WEBVTT - HPE President, CEO Talks Company Outlook 0:00:02.520 --> 0:00:07.040 Bloomberg Audio Studios, podcasts, radio news. 0:00:08.039 --> 0:00:11.640 Shares of HPE are plunging today after the company said 0:00:11.720 --> 0:00:14.480 profits in the coming year would be hurt by tariffs, 0:00:14.960 --> 0:00:19.760 week margins on server sales, and execution issues. HPE also 0:00:19.880 --> 0:00:24.120 saying it will look to eliminate three thousand jobs. Antonio Nairy, 0:00:24.280 --> 0:00:27.639 HPE CEO, joins us now for more. Antonio, I know 0:00:27.680 --> 0:00:30.040 it's a tough day, but give us a little bit 0:00:30.040 --> 0:00:32.960 of clarity in terms of what you're seeing as the 0:00:33.040 --> 0:00:34.000 turnaround plan. 0:00:34.080 --> 0:00:38.400 Here. Yes, good morning, Thanks for having me today. Obviously 0:00:38.440 --> 0:00:42.159 it's a disappointed day for me and for us as 0:00:42.200 --> 0:00:45.519 a company. We had a solid quarter. We delivered on 0:00:45.520 --> 0:00:50.320 our commitments. We grow our revenue double digits, up seventeen percent. 0:00:50.920 --> 0:00:54.040 We had double digit growth in our bookings, but we 0:00:54.160 --> 0:01:00.000 disappointed on one specific metric, which was the server operative margins. 0:01:00.040 --> 0:01:03.560 Several operative margin was impacted by three specific issues. Two 0:01:03.800 --> 0:01:07.200 in the traditional server business call it the X eighty six. 0:01:07.760 --> 0:01:12.000 One was a very aggressive market, meaning a high discounting, 0:01:12.400 --> 0:01:15.880 and second was a specific issue with the evaluation of 0:01:15.920 --> 0:01:19.200 our inventory which caused us not to have the exact 0:01:19.400 --> 0:01:22.559 right cost in that pricing. In the end of the quarter, 0:01:23.319 --> 0:01:26.399 and those issues have been already fixed and we have 0:01:26.480 --> 0:01:30.840 taken very aggressive action. On the AI side, we have 0:01:30.880 --> 0:01:34.800 a higher than normal inventory related to the GPU transition 0:01:35.319 --> 0:01:38.520 from the Copper of h one hundreds and two hundreds 0:01:38.560 --> 0:01:41.640 intro Blackwell and in the quarter we booked one point 0:01:41.640 --> 0:01:44.520 six billion dollars of new AI system orders, which was 0:01:44.680 --> 0:01:50.120 doubled the orders that we had in Q four, but 0:01:50.280 --> 0:01:52.600 seventy percent of that is on the black Bell side, 0:01:53.040 --> 0:01:56.920 so the working capital aspect of that had a negative 0:01:56.920 --> 0:02:00.280 impact on our operating margins for the servers. The rest 0:02:00.320 --> 0:02:04.080 of the business is very, very strong, and inclusive of 0:02:04.160 --> 0:02:08.240 the networking business, which had again another recovery on sequential 0:02:08.280 --> 0:02:11.160 revenue double digit year over the year. Revenue growth our 0:02:11.240 --> 0:02:14.200 hybrid cloud was up eleven percent year over the year, 0:02:14.680 --> 0:02:18.560 and we had a very strong performance in our storage bookings. 0:02:18.840 --> 0:02:21.920 So it was all in the suburb margin. But I 0:02:22.000 --> 0:02:24.080 have to tell you because of the demand we selved. 0:02:24.720 --> 0:02:27.800 It reinforced our strategies, right. We just need to execute 0:02:27.840 --> 0:02:30.000 better than a couple of things and return to that 0:02:30.160 --> 0:02:34.200 normal operating profit, which we are committed to do in 0:02:35.120 --> 0:02:39.040 the second half. And then what we guided was inclusive 0:02:39.080 --> 0:02:41.880 of that and the net impact of tariffs because now. 0:02:41.760 --> 0:02:46.720 It's available on tarif Antonio, how much of a pain 0:02:47.520 --> 0:02:49.480 to the bottom line and tari's going to be? Do 0:02:49.520 --> 0:02:51.600 you have a clear guidance and number. 