Hewlett Packard Enterprise Co at Goldman Sachs Communacopia & Technology Conference Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Michael Ng - Goldman Sachs - Analyst : <_ALACRA_META_ABSTRACT>So you've had a front seat to some of the biggest transformations, both at the company but also the technology industry more broadly. I want to ask about the technology shift that we're undergoing today, which is really about accelerated compute. First, how would you characterize this technological shift relative to prior ones, such as the initial build-out of public cloud? What can we learn from the past? And in what ways is AI different? Antonio Neri - Hewlett Packard Enterprise Development LP - President, Chief Executive Officer, Director Well, thank you, Michael, and good morning, everyone. Thanks for having me today here. My generation is my -- where I come from, I think I have lived all the major inflection points that -- in the history of IT and computing itself. Obviously, from the original mainframe to PC client servers to mobility to cloud and today, AI. And I will say that this feels a little bit different. There are little similarities, but they are different. In many ways, in the past was about connecting the world. It was about driving digital transformation of digitized enterprise. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. SEPTEMBER 10, 2024 / 5:10PM, HPE.N - Hewlett Packard Enterprise Co at Goldman Sachs Communacopia & Technology Conference This is about transforming really the way we work and, obviously, our own personal lives. I think it's, in my view, is going to be the most disruptive technology, at least in my lifetime, and has the potential to really transform everything, including solving some of the biggest societal challenges we live. And HPE has been at the forefront of many innovations, including supercomputing, which obviously has used some of these unique capabilities for a long period of time. But now with generative AI, it's been democratized and been accessible to all, including consumers. So it's an exciting time, but also we are early, early in that journey. Clearly, today, the companies that are invested in building this large language models are driving a lot of the demand we see for accelerated computing, but we already see a significant uptick in enterprise and sovereign clouds. And I think on the sovereign space, obviously, it's not just a matter of sovereignty. It's about bringing the cultural aspect to this new technology, which needs to be in the context of what those countries represent as well. And so Hewlett Packard Enterprise is well positioned to participate in all of them with our unique innovation and the ongoing investments we continue to make in the business. So again, I led many of those transitions, and this is as exciting or more exciting than the previous one.

Question: Michael Ng - Goldman Sachs - Analyst : That's great. And I was really impressed by what I saw at HPE Discover with Private Cloud AI, where you're really bringing together NVIDIA's compute, networking, and software with HPE's compute storage and cloud capabilities. Could you just expand a little bit more on what HPE Private Cloud AI is and how that may be differentiated relative to what else might be in the market for enterprises?

Question: Michael Ng - Goldman Sachs - Analyst : Great. So HP Enterprise is a leader in exascale supercomputing. And I think the company is responsible for manufacturing and selling the top 3 of the top 5 supercomputers, including, number one, which is Frontier; and number two, which is Aurora. Can you talk a little bit about how HP Enterprise's leadership in supercomputing helps support the broader AI strategy? One thing that certainly comes to mind for me is the success that you've gotten in sovereign AI, right? You mentioned a couple of those projects.

Question: Michael Ng - Goldman Sachs - Analyst : Great. So you've got experience in liquid cooling. You have the networking fabric with Slingshot. You're serving an existing customer in sovereign, and you're in a good position to deliver maintenance and services. Are there any other product capabilities or services that you like to offer that you might have to develop in-house or pursue through M&A to service what's required in terms of AI infrastructure demand going forward?

Question: Michael Ng - Goldman Sachs - Analyst : Right. That makes a lot of sense. And if I could just ask about your positioning among hyperscalers for AI, I think you've had some notable wins there. But the natural question would be hyperscalers haven't historically worked with OEMs. So why work with HPE for AI?

Question: Michael Ng - Goldman Sachs - Analyst : Okay, great. And just kind of tying it back to financials, last quarter, HPE reported relatively stable operating margins within its server segment where the AI systems reside, despite accelerating revenue contributions from these AI systems. How do you characterize the margin profile of the AI systems relative to the broader server segment? And what are the opportunities to improve the margins of AI systems over time?

Question: Michael Ng - Goldman Sachs - Analyst : Yeah. I appreciated those new disclosures, breaking down AI system orders and revenue by products and services, because I think the observation was there's probably 10% to 15% of orders coming from services, but it hasn't really shown up in revenue.

Question: Michael Ng - Goldman Sachs - Analyst : Right. One area that you called out and was an area of strength in the quarter was in traditional compute. Could you talk a little bit about what you're seeing there? Are we at a point where there should be an inflection in traditional compute demand?

Question: Michael Ng - Goldman Sachs - Analyst : Great. That's really helpful. And on the traditional server side, are you seeing any notable areas of demand when you think about individual customer verticals, whether that's government, enterprise, service provider or just corporate demand? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. SEPTEMBER 10, 2024 / 5:10PM, HPE.N - Hewlett Packard Enterprise Co at Goldman Sachs Communacopia & Technology Conference

Question: Michael Ng - Goldman Sachs - Analyst : Okay, great. Shifting gears to storage. Could you talk a little bit about the transitioning that's happening in the storage portfolio, migrating more to HPE Alletra, some of the mix shifts that are happening between first-party storage solutions versus third-party solutions? Maybe you can just set the groundwork for it.

Question: Michael Ng - Goldman Sachs - Analyst : Let's talk about intelligent edge, a segment of the business that saw a tremendous amount of demand immediately following the pandemic with a lot of network upgrades, but it also led to a period of inventory digestion by customers. Where are we in that inventory digestion period? I believe we're mostly done with it at this point. But could you just share what you're seeing from a customer demand perspective in wireless LAN and Aruba?

Question: Michael Ng - Goldman Sachs - Analyst : Right. And Intelligent Edge is one of the higher-margin segments within the organization, mid-20s long-term EBIT margins. Could you discuss some of the factors that are going to impact margins over the near to midterm within Intelligent Edge? Why is mid-20 is the right long-term margin profile? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. SEPTEMBER 10, 2024 / 5:10PM, HPE.N - Hewlett Packard Enterprise Co at Goldman Sachs Communacopia & Technology Conference

Question: Michael Ng - Goldman Sachs - Analyst : Yeah. On capital allocation, HPE put out a target to return 65% to 75% of free cash flow to shareholders over the next few years. Can you talk about how you're balancing the return of cash to shareholders with reinvesting in the business and M&A? And what's your appetite for more M&A, particularly given the backdrop of some of the pending deals?

Question: Michael Ng - Goldman Sachs - Analyst : Antonio, it's been such a privilege to have you on stage. Thank you for joining us here at the conference.

Question: Michael Ng - Goldman Sachs - Analyst : Thank you.