.160 --> 0:04:53.839 edge of the network. We decided already some six years 0:04:53.880 --> 0:04:57.320 ago to fibriize all our transport, so we are really 0:04:57.320 --> 0:04:59.960 prepared of it. The frontier acid is just coming in 0:05:00.040 --> 0:05:02.440 as an extension of that, and we can meet even 0:05:02.560 --> 0:05:07.160 more customers to have a processing storage at the edge 0:05:07.160 --> 0:05:11.880 of the network with the fiberized transport, So this is 0:05:11.960 --> 0:05:15.159 really also another advantage we're getting with the even more 0:05:15.200 --> 0:05:18.479 assets in the ground, and of course serving consumers with 0:05:18.560 --> 0:05:22.080 home broadband together with our mobile and home offering is 0:05:22.080 --> 0:05:25.440 of course a strength in the overall acquisition where we're doing. 0:05:26.320 --> 0:05:26.560 Hans. 0:05:26.600 --> 0:05:28.960 We have a question from an audience member on Bloomberg 0:05:29.000 --> 0:05:32.960 Technology who notes the twenty fifteen sale of wireline assets. 0:05:33.240 --> 0:05:35.080 But I think the question that he and many others 0:05:35.120 --> 0:05:38.280 have is what's changed around the economics in this deal. 0:05:38.320 --> 0:05:41.320 You said the economics work, but give me specifics some 0:05:41.360 --> 0:05:44.360 what's different, particularly for fiber in twenty twenty four. 0:05:45.360 --> 0:05:48.280 So if you look at the deal right now at closing, 0:05:48.560 --> 0:05:51.520 we believe that's going to be a creative of growth, 0:05:52.240 --> 0:05:57.400 revenue growth anibita on day one, so that's really good economics. 0:05:57.680 --> 0:05:59.560 And then it's going to take some twelve months and 0:05:59.640 --> 0:06:01.960 EPA and cashual will be a creative as well. And 0:06:02.000 --> 0:06:03.800 the reason it takes twelve months is there are some 0:06:03.880 --> 0:06:07.560 integration costs coming up in the beginning. So definitely a 0:06:07.680 --> 0:06:12.719 very economic sound business for us. But I said the 0:06:12.800 --> 0:06:15.839 assets we sold the previously was, of course in a 0:06:15.880 --> 0:06:19.920 totally different standard. The Frontier team has put in billions 0:06:19.960 --> 0:06:23.080 and billions of dollars to fiberize the network to be 0:06:23.160 --> 0:06:26.000 the next generation, and many of the metrics that they have, 0:06:26.120 --> 0:06:30.560 you know, Sharen, penetration, etc. Are fairly similar to FiOS, 0:06:30.640 --> 0:06:33.360 and FIUs is of course the best fiber network in 0:06:33.680 --> 0:06:36.440 the States, so there's a lot of similarities on that 0:06:36.520 --> 0:06:38.720 and that we can offer to our customers. 0:06:38.760 --> 0:06:41.359 And some ANDAs we're a little bit surprised by the 0:06:41.400 --> 0:06:43.520 timing and the fact that you're going all in on 0:06:43.560 --> 0:06:46.839 convergence now a bold step. Some call it because of 0:06:46.880 --> 0:06:50.279 your leverage and your commitment to reducing reducing your debt. 0:06:50.720 --> 0:06:53.480 Why do this now? Are you worried about leverage? 