HPE CEO Neri Discusses Bolstering Profit Forecast

You can also listen to our radio show at two pm Eastern Time on Bloomberg Radio or watch us on YouTube. Searched Bloomberg clovel News Well it shares of Hewlett Packard Enterprise HP hired by more than eleven percent, having their best day in nearly two years. The Harbormakers, saying yesterday was raising its annual profit forecast and it's strong demand for products. The company also beating on gross margin despite

a tough supply environment. So let's get into it. Joining us now is Antonio Nary, President and CEO of HPE. He joins us via zoom in Houston. Antonio, It's it's good to have you with us. Um what is it? Specifically as you look out over the current year, gave you the confidence to increase your profit forecast. Well, thank you for having me today in your show. We are very excited about our performance in Q one. We had

a robust demand and very very strong profitability. And the couple with the moment that we have around our strategy to become an h to cloud company for our customers and partners that they can consume us a service and the incredible backlog we have, we give us the confidence to raise once again five out of six quarters our net earnest per share the lieutenant and pres share for the full fiscal year by seven cents, with now the

midpoint being two dollars and ten cents. So um, this is driven by customer demand, is driven by our strategy that's resonating with customers and honestly a great execution of what I team. Because obviously we are balancing the revenue and the profitability of the business. We want to dig into that demand a little bit more because what stuck out to me was that you had a growth in orders, which was your third consecutive quarter of at least increase.

Breakdown that demand a little bit more. Where is it coming from? What's driving that. That's actually exactly right. So this is the third consecutive quarter of twenty plus percent or the growth, and it was across all businesses. You know, our compute business, with obviously people believe is commoditized um, you know, grow, our edge business, which is all about secure connectivity with a subscription model, grew an excess of.

Our storage business including data services, grew an excess of fift and even our high performance computing an AI business grew in excess of I will say the shining star though, is we bring it all together in a platform, which we call it h Pig Green Lake, which you can consumers a service grew a hundred and thirty six percent

year of the year. So it's across all businesses. But the momentum we have is because we're bringing all our solutions in an integrated, unified experience under the hpgree like Umbrella Antonio. We've learned on the call yesterday you said that supply and logistics challenges they may last through two It's it's somewhat different than from some of the companies we've heard from thus far in recent weeks as they've reported earnings. Are you just being conservative. What's going to

improve first here? Is it going to be logistics challenges or is it going to be chip components and availability here? Well, my message has been consistent for several quarters, always said that this supply chain and logistics overload situation will continue well into phisically two, and we still see it that way. The majority of the challenge that actually are in what are called low level components and not on the high

value commodities. And think think about it now, stuff that people don't think about, a voltage, regulators, capacitors, things that you need to build a system at the low level

before you can build actually the full integrated system. And that has to deal with the with the fact that the demand is very strong and the availability of substrates particularly you know, these components are what we call in the old generation of technologies like twenty eight meters and stuff, and a lot of the fabrication has moved to the

newer technologies like fourteen and below. So I think, um, you know, the supplier of the substrate god called a little bit in between because of the huge demand that they are seeing and now they need to catch up. And this takes time because when you start bringing new capacity is complicated systems processes, and we said all along

will take well under twenty the end of two. However, I will say we have never seen any noticeable customer cancelation, which again give us the confidence the demand is there is very robust, and it's also driven by the data explosion we see around us above in a personal life and in probably in a in a business side. Well, Antono, even with those supply chain and those logistical challenges, you did see gross margin increased by thirty or rather at

gross margin. And what I'm curious about is whether that's sustainable. Yes, absolutely, it is sustainable, and I think he points to the quality of earnings of how we're driving our company forward. Obviously, we are driving higher mix of software and services. If you look at one particular slide our CFO Tirek Robiety show the yesterday and commented on it was the fact that our green Lake offer drives more software and services in fact now is almost two thirds of the offer

that drives higher gross margins, higher gross operating margins. Obviously, the edge business comes with higher gross margins too, also because it's driven by a subscription model to software before you actually deploy some sort of support and access point or or a switching point. So all of that comes

