Speaker 1: Bloomberg Audio Studios, podcasts, radio news.
Speaker 2: Shares of HPE modestly higher, up about six tenths of
Speaker 2: one percent. Been chopping around in the session, but the
Speaker 2: company gave us strong sales and revenue projection for the
Speaker 2: current quarter was striving it demand demand for AI hardware
Speaker 2: in particular, has discussed with hp CEO Antonio Neeri, and
Speaker 2: let's start with that. You know it clearly there is
Speaker 2: some staying power in that demand at rack scale, you know,
Speaker 2: crystallize it for us. What are you seeing in real time?
Speaker 3: Yeah, good morning, Ed, and thanks for having me. We
Speaker 3: saw a tremendous demand throughout the quarter. I think the
Speaker 3: momentum in AI continues in the build out of the
Speaker 3: data center, but what I'm really pleased is the momentum
Speaker 3: we see in enterprise. In fact, most of our revenue
Speaker 3: in AI, we're recognizing Q one came from the enterprise segment,
Speaker 3: which shows you two key elements. One is the adoption
Speaker 3: of agenttic AI into the company's workflow, and second is
Speaker 3: the growing of inferencing. A lot of focus is always
Speaker 3: around the training and training these new models, but for us,
Speaker 3: our focus being both the sovereign space and the influencing
Speaker 3: and enterprise space. But in our portfolio, we saw tremendous
Speaker 3: momentum in networking. Our strategy where journalist has paid off,
Speaker 3: and that's why we see double digits here over ear
Speaker 3: growth in the order intake.
Speaker 2: You know post Juniper networking is is upside for you, right?
Speaker 2: I think you have a lot of confidence that growth
Speaker 2: will come in networking. For the audience that doesn't understand
Speaker 2: what it is you do in that space. Why is
Speaker 2: networking on the rise in parallel with just kind of
Speaker 2: the broader AI hardware demand that you're seeing.
Speaker 3: Well, I do believe ed, and this was the core
Speaker 3: tesis of the Juniper acquisation. The next inflection point in
Speaker 3: ternal disruption will come from the networking connectivity layer. Think
Speaker 3: about when you build a data center, you have to
Speaker 3: connect this data center to other data centers through the Internet,
Speaker 3: and that's what we call data center interconnect. Juniper has
Speaker 3: one of the most innovative products in the route in space.
Speaker 3: By the way, this passport that we grew meet twenty
Speaker 3: percent in the order intake. And then once you are
Speaker 3: inside the data center, you need to be able to
Speaker 3: connect large amount of GPUs and CPUs together and that's
Speaker 3: where you need a data center set, data center searching
Speaker 3: portfolio in addition to some of the other core tenants
Speaker 3: of the technology, and they are you know, the Juniper
Speaker 3: portfolio group met forty percent in the order intake. So
Speaker 3: I will say for us, that has been a core tenant.
Speaker 3: That's why you know now they represent almost thirty percent
Speaker 3: of the company revenues but more than half of the profit.
Speaker 3: And for us that's all so the ability to raise
Speaker 3: the outlook for the remainder of the year and also
Speaker 3: their outlooking free cash flow because the structural margins of
Speaker 3: that business and the working capital efficiency are very, very
Speaker 3: different than the rest of the portfolio.
Speaker 1: I mean you actually said, look, you're not done raising prices.
Speaker 1: You talk about discipline and what is a very dynamic environment, Antonio,
Speaker 1: talk to us about well, how you're weathering the supply
Speaker 1: chain issue, in particularly the cost the memory costs at
Speaker 1: the moment. How do you navigate that?
Speaker 3: Yeah, Carol, I mean, obviously the demand and supply has
Speaker 3: a huge mismatch.
Speaker 4: And you actually need to go back all the.
Speaker 3: Twenty two to twenty three time frame to understand how
Speaker 3: we got here. Accelerated by the hypercycle.
Speaker 4: We see in the AI space.
Speaker 3: But fundamentally, in our guidance, the new guidance, the new
Speaker 3: outlook that we raise for twenty twenty six, we included
Speaker 3: our ability to see the supply that we need to
Speaker 3: convert that into revenue profit. But the reality is that
Speaker 3: we do not have enough supply against the order intake
Speaker 3: and the backlog, because otherwise we'll have even a higher outlook.
Speaker 3: So what we're doing we have taken three very unique steps.
Speaker 3: Number one is securing as much supply as we can,
Speaker 3: but again we don't have all the supply that we
Speaker 3: would like to have. Number two is taking a very
Speaker 3: agile posture when it comes down to pricing, and as
Speaker 3: I said yesterday, we are not done raising pricing. I
Speaker 3: think that that cycle will continue well into twenty twenty.