0:06:54.320 --> 0:06:54.360 No? 0:06:54.560 --> 0:06:56.200 I think, first of all, we have a very strong 0:06:56.240 --> 0:06:59.600 balance sheet and as we said this morning, at closing, 0:06:59.640 --> 0:07:03.159 these be maybe zero point two zero point three notch 0:07:03.520 --> 0:07:06.560 on our leverage, which is very very low. We still 0:07:06.600 --> 0:07:10.160 are committed to our capt A location. Number One, invest 0:07:10.200 --> 0:07:12.760 in the business and that's what we're doing today. Number 0:07:12.760 --> 0:07:15.000 two committed to the dividend, and you might have seen 0:07:15.080 --> 0:07:18.920 yesterday we came out with our dividend which was for 0:07:18.960 --> 0:07:22.800 the eighteenth consecutive year we increased our dividend. And then 0:07:23.040 --> 0:07:25.800 is to pay down our debt. We have been paying 0:07:25.840 --> 0:07:28.000 down our debts since we bought a c band. We 0:07:28.040 --> 0:07:30.240 still have some eighteen months here that we're going to 0:07:30.280 --> 0:07:32.280 continue to pay down the debt. So we're going to 0:07:32.280 --> 0:07:35.800 be in a really good position balance wise when this 0:07:35.960 --> 0:07:37.800 deal is coming to fruition. 0:07:38.600 --> 0:07:41.280 Hans, what opportunity is there for you in data center 0:07:41.360 --> 0:07:44.320 interconnects DCI in the context of AI. Look at what 0:07:44.400 --> 0:07:46.840 like Lumen's done with Microsoft for example. 0:07:47.800 --> 0:07:50.360 I think that the difference here is that we have 0:07:50.480 --> 0:07:53.280 so many assets in the ground. When it comes to 0:07:53.400 --> 0:07:57.120 fiber and central offices. Many of these central officers of 0:07:57.160 --> 0:08:01.200 course have compute storage power, it ex and many of 0:08:01.240 --> 0:08:04.160 the AI solutions. When there is a real product, they 0:08:04.280 --> 0:08:08.840 actually need to be way closer to the users, the corporations, 0:08:09.360 --> 0:08:12.480 et cetera. And that means that because the transport costs 0:08:12.560 --> 0:08:15.080 and many other things, it will be hosted at the 0:08:15.160 --> 0:08:17.760 edge of the network. That's how we build the Verizon 0:08:17.840 --> 0:08:21.080 Intelligence Edge Network in twenty eighteen when we started with 0:08:21.120 --> 0:08:24.000 the Journey, which we now is just adding Frontier to it. 0:08:24.080 --> 0:08:26.520 So I see a great opportunity for us on the 0:08:26.560 --> 0:08:30.520 B to B side with this footprint to serve customers 0:08:31.120 --> 0:08:34.760 that want to host AI at close to them, secure, 0:08:35.120 --> 0:08:36.880 lower transport costs, and et cetera. 0:08:37.840 --> 0:08:40.600 You're just announcing one deal, and you know we always 0:08:40.640 --> 0:08:43.680 love to push forward hands are you going to continue 0:08:43.679 --> 0:08:45.920 to be acquisitive when it comes to convergence. 0:08:47.000 --> 0:08:49.319 I think, first of all, we are really happy with 0:08:49.400 --> 0:08:52.320 assets we have and now we're adding Frontier. I don't 0:08:52.360 --> 0:08:54.000 think we need much more. We're going to be the 0:08:54.040 --> 0:08:57.120 biggest and wireless, We're going to be clearly the ones 0:08:57.160 --> 0:09:00.080 having the largest broad but offering with fixed wires, access 0:09:00.120 --> 0:09:03.280 and fiber in the market. We have the largest distribution 0:09:03.640 --> 0:09:05.439 and the customers, so we're going to be in a 0:09:05.520 --> 0:09:08.120 really good position to see that we execute for our 0:09:08.160 --> 0:09:11.760 customers but also for our shareholders. So I'm really happy 0:09:11.800 --> 0:09:14.040 with assets we're going to have and we have today. 