with higher margins. And remember that we were one of the first through the pandemic at the beginning of the pandemic to enact what we call our real locational resources into the future areas of growth that's also pay enough for us. So the margin are sustainable. And I will say really proud of what the team had done managing prioritization of borders and margins. And listen, if you look at a compute business again in the market is being

seen as a commoditized business. The operative margins of the business was thirteen point eight percent. There is no vendor out there and drive the level of profitability in a commoditized business. Antonio, I want to talk a little bit about the demand environment here. You did mention some really positive you made some positive comments when it came to lack of cancelations from from clients. I'm wondering about, though,

is this a reopening play here? How much was was actually pulled forward during covid um and driven by the need for corporations to actually transform their I T infrastructure to support new services like digital transformation. Well, I think them is a combination of many things. When the pandemic head obviously everyone including herself went into preservation mode internal liquidity. Second is that through the pandemic we saw a massive

acceleration of the digital transformation. In many ways, the digital economy flourish even further because everybody was ordering food and other services from their mobile phones. And so what we see is a combination of people needed to modernize, obviously, apply these new technologies in a cloud oriented way um and obviously the acceleration of the digital transformation. And at the core of that is data. Data. Data, data in

data is now the most precious asset customers have. In fact, I predict at one time in the future, no long distance enterprises like us, we have to recognize the value that data in the balance sheets of their companies because it's not different. They're recognized and another intelligible asset. And customers need to move faster and extracting the insight from the data. And that's why I said we have entered

now what I called the new age of insights. And those brands who can extract value data fasters are winning and you can see it, you know, when they become more digital, more data driven they actually create new experiences, new business models, and more and more opportunities for their companies. And Antonio, let's talk a little bit about intelligent edge here, because you are going head to head with Cisco, but

clearly you're growing in this area. And I'm curious whether that's a function of you taking market share, whether the pie is just getting bigger. Well, we've definitely taking market share. Um. At the same time, the own ramp to digitize your business is through connectivity. You know, we call the edge the next frontier in the edges where we live and work, um.

You know, that's where the vast majority of the data is created, not in a in a cloud of sorts, but really what the action is and that first step is to be connected in One of the concerns I have while this is all good, is the fact that connectivity is an essential service, not different than water and electricity. And and that's why it's important as we go forward and we deployed this new massive distributed enterprise and this new way of working, connectivity needs to be available everywhere.

So we are taking share, We are creating new opportunities. But we have a differentiated strategy is called UBA Services Platform as a part of each pigree lake in that cloud or ented approach. In a mobile first approach, you can procure, provision and manage any aspect of your connectivity, whether it's a WiFi connectivity, whether it's a land port connectivity or a one connectivity. Remember that a lot of the old system, you know, whether it's a data center,

campus and branch, we are connected through fixed networks. As more and more cloud native applications, particularly your phone gets developed, the traffic gets routed through the Internet, and therefore you have to connect these millions of endpoints in a very sustainable way. And hp Aruba Services Platform provide that integrated experience for our customers in a subscription model, and that's

why we're growing so so fast. Antonio. In the last minute that we have with you, I want to try to understand what it's been like for your team over the least last couple of years. How you've had to raise wages at Hewlett Packard Enterprise to attract and retain

talent um. How do you see cost being affected there? Well, no question that today one of the biggest challenges all of us have is attract, retained and developed the right warforce, and that warforce is changing, right and the pandemic, you know, enable people to think differently, to work differently, and so I always said, you know, we had as good as the innovation of the technology and the people we have

in this company. So that's a top priority for me, and that's why I pad a lot of emphasis on the culture. Culture is everything in the end, and I have to say really proud of what this company does for customers and partners, aligned to a very clear purpose to amunce the way people in a work. When you talk to uhcurrent employee or prospect, emply they want to understand what you stand for. They want to make an impact. Obviously they come in because the field, the job provides

for their family. But I also want to grow, you know, not different than I did when I became, um, you know, an employee hp T. Three years later, I became the precedency of the company career mobility and opportunity and diversity and inclusion, sustainability all place. So definitely, you know, we

are making great progress. We have a lot to work to be done, particularly diversity, but I think this company is absolutely the right path with the sun Sholder value and you can see it through the results we deliver in Q one. Antonio Nary, President and CEO of Hewlett Packard Enterprise, running us via zoom from Houston, Texas. Thanks so much, Antonio. This is Bloomberg Business Week with Carol Messer and Bloomberg Quick Takes Tim Stinovic on Bloomberg Radio.