Speaker 4: Seven, although we will hope that we will.
Speaker 3: Reach some sort of elevated pricing stability in twenty twenty six.
Speaker 3: And number three, you know, my experience has taught me
Speaker 3: that ultimately need to have direct, transparent conversation both with
Speaker 3: customers and our partners. Last week I was in Europe.
Speaker 3: I met more than twenty customers the Mobile Congress in London,
Speaker 3: and they appreciate that level of transparency understanding the environment
Speaker 3: we're in.
Speaker 1: I mean, you're actually forgoing supplying some equipment to mobiles
Speaker 1: service providers, so you're being choosy with who you work
Speaker 1: with at this time of geopolitical angst and when we
Speaker 1: question how much the Middle East is going to be
Speaker 1: able to build out the data center capacity as once thought,
Speaker 1: has the Iran conflict impacted your view on the world
Speaker 1: or indeed the supply of the world and chips.
Speaker 3: Not on the supply side, Carol, And obviously our first
Speaker 3: priority because we have businesses in that region, whether it's
Speaker 3: ue Qatar, bar In, Sauda Arabia, Israel, right is the
Speaker 3: well being the safety of our employees. We have approximately
Speaker 3: one thousand employees in that region and the good news
Speaker 3: all are doing well at.
Speaker 4: This point in time.
Speaker 3: But from a supply perspective, no, But obviously as the
Speaker 3: conflict may gets elongated, may have other implications, particularly on the.
Speaker 4: Logistics side of the equation.
Speaker 3: You know, look, air freight routes are a little bit
Speaker 3: more complicated. We don't use boats of ships for transporting
Speaker 3: our equipments. But over time we have to assess if
Speaker 3: there is a revenue impact, what I can tell you
Speaker 3: right now there is even more demand then we saw,
Speaker 3: particularly three four months ago. So we have to navigate
Speaker 3: that together, and we have to be smart about it.
Speaker 2: Antonio, you have never let me tear apart an HPE server,
Speaker 2: and that's okay. But if I've got my hands in
Speaker 2: the compute trae, you'd have the high bandwidth memory around
Speaker 2: the GPU wherever it comes from. You'd have the ddrs
Speaker 2: around the CPU, and somewhere you'd have the SSDs and
Speaker 2: flash memory. Be very very specific. Of those three, what's
Speaker 2: the biggest impact to you right now in constraining your
Speaker 2: sales and your outlook.
Speaker 3: Very simple, is the dr and land or the SSDs.
Speaker 3: Hbm's less constrained, but obviously a lot of the allocation
Speaker 3: on the capacity has moved there. And as you know,
Speaker 3: there is also a transition from the prior generation of
Speaker 3: hbms to the new generation of HBM because you need
Speaker 3: or memory channels. But it's really the DDR four and
Speaker 3: which now nobody almost use it, but DDR five and
Speaker 3: the nand part which is SSDs.
Speaker 1: You said just earlier. Look, one of your three key
Speaker 1: steps you took was to get as much supply as
Speaker 1: you could to ensure that that was locked in. You
Speaker 1: wish you could have more Who is it that you need.
Speaker 4: To push more? Who is it do.
Speaker 1: You need to have more security for? How can you
Speaker 1: perhaps get hands on further supply going forward?
Speaker 3: We have a long standing relationship with the three core
Speaker 3: suppliers that provide DDR memory and hbms, and there is
Speaker 3: a little bit a larger ecosystem for the nand space,
Speaker 3: but we're having weekly engagements with them. We are looking
Speaker 3: to swap components driving different configurations, but the reality all
Speaker 3: of them are significantly constrained.
Speaker 2: Caroly Antonio, just twenty seconds, what's the dollar figure dollar terms,
Speaker 2: and of what was left on the table, how much
Speaker 2: better the outlook could have been.
Speaker 3: Yeah, it's pretty sizable. I will say, you know, we
Speaker 3: guided five pennies on the midpoint of the range and
Speaker 3: then we raise our outlook for free cash flow by
Speaker 3: almost two hundred million at the midpoint. But the backlog
Speaker 3: is very very large at this point in time. If
Speaker 3: you think about the II system, backlog is over five billion.
Speaker 3: We raise again the networking for networks for AI goal
Speaker 3: for then a year, so it's a very sizeable backlog.
Speaker 3: So we hope we make progress as we go along,
Speaker 3: but we categorize, we leveled it as a prudent guidance
Speaker 3: at this point in time.
Speaker 1: Anthony Narisi of HPA. Thanks to the kind of conversation,
Speaker 1: we appreciate it