0:09:14.360 --> 0:09:17.400 When it comes to convergence, I think what is important 0:09:17.400 --> 0:09:21.400 and convergence. We will have the scale of economy for both. 0:09:21.640 --> 0:09:24.920 We will have the ownerships for the wireless network and 0:09:24.960 --> 0:09:27.880 the fiber networks and fixed files access. If customers want 0:09:27.920 --> 0:09:30.280 to make the convergence, we will have the economics for 0:09:30.360 --> 0:09:32.600 doing it. I don't believe it's going to be sort 0:09:32.679 --> 0:09:35.959 of you you discount one product for customer taking both. 0:09:36.200 --> 0:09:39.000 That's not really there's two great products. And we all 0:09:39.040 --> 0:09:42.880 know mobility in broadband is a centure for day society. 0:09:42.920 --> 0:09:46.520 I mean everyone needs a division, corporation, a private person 0:09:47.280 --> 0:09:50.199 or a corporation. You need these services that are even 0:09:50.320 --> 0:09:53.440 more important today than we're five years ago. And Verison 0:09:53.520 --> 0:09:56.440 is number one and basically every segment of that and 0:09:56.480 --> 0:09:58.760 this is just fortifying it. So yeah, we're going to 0:09:58.760 --> 0:10:02.320 see convergence. But it's not like we're going to discount products. 0:10:02.320 --> 0:10:04.319 There are great two products that we're want to offer 0:10:04.400 --> 0:10:06.720 our customers if they want to join. We have an 0:10:06.960 --> 0:10:10.079 improvement on sheer and of course if customers both have 0:10:10.200 --> 0:10:12.679 wibilated in broadland with us, and so we want to 0:10:12.720 --> 0:10:15.319 see our best placehold in the market. Like clearly we're 0:10:15.320 --> 0:10:17.720 going to be best position in the market. 0:10:17.800 --> 0:10:19.400 Run and Council conmergence. 0:10:19.800 --> 0:10:26.840 Verizon CEO Hans Vestberg, thank you very much. In Nvidia 0:10:27.000 --> 0:10:29.920 said in a statement it has not received a subpoena 0:10:29.960 --> 0:10:32.800 from the US Department of Justice, responding to a Bloomberg 0:10:32.840 --> 0:10:36.600 News report published Tuesday that it had. The company said 0:10:36.600 --> 0:10:39.880 it inquired with the DOJ, has not been subpoened, but 0:10:40.160 --> 0:10:45.640 is happy to answer regulators questions. Bloomberg reports, citing a source, 0:10:45.640 --> 0:10:48.800 that in Vidia did receive a request for information in 0:10:48.880 --> 0:10:52.760 what's known as a civil investigative demand, or CID. A 0:10:52.880 --> 0:10:57.200 CID is also commonly referred to as a subpoena, but 0:10:57.320 --> 0:11:01.680 is often issued before any legal seedings are brought. According 0:11:01.720 --> 0:11:04.240 to the Bloomberg source, the request for information issue to 0:11:04.360 --> 0:11:08.800 Nvidia focuses on its acquisition of run Ai and aspects. 0:11:08.320 --> 0:11:09.120 Of its chip business. 0:11:09.120 --> 0:11:13.240 Bloomberg first reported the DOJ's probe of Nvidia in June. 0:11:13.480 --> 0:11:17.240 Caroline coming up ed will be joined by another chief executive, 0:11:17.240 --> 0:11:19.880 the CEO of C three AI. Once again, we're talking 0:11:19.920 --> 0:11:22.600 about artificial intelligence and its latest earnings results. 0:11:22.840 --> 0:11:37.760 This is Bloombog Technology back to tech earnings. 0:11:37.760 --> 0:11:41.040 Now C three ai reporting subscription revenue for the first quarter. 0:11:41.280 --> 0:11:44.679 There seems to be below many analysts expectations, shares off 0:11:44.679 --> 0:11:47.599 by thirteen percent. Pt US dig into the numbers. The 0:11:47.679 --> 0:11:50.280 CEO is with us, Tom Siebolf, you'll join us for more. 0:11:50.600 --> 0:11:52.440 It is a painful sell off, and in fact you're 0:11:52.480 --> 0:11:54.719 now training at the lowest since May twenty twenty three. 0:11:54.880 --> 0:11:55.800 I'm sure you'll tell me. 0:11:55.720 --> 0:11:57.760 You don't look at the share price, but it's trying 0:11:57.760 --> 0:12:00.600 to tell you something. What is it that isn't enough? 