Well a story that's featured in the upcoming issue of Bloomberg Business Week magazine that you can read now on the Bloomberg terminal and of course also at Bloomberg dot com Slash business Week. It's all about an heir to a billionaire who's hanging up his healing crystal to fix capital. I think a lot of our audience is familiar with Thomas Petterfee. According to the Bloomberg Billionaires Index, he's one of the wealthiest people in the world. He's the seventies

second richest person on the globe. His son, though, William Petterfee, is the only son of the billionaire, and he cycled through a lifetimes worth of occupations in just thirty two years. Annie Massa wrote the story. She's invested reporter for Bloomberg News. Joel Webber is editor at Bloomberg Business Week. Interactive Brokers is a sponsor of Bloomberg Radio and Bloomberg Television. Joel, I want to start with you, um, who is William petterfe Well? His uh dad is the founder and formerly

CEO of UM Interactive Broker. And I think in some ways you could probably define him as the son of Right and I think it's an important place to start. And like many sons and fathers, like sometimes the son you know, rejects the father's profession. And that's sort of

what's happened for a lot of Will's life. Only just recently he's basically coming coming from the cold, took on a version of of something to that resembles of his dad's UM progression and as part of the inter Interactive Broker world now, which an he's gonna tell us more about. It's also like in my mind and why I was excited about it as a Business Week story, it's like a real life six session story with its own version

of the drama. And it's also got E. S G. Which sort of is part of what makes it all interesting because that was the thing that brought Will into the fold. So any who is Will, Yeah, that's right. It is like a succession story. But it's a succession story in reverse basically because you have Thomas Petterfie, this billionaire who founded Interactive Brokers giant trading platform, and his son and his two sisters always rejected the business and

kind of their dad's role on Wall Street. So if you think about logan roy and succession and all the kids are vying for control of that business, this is a case where all the kids are like, we don't want anything to do with capitalism. And now what's happening. The change that the story really centers on is Will has made peace with the fact that he can come work for Interactive Brokers like his dad always wanted, as long as he works in E s G and sustainable

and sting. So what does that look like ESG and sustainable investing for for interactive Brokers and for Will's position here. And this is a guy who you know, he was a ranch hand as you right, among other things, among among many other things. And the longest he'd worked in finance before this was what less than a year at a couple different firms, right, So he really he didn't have much of a background in finance, and he had

done so many different things. He worked on a documentary on archetypal astrology, UM, you know, talking kind of was talking about how different alignments of planets affect moments of revolutionary change on Earth. So then he comes to Interactive Brokers and his role there. It's interesting because Interactive Brokers, just to name one example, UM has a very homogeneous board. For example, UM pretty much all white men, including Will who's now a board member UM and and it now

has recently UM added one woman. So he's trying to make changes around the edges to make Interactive Brokers more of a UM sustainable company. And he's built an app that can kind of let you invest your values. As they would say, how does his dad feel about his app? His dad had some really uh funny comments about the app. He kind of when we were doing the interview, showed me that he had downloaded it and he said that

he how much does he have in the account? He said only four hundred and eighties six thousand dollars and then he kind of paused and he said, which is pretty good. H So, so he does have some money on some marginal amount of money on the app, and the things that he invested in were more environmentally focused, and he does, um, you know, like the environment and sort of conservation efforts. But then when I asked him more about the social side of e s G. He said,

that's not really my thing. That's not that's not what I prioritize. Okay, So forget the forget the s sounds like um. So you have so many great details in this story, including where Will's change of heart actually happened, what happened in Costa Rica. So Will was attending a party at an eco village in Costa Rica, and he said that he kind of had this aha moment that he had been he had been working on this documentary

