Hewlett Packard Enterprise Co at UBS Global TMT Conference (Virtual) Transcript

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

Question: David Vogt - UBS Investment Bank, Research Division - Analyst : Great. Thanks, Sanjot. And again, thank you, Tarek, Linda, and Sanjot, for joining us today. So why don't we just jump in? Maybe we could just start with -- we get a lot of questions from investors about big picture, long-term demand trends. I know you guys fairly recently reported earnings. But maybe if you can just kind of help frame the longer term dynamics that you're seeing by sort of product or end market? I know you touched on these at your analyst meeting in October. But I think lots transpired, things have seemed to get a little bit better. And just maybe give us an update on what you're seeing longer term, whether it's in Compute, whether it's in Storage? And maybe we could just start from there, that would be a great jumping-off point.

Question: David Vogt - UBS Investment Bank, Research Division - Analyst : Right. Now that's a great starting point. And so to your point about near-term order trends sequentially improving, when you look at sort of the core, as you've defined it, so in Compute and Storage, how would you qualitatively describe that improvement in order trends going forward? Is it a pent-up demand that may have been delayed and pushed to the right? I know you've cleaned out effectively or drawdown most of your backlog, if not all of it, in those markets. Or is it -- or could you qualify it and state that this is actual real stimulative demand that you're seeing in the early stages of a recovery?

Question: David Vogt - UBS Investment Bank, Research Division - Analyst : That's a great description. And so when you think about -- as we walk through calendar -- excuse me, fiscal '21, I think you articulated it very clearly, obviously, compares get easier as you move through the April, July, and in the October quarter. Can we start thinking about the business recovery being a combination of secular trends which you alluded to as data growth continues to expand as well as a cyclical uplift or is it just a little bit too early? I know you mentioned very early in your comments that you're still cautiously optimistic and there's some uncertainty. And maybe it's a little bit too soon to really make that next leap in terms of what the demand drivers and profile looks like in '21? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. DECEMBER 08, 2020 / 5:05PM, HPE.N - Hewlett Packard Enterprise Co at UBS Global TMT Conference (Virtual)

Question: David Vogt - UBS Investment Bank, Research Division - Analyst : Great. And then maybe just turning to intelligent edge for a second. Obviously, the quarter was relatively strong, I think, up 14% sequentially, if I'm not mistaken. Maybe can you touch on sort of as we roll Silver Peak into that business next year, how does that business -- what does that business look like longer term once we normalize for the consolidation of Silver Peak into the business? I know I think you laid out sort of a 3-year growth trajectory at the Securities Analyst Meeting. But obviously, we're just trying to think about the cadence from '21, '22, '23, do we see a spike this year and then a more moderating growth profile in '22 and '23? Or is the growth of Silver Peak far and above the core growth rate of the segment that the growth should accelerate beyond next year?

Question: David Vogt - UBS Investment Bank, Research Division - Analyst : Great. That's incredibly helpful. And so maybe just pivoting a little bit. Obviously, you talked a lot about the edge and as a Service being a pretty critical driver of the longer term story here at HP Enterprise. Maybe just touching on sort of on-premise as a Service, the opportunity. And then how does that affect? We get a lot of questions from investors, how does that affect your balance sheet, your cash flows? You provided pretty explicit parameters at the analyst meeting in terms of what cash flow looks like in '21, '22, and '23. But I still think many investors are slightly in the dark a little bit about cash flow. And what's the right level of cash that you need to run the business to maintain this growth that you're seeing in sort of the -- as a Service opportunity.

Question: David Vogt - UBS Investment Bank, Research Division - Analyst : Perfect.

Question: David Vogt - UBS Investment Bank, Research Division - Analyst : Right. And maybe just as a quick follow-up. How does capital intensity for this business track, whether it's ARR growth or as a Service order growth, right? Obviously, you need to invest in this business to keep that growth rate or that annualized revenue run rate growth at that 30% level. Should we expect CapEx embedded within your total investment to mirror that growth given that it's effectively a consumption-based business model, and that's sort of how we think about it? Or is there scale economies that you could potentially get over the next 2 to 3 years?

Question: David Vogt - UBS Investment Bank, Research Division - Analyst : Right. No, that's a great clarification. That sort of dovetails into my next question in terms of your overall cash flow growth that you laid out at the analyst meeting in October. Obviously, you're going to see a fairly meaningful acceleration if you hit your targets. Approaching effectively in 2023 and beyond getting closer to your net income, obviously, you committed to the dividend. You've done targeted select technological focused acquisitions that expand your TAM and your capabilities. Longer term, where do we see this cash flow being deployed maybe obviously not in fiscal '21, but we start thinking about fiscal '22 and fiscal '23, are there technological opportunities to fill in the portfolio? Does it boil back down to maybe increasing the dividend or the buybacks come back on the table? Just holistically, how you're thinking about capital allocation longer term, not necessarily in fiscal '21?

Question: David Vogt - UBS Investment Bank, Research Division - Analyst : Great. And then I think you mentioned at the analyst meeting and even on the last call, sort of high return on investment growth areas from an investment perspective, like Cray and like Silver Peak. I didn't hear if you mentioned if there was any sort of other adjacencies that were particularly attractive to you today? Or are those sort of on the back burner as you focus on this transformation as a Service, this cost-cutting initiative program that you announced. Is that more on the back burner at this point post the Silver Peak acquisition?

Question: David Vogt - UBS Investment Bank, Research Division - Analyst : Great. That's helpful. And then I know we were running a little bit short on time, and we get this question a lot, obviously, and maybe this is a question for Linda. I know given her background. Historically, you used to break out the Pointnext business, and now it seems to be spread out across the different Compute, Storage businesses. Obviously, orders were a little bit softer than we thought sequentially in the most recent quarter. But longer term, how does this business tie into the strategy? And how should we think about that growth dynamic for Pointnext specifically embedded within the different segments, given the historical high reach, profitability a Pointnext has achieved when it was reported, I guess, on a stand-alone basis. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. DECEMBER 08, 2020 / 5:05PM, HPE.N - Hewlett Packard Enterprise Co at UBS Global TMT Conference (Virtual) Linda Williams;Chief Audit Executive So I will take that one, Tarek. I think we still feel very good about the long opportunity in operational services. First, just the benefit we'll see from this as a Service orders growth. And this quarter, we saw a growth of 20% year-over-year. So we will continue that. We are also encouraged by our Q4 service intensity. And this really kind of -- we start looking at this metric and when I was in Pointnext, and it's really the metric that what is your tax services revenue and per hardware unit sold and we're still seeing a really strong strength in Compute and Storage. And that metric -- that service intensity metric still growing in single digits year-over-year. And that means we're just -- even the units we're selling from a Compute and Storage, we're seeing additional services selling with those products. And this really kind of demonstrates that healthy underlying profitability of those hardware units because we are seeing these improved services attach rates with those projects. And then it really is about the whole as a Service and as we pivot and we'll continue to kind of see that growth and it will be accretive to our financial profile moving forward. Any additional -- Tarek, you'd like to comment on that?

Question: David Vogt - UBS Investment Bank, Research Division - Analyst : Great. That's helpful. And Tarek, I think we're running a little bit short on time, but I just want to give you the opportunity if there's any sort of any things that we touched -- that we didn't touch on that you think investors should focus on? Or I mean, if not, I think we covered everything, we can end it here, but I want to give you the opportunity to speak about anything that we might have missed.

Question: David Vogt - UBS Investment Bank, Research Division - Analyst : Great. Thank you, guys. And we'll speak soon. And everyone, have a great rest of the conference and look forward to speaking again soon. Have a good day.