0:12:00.600 --> 0:12:04.120 And the numbers for the investor today, Tom, it was a. 0:12:04.040 --> 0:12:06.480 Great quarter, Caroline. I mean a year over your growth 0:12:06.559 --> 0:12:09.240 twenty one percent. That makes us I think one of 0:12:09.240 --> 0:12:13.240 the fast ten fastest growing companies in the public software universe. 0:12:14.040 --> 0:12:17.880 Cash op transaction volume up I think one hundred and 0:12:17.960 --> 0:12:22.240 twenty one percent, pilot volume up one hundred and fifteen percent. 0:12:22.320 --> 0:12:24.120 I think it was a solid quarter. 0:12:24.880 --> 0:12:29.440 And the sometimes markets react in funny ways. Here we 0:12:29.520 --> 0:12:32.839 have in video growing over the announced growth I think 0:12:32.880 --> 0:12:35.400 well over one hundred percent year over your growth rate. 0:12:35.440 --> 0:12:36.240 What's not to like? 0:12:36.760 --> 0:12:39.959 The market reacts by taking what two hundred and seventy 0:12:40.040 --> 0:12:42.720 billion dollars off the stock price the next day, So 0:12:43.240 --> 0:12:46.040 you know, markets reacting funny ways, and you'll all sort 0:12:46.080 --> 0:12:47.000 itself out of the long. 0:12:46.880 --> 0:12:51.600 Run, Tom, I'm still trying to understand the business model, right, Yeah, 0:12:51.800 --> 0:12:55.520 the subscription part and software and then services services seems 0:12:55.559 --> 0:12:58.520 to be strong. What is the story behind software with you? 0:12:59.640 --> 0:13:02.160 It's well, it's a little bit confusing a guy, because 0:13:02.400 --> 0:13:06.400 seventy percent of that services revenue services number is actually 0:13:06.559 --> 0:13:09.960 software delivered to the customer as part of our core 0:13:10.080 --> 0:13:12.079 product that they pay for. 0:13:12.160 --> 0:13:13.520 Over a long period of time. 0:13:13.559 --> 0:13:16.800 So it's the core product functionality, seventy percent of the 0:13:16.840 --> 0:13:20.920 services number, like order of ten million dollars of thirteen 0:13:20.920 --> 0:13:25.240 point eight I think. But due to new accounting regulations 0:13:25.240 --> 0:13:28.880 that came out called ASC six oh six, we have 0:13:28.960 --> 0:13:33.599 to we have to treat these functional enhancements as professional services. 0:13:33.760 --> 0:13:36.760 But it looks like software. It smells like software, It 0:13:36.840 --> 0:13:40.479 is compiled, it's part of the core product. It is software. 0:13:40.559 --> 0:13:44.640 But under the accounting regulations which we do comply with, 0:13:44.720 --> 0:13:51.720 I assure you it is it gets recorded as professional services. 0:13:51.200 --> 0:13:52.359 Stripping away accounting. 0:13:52.640 --> 0:13:54.960 What people are trying to peel back is profitability and 0:13:55.000 --> 0:13:57.319 how long they have to really wait for that profitability 0:13:57.360 --> 0:13:59.200 to kick in. You have to invest in the time 0:13:59.240 --> 0:14:01.240 to scale. I know, but are you just having to 0:14:01.240 --> 0:14:02.360 sell investors to be patient. 0:14:02.400 --> 0:14:06.480 Tom, Well, let's look at profitability. Our profit margins on 0:14:06.520 --> 0:14:10.160 their professional services. I think it's ninety three percent gross margin. 