HPE CEO: Edge computing ‘the next big opportunity for us’

Hewlett Packard Enterprise CEO Antonio Neri joins Yahoo Finance Live to discuss the demand for HPE products and services, the outlook for the cloud, and growth.

Video Transcript

- Hewlett Packard Enterprise is fresh off a key analyst day where it provided investors with a financial outlook for fiscal year 2023, as well as details on the company's strategy, customer trends, and long-term growth initiatives. Joining me now to discuss is Antonio Neri, Hewlett Packard Enterprise CEO. Antonio, always nice to see you. Right off the top, you guys highlighted a $250 billion market opportunity by 2025. What is that market opportunity?

ANTONIO NERI: Well, good morning, Brian. Thank you for having me today. It's a big market opportunity because not only the market is expanding, but we are entering new segments of the market with new offers as a part of our edge to cloud strategy. And those new offers are in the private 5G, in the IoT, and in the data switching portfolio in the connectivity space, as well as security in the SaaS space, together with our flagship product, the SD-WAN, and as well increasing number of offers as a part of our HP GreenLake platform and new data services. So a combination of [INAUDIBLE] growth for the time and new segments that give us the opportunity to play over the next three years in that $250 plus billion market.

- Antonio, that shift to software as a service, which ultimately drives to annual recurring revenue-- where are you at in that journey?

ANTONIO NERI: Well, we have made tremendous progress. If you recall in 2019, I committed to make available all our offers from edge to cloud as a service. And at HP Discover in June, we achieved a major milestone because not only our edge solutions are now part of our HP GreenLake platform but as well as workload optimization, infrastructure as a service, and as well as data services. So we made tremendous progress. But now, we are operating as a company in a cloud-operating environment, where all our new offers are designed and delivered to HP GreenLake.

So now is a journey continues adding and renewing those offers as we go forward. And that AIR, as we guide it for the next three years, is going to grow between 35% and 45%. Also, not only on the back of a significant growth, which this year alone we are growing a bookings in excess of 86% year to date. But the fact that we already have $7.7 billion of total contract value in the Azure service business in our balance sheet.

- Are you seeing any red flags or areas of concern in your business? Are customers canceling orders? Are they delaying decisions at all?

ANTONIO NERI: Well, what is fascinating to me, Brian, is that we continue to see enduring demand for our products and our services. And GreenLake is at the top of that demand. What customers love about HP GreenLake is the fact that they get a unified cloud experience, inclusive of the public cloud and all the services and applications they have on premises. And now, they get the opportunity to extend not only into the public cloud with the same experience, but also at the edge.

And that's the next big opportunity for us because we live in a much more distributed enterprise than ever before. And also new use cases are being developed and deployed at the edge. So that for us is a point of differentiation in my mind. And then what it comes down to momentum-- again, enduring demand, but we have not seen any major order cancellations at all. And that to us is a very positive sign that digital transformation are key top priority for our customers. And IT plays now a bigger role than ever before.

- Antonio, some of the analyst commentary I saw this morning-- a lot of them seem to be flagging the outlook for next year a little cautious, a little below some of the estimates that were out there. Does that outlook account for a potential recession in the US?

ANTONIO NERI: Well, that outlook, as Tarek and I stated yesterday, includes what we see as a potential disruption that maybe the market creates because of the inflation and the foreign current exchange kind of trends we see. So we have comprehended all of that in our outlook. But we are very confident about our outlook because obviously we have a record breaking backlog, with again enduring demand continue to be in the market.

Second is that also we continue to make a significant shift not only in our product and portfolio mix, but in the way we deliver that mix. And third, also, this company generates a lot of cash. And so from my vantage point, we are very well positioned to meet or exceed that outlook, understanding that the biggest issue unknown today is actually, in my mind, not so much the macro environment, but more the volatility of the foreign exchange.

- Antonio, I'm on the Hewlett Packard Enterprise stats page on Yahoo Finance. And I see your stock trading at under six times forward earnings. That is more than half of the broader market. Just given the performance of the business, that is shocking how you guys have performed compared to the past year. You mentioned you have a lot of cash. How are you going to deploy cash over the next 12 months to get that multiple up?

ANTONIO NERI: Yeah, I think you just hit it really well. I mean, our disappointment is on a multiple because not only we're growing revenues. We are also growing recurrent revenues, which they represent more than 1/3 of our total revenues. And by the way, almost 80% of our profits are recurring. I think the markets still want to see ongoing-- what I call-- performance on a free cash flow, which obviously, has been a little bit losing through the separation and spin offs and the restructuring we had to do to rightsize the company, which we are now. And our guidance on free cash flow now is at the midpoint $2 billion. What you're going to see is the convergence of a non-GAAP EPS to free cash flow. And that free cash flow is deploying in a balanced way.

Obviously, we are super committed to dividends, which today at the current stock price represents almost a 4% yield, probably one of the highest in my mind in the tech sector. Continue to aggressively buy shares back, obviously because the share price is depressed. But at the same time, we have to continue to invest in the business because ultimately, we've got to bring breakthrough innovation for our customers. But that investment in the business has a significant discipline around it on return on invested capital, and obviously geared to higher margins and higher areas of growth, but all delivered through HP GreenLake, which drives the recurring revenue. And obviously over time, that will help our multiples as well.

- All right, well get some rest. I know it's been a long week for you. Antonio Neri, Hewlett Packard Enterprise CEO. Always good to get some time with you. I'll talk to you soon. Catch you on Twitter.

ANTONIO NERI: Thank you, Brian.