0:02:52.240 --> 0:02:55.160 Yes, we did, Caroline. We guided that there would be 0:02:55.320 --> 0:03:00.359 sevenpennies net of the mitigation impacts that we have now 0:03:00.400 --> 0:03:04.440 put in place and will continue to execute throughout FIS 0:03:04.480 --> 0:03:05.600 career twenty twenty five. 0:03:05.760 --> 0:03:08.440 So worst case star do you build in there though, Antonio, 0:03:08.480 --> 0:03:10.560 because at the moment, every day we get a different 0:03:10.560 --> 0:03:11.359 twer of headline. 0:03:12.680 --> 0:03:15.480 Well, we decided to go all in based on the 0:03:15.639 --> 0:03:19.680 twenty five percent tariff in Mexico, the twenty five percent 0:03:19.680 --> 0:03:22.400 tatics in Canada, which we don't produce in Canada today, 0:03:22.840 --> 0:03:26.360 and the incremental ten percent meaning the twenty percent on China. 0:03:26.520 --> 0:03:29.720 So we factor all that in and obviously we have 0:03:29.760 --> 0:03:34.280 a mitigation strategy from a global supply chain and also 0:03:34.440 --> 0:03:36.560 the pricing. So we decided to put it all in 0:03:36.600 --> 0:03:38.560 at this part of time, and if some of that 0:03:38.840 --> 0:03:41.960 doesn't get done, then you know, we'll obviously we'll get 0:03:41.960 --> 0:03:44.400 the benefit of it. But right now, because kind of 0:03:44.520 --> 0:03:46.640 what happened here is that because we did not guide 0:03:46.640 --> 0:03:49.760 the full year waiting for the Juniper deal to close. 0:03:49.800 --> 0:03:52.000 At the end of Q one, we decided to put 0:03:52.000 --> 0:03:55.320 a flag pole out there for an investor. So they 0:03:55.360 --> 0:03:56.360 have it all out there. 0:03:57.920 --> 0:03:59.839 Can you give us an update there? Antonio, is where 0:04:00.080 --> 0:04:02.520 the Department of Justices case stands. 0:04:04.000 --> 0:04:07.440 Yes, of course, First of all, we are incredibly disappointed 0:04:07.440 --> 0:04:10.440 the DOJ decide to file a lawsuit to try to 0:04:10.480 --> 0:04:15.480 block the transaction. Their market analysis completely flawed. The narrow 0:04:15.520 --> 0:04:18.479 the market to one sliver of the market called the 0:04:18.520 --> 0:04:21.279 wireless land, and they felt there would be only three 0:04:21.360 --> 0:04:23.600 vendors to play in the market. The reality are at 0:04:23.680 --> 0:04:26.360 least the eight vendors, and many of them had this 0:04:26.480 --> 0:04:30.920 exact same share as Juniper today. In addition, you know, 0:04:31.120 --> 0:04:33.440 they don't consider that this is a great opporture for 0:04:33.480 --> 0:04:38.480 the United States to strengthen our US national security outside 0:04:38.560 --> 0:04:42.000 the country. So now the judge has been selected, the 0:04:42.120 --> 0:04:46.720 judge has established July ninth as the trial date, and 0:04:46.760 --> 0:04:49.400 we will defend this in court. So we expect to 0:04:49.440 --> 0:04:52.479 prevail because we have a very compelling case, and therefore 0:04:52.520 --> 0:04:55.479 we expect to close the transaction in twenty twenty five, 0:04:55.680 --> 0:04:57.479 obviously delayed from the regional time. 0:04:59.000 --> 0:05:02.000 We have about thirty seve left. But are you prepared 0:05:02.080 --> 0:05:04.279 for the worst case scenario. 0:05:06.320 --> 0:05:11.160 Meaning the deal doesn't close. We always have multiple options 0:05:11.200 --> 0:05:14.960 on the table. Our feeder street duty together with my board, 0:05:15.080 --> 0:05:19.120 is to drive the best return for our shareholders. We 0:05:19.200 --> 0:05:22.360 felt that the Juriper transaction is the best long term 0:05:22.400 --> 0:05:26.840 return that will shift the portfolio and create more earnings 0:05:27.040 --> 0:05:30.440 and free cash flow because we committed at least four 0:05:30.480 --> 0:05:33.680 hundred and fifty million dollars of synergies and so that's 0:05:33.720 --> 0:05:37.239 where we're focused. However, there are different ways to create 0:05:37.279 --> 0:05:40.040 shareholder value and all those options out on the table, 0:05:40.360 --> 0:05:41.479 but right now we want. 0:05:41.279 --> 0:05:44.560 To see this troup Antonio and nary Hpeco. Thanks so 0:05:44.680 --> 0:05:45.960 much for joining us today.