0:14:10.559 --> 0:14:13.680 I mean, it's good work if you can get it now. 0:14:14.600 --> 0:14:18.680 Our revenue growth rates are substantially greater than our expense 0:14:18.760 --> 0:14:22.800 growth rates historically. I think going forward, our revenue growth 0:14:22.880 --> 0:14:25.560 rates will continue to generally be greater than our expense 0:14:25.640 --> 0:14:29.360 for growth rates. Our gross profit margins are substantily greater 0:14:29.400 --> 0:14:33.120 than our cost of sales. So non gap profitability is 0:14:33.160 --> 0:14:34.280 simply a matter of scale. 0:14:34.400 --> 0:14:35.320 This just happens with. 0:14:35.360 --> 0:14:38.960 Time, Tom, I've been reading through the regulatory filings. It's 0:14:39.000 --> 0:14:41.520 the kind of guy I am, and the disclosures and 0:14:41.600 --> 0:14:46.560 the lawsuit suits against NL it seems to center around 0:14:46.600 --> 0:14:50.000 a trade secret issue. But can you help us understand 0:14:50.040 --> 0:14:51.160 more of what's going on there? 0:14:51.200 --> 0:14:51.520 Please? 0:14:52.640 --> 0:14:56.120 Yeah, this is a very unfortunate situation. This is very sad. 0:14:56.640 --> 0:15:01.160 And now was a really valued customer that license a 0:15:01.200 --> 0:15:06.240 lot of our technology, and it appears that they may 0:15:06.280 --> 0:15:11.520 have copied literally thousands of lines of our source code 0:15:11.680 --> 0:15:15.760 into our of our source code into a copy of 0:15:16.320 --> 0:15:18.040 and basically copied our product. 0:15:18.360 --> 0:15:20.160 So that's what this's complained about. 0:15:20.160 --> 0:15:23.920 It appears to be a very significant kind of intellectual 0:15:23.960 --> 0:15:31.000 property theft, and we're we're pursuing that in civil courts 0:15:31.160 --> 0:15:35.720 in Italy and it's sad, and you know, it's actually 0:15:35.720 --> 0:15:38.200 the first time I've seen this in my professional career 0:15:39.200 --> 0:15:42.400 that a company would do such a thing. But we 0:15:42.480 --> 0:15:45.720 are you know, we have to protect our intellectual property 0:15:45.800 --> 0:15:47.960 rights for the benefit of our shareholders, and we are 0:15:48.000 --> 0:15:48.400 doing that. 0:15:48.680 --> 0:15:51.360 And we will see comment from n L you are 0:15:51.400 --> 0:15:54.920 seeking two billion dollars from them in compensation. Tom, just 0:15:54.960 --> 0:15:58.200 going back to ultimately the winning of clients. 0:15:58.720 --> 0:15:59.800 How is market share? 0:15:59.840 --> 0:16:03.720 How are you able to compete with the big companies 0:16:03.760 --> 0:16:05.080 out there trying to compete with you? 0:16:06.640 --> 0:16:08.720 Well, I think the companies that are perceived of as 0:16:08.760 --> 0:16:11.920 accounting with competing with us would be Zoo, it would 0:16:11.920 --> 0:16:15.080 be microsoftware is, z or AWS and Google, because the 0:16:15.160 --> 0:16:19.400 real competition is building yourself. But understand, Caroline, seventy one 0:16:19.480 --> 0:16:22.880 percent of our transactions the last quarter we closed with 0:16:23.040 --> 0:16:26.200 one of Google Cloud aws ors or so we joint 0:16:26.240 --> 0:16:26.920 market with them. 0:16:27.000 --> 0:16:28.800 We joined sell seventy one percent. 0:16:29.200 --> 0:16:32.960 So these are great marketing partners and they're perceived of 0:16:33.400 --> 0:16:36.240 by some as being competitors, but they share looked at 0:16:36.240 --> 0:16:39.680 me like partners, and they looked to our customers like partners. 0:16:39.720 --> 0:16:43.400 So we appreciate the partnership and we go to market 0:16:43.480 --> 0:16:45.240 with them very actively all around the world. 0:16:46.280 --> 0:16:49.280 Well, for now, we really appreciate you coming on after 0:16:49.320 --> 0:16:52.280 earnings shares off on the day. We appreciate the time 0:16:52.280 --> 0:16:55.520 and the expertise. Three AAI CEO Tom siebel. 0:17:03.040 --> 0:17:03.520 Hpe. 0:17:04.240 --> 0:17:06.040 Now it's coming out with its earnings and for some 0:17:06.720 --> 0:17:09.320 we saw profitability perhaps coming weak and then expected for 0:17:09.359 --> 0:17:13.679 its third quarter, suggesting look that lower margins certainly that 0:17:13.760 --> 0:17:17.520 anticipated in its business for selling service for AI seem 0:17:17.600 --> 0:17:20.720 to be holding for now. Hpco, Antonio and Nery is 0:17:20.800 --> 0:17:23.280 joining us, and that's just dwell on the margins for 0:17:23.280 --> 0:17:27.480 a moment, Antonio, because some call it low calorie nature 0:17:27.600 --> 0:17:31.399 of AI systems revenue, is it no calorie for the foreseeable. 0:17:32.520 --> 0:17:35.520 Well, good morning, Kara, thanks for having me. We did 0:17:35.680 --> 0:17:38.600 what we said would do and we had a very 0:17:38.640 --> 0:17:41.960 strong quarter where we had double digits over year revenue 0:17:41.960 --> 0:17:44.840 growth and to your point, was all on the back 0:17:44.880 --> 0:17:48.159 of converting an amazing order book we have in AI 0:17:48.680 --> 0:17:52.320 and continue to add to that order book. However, it's 0:17:52.359 --> 0:17:56.520 also fair to say that we actually improve operating margins 0:17:56.600 --> 0:18:01.000 quarter over quarter by fifty basis points, despite makes heavily 0:18:01.000 --> 0:18:04.359 weighted to AI. And I will say that the reason 0:18:04.400 --> 0:18:08.040 why the gross margin, not the operating margins, the gross 0:18:08.080 --> 0:18:11.280 margin is year over year down is because we have 0:18:11.440 --> 0:18:15.040 less contribution from the networking business, which as you know, 0:18:15.240 --> 0:18:18.639 is going through a market transition through the cyclicality we 0:18:18.720 --> 0:18:21.400 normally see in each of the businesses. So the main 0:18:21.480 --> 0:18:25.240 driver for the gross margin decline was not AI. In fact, 0:18:25.320 --> 0:18:30.080 our AI business, our server business grew operating margins year 0:18:30.080 --> 0:18:31.840 over year by seventy basis points. 0:18:32.760 --> 0:18:35.320 That's actually like an industry wide issue that you've brought 0:18:35.359 --> 0:18:36.800 up that others have talked to us about. I think 0:18:36.840 --> 0:18:39.680 the difference with you, Antonio is the customer bas is 0:18:39.720 --> 0:18:42.240 like much more enterprise centric, and I think on the 0:18:42.280 --> 0:18:45.200 call you talked about improvement in margins relating to that, 0:18:45.440 --> 0:18:47.119 could you just talk a bit more about how the 0:18:47.240 --> 0:18:48.920 enterprise customer is going to push you forward? 0:18:50.280 --> 0:18:53.440 Absolutely, And as you know, at the HPD is covered 0:18:53.440 --> 0:18:57.040 in Vegas, we introduce an HPE Private Cloud AI offering, 0:18:57.480 --> 0:18:59.640 which I call it an AI in the box seat, 0:18:59.760 --> 0:19:03.879 which is actually a four toun key solution for enterprises 0:19:04.080 --> 0:19:07.840 of all sizes to train and deploy inference for their 0:19:07.880 --> 0:19:14.040 specific applications. And that offer is targeted specifically for enterprises, 0:19:14.080 --> 0:19:18.280 including very specific vertical solutions built on top. And we 0:19:18.440 --> 0:19:21.000 just made that offer available just two days ago. It's 0:19:21.080 --> 0:19:25.320 now available for global availability ordering and we are excited 0:19:25.359 --> 0:19:25.760 about that. 0:19:25.880 --> 0:19:26.160 Now. 0:19:26.240 --> 0:19:29.400 In the order book we announced this order, we had 0:19:29.480 --> 0:19:32.680 one point six billion dollars of new orders and meet 0:19:32.760 --> 0:19:35.320 teams of those orders are enterprise related. 0:19:36.400 --> 0:19:40.000 Let's just talk about macro challenges to those enterprises you 0:19:40.080 --> 0:19:44.040 sell to. Are we seeing a pullback in confidence on spending? 0:19:45.680 --> 0:19:48.679 Actually, I have not seen it, you know. In fact, 0:19:48.800 --> 0:19:52.879 we saw orders growth in all our businesses on a 0:19:52.920 --> 0:19:56.520 sequential basis, which tells me, Caroline, we are on a recovery. 0:19:56.920 --> 0:20:00.200 In fact, our traditional server business had doubled it the 0:20:00.280 --> 0:20:04.440 year over here and sequential growth in orders, which also 0:20:04.520 --> 0:20:08.320 tells me there's no cannibalization from the AI servers into 0:20:08.400 --> 0:20:11.679 the traditional servers. And it makes sense, Caroline, because when 0:20:11.720 --> 0:20:14.840 you think about these legacy worloads, some of them are 0:20:14.880 --> 0:20:18.240 not even cloud native worloads. It makes no sense to 0:20:18.280 --> 0:20:21.480 put it on a more expensive infrastructure which should be 0:20:21.560 --> 0:20:25.520 focused on really training these models with their data so 0:20:25.560 --> 0:20:28.080 they can get the time to value from the deployment 0:20:28.119 --> 0:20:30.960 through the business process. And then on the networking site, 0:20:31.000 --> 0:20:33.720 which obviously has been a more negative store in the 0:20:33.800 --> 0:20:34.720 last few quarters. 0:20:34.760 --> 0:20:35.720 In line with the peers. 0:20:35.760 --> 0:20:39.080 By the way, we saw sequential or the growth across 0:20:39.119 --> 0:20:44.040 all geographies and we're driven by the wireless line, the 0:20:44.240 --> 0:20:47.000 SASE deployment, which obvious security is very important at the 0:20:47.080 --> 0:20:48.840 edge and data center networking. 0:20:50.480 --> 0:20:52.960 And so I know you talked about your fiduciary duty 0:20:53.240 --> 0:20:58.200 in pursuing damages in the sad incidents around mister Lynch. 0:20:58.920 --> 0:21:02.000 Just because it's the first time our audience is hearing 0:21:02.040 --> 0:21:05.679 from you, you explain that produciary duty and basically what 0:21:05.720 --> 0:21:08.840 your end goal is in that piece of litigation. 0:21:10.480 --> 0:21:14.200 Well, Lison had the doctor Lynch death is a tragedy, 0:21:14.480 --> 0:21:17.600 as are the death of others in the on the ship. 0:21:17.720 --> 0:21:21.440 So clearly it was a sad moment. However, it does 0:21:21.600 --> 0:21:25.320 not change what happened. You know, the UK judge rule 0:21:25.400 --> 0:21:27.840 that the company is victim of fraud. 0:21:27.960 --> 0:21:29.400 That really happened last year. 0:21:30.119 --> 0:21:33.400 As a physical is duty. We need to see the finalization, 0:21:33.520 --> 0:21:37.240 does the proceedings and obviously our duties to also recover 0:21:37.320 --> 0:21:39.880 the damages on that fraud. So we have to see 0:21:39.880 --> 0:21:42.840 it through. That's what we are and we hope to 0:21:42.880 --> 0:21:45.000 hear soon what are the next steps based on the 0:21:45.040 --> 0:21:47.560 proceedings of the judge. 0:21:46.840 --> 0:21:49.520 Antonia and Arry, we appreciate you tackling what is a 0:21:49.600 --> 0:21:51.840 sensitive subject and indeed your earnings. 0:21:51.960 --> 0:21:52.440 Thank you. 0:22:00.040 --> 0:22:02.119