about astrology. He had been, you know, in New Mexico, trying to absorb the healing powers of the desert there because he had been really um burned by his small foray into into hedge funds basically. So, so he had been out in New Mexico working on this documentary and he's in Costa Rica, and he said that he had this aha moment where he thought, well, I could go

to work for my dad. But because his dad always since he was a teenager, wanted him to work for Interactive Brokers, but he said, but I could do it in a way that's kind of true to my values, and I could uh work in sustainability at Interactive Brokers. So he has this dramatic moment where he flat and he knew that his dad was going to step down as CEO. He flies to this company party in Manhattan and uh, you know, shortly thereafter, he tells his dad, I'm on board as long as I can work on

sustainability at your company. So he's gonna be the next CEO of the company. Uh. No. One thing that these two men definitely agreed on, and I asked them both um, was that Will Will not be CEO. Will said, he's too interested in his other pursuits. He's got other stuff going on. He's a poet. He likes to go out into the forest where he lives in Boulder and kind of um go out there without a tent or any

food and test his willpower. Um. His dad also said, you know, I don't think he's going to be the CEO. He's too interested in traveling in nature in South America to do something like that. So they were they were in agreement that that's not really in the in the pathway for Well, this is one of those features that has it all. He's a poet, he's quoting experts in Hallucinogen's Annie masa investing reporter at Bloomberg News. Check out her story. It's featured in the upcoming issue of Bloomberg

Business Week magazine. You can read it now in the Bloomberg and at Bloomberg dot com Slash business Week also also with a Joe Weber, editor at Bloomberg business Week. Interacted Brokers is a sponsor of Bloomberg Radio and at Bloomberg Television. This is Bloomberg Business Week with Carol Massier and Bloomberg Quick Takes Tim Stinovic on Bloomberg Radio. Well, a lot of our Bloomberg audience is certainly familiar with

our next guests. They are the host of the Odd Lots podcast, not other than Bloomberg News executive editors Joe Wisenthal and Tracy Allaway. On this week's episode of Odd Lots, they speak with Credit Suite short term interest rate strategists Zoltan posts Are. The podcast is the subject of today's Bloomberg Big Take. It's all about Russia's FX reserves following sanctions against the country for their invasion of Ukraine. Here's an excerpt from the podcast. The present situation has elements

of a little bit of everything. I think it has, you know, definitely a local currency crisis, a local bank funding crisis, you know a little bit of crisis of FX reserves where typically we are used to situations where central banks that show they have something, they don't have it, and then you know, the market gets surprised by it. For example, you know Southeast Asia this time around, you know, the central bank, you've had a lot of reserves, but

then these were seized. So I think it's, uh, it's it's pretty uncharted territories, and it's and it's hard to tell which fadus is going to go from here. That was credits We short term interest rate strategist Zoltan post Are speaking with the host of the Bloomberg Abots podcast, Bloomberg News executive editors Joe Wisenthal and Tracy Alloway, who joined Katie and Me right now. Tracy, I want to start with you, what does what does Postar mean when

he says that the bank band threatens the dollars status? Sure, well, I mean it sounds very dramatic, but at this point are, I think our perceptions of drama have probably changed a little bit. And Salton isn't the only one saying something along these lines, but he's basically arguing that there are a lot of central banks out in the world that hold their reserves in dollar denominated assets, and typically these dollars nominated assets are held by another central bank or

another financial institution. And when you get these types of tensions that explode into very extreme saying auctions, suddenly those dollar denominated assets that you thought actually belonged to you might not no longer, might no longer be accessible, and might essentially not be yours anymore. And this seems to be not just what's happened with Russia, but also what we saw with Afghanistan when the US said that actually, the Taliban isn't going to have access to those reserves.

And so naturally, if you're a central bank, thinking well, at some point, maybe I might have a problem with the US, you might be rethinking what you're actually going to hold your reserves in. Okay, So I have some ancient history to bring up, because in April I wrote for Business Week magazine for the first time in a decade, the world central banks are looking beyond the dollar for

their currency reserves. And I remember I was a baby currency reporter at the time, and all the strategists told me, you know, you're going to write the story every five years. But for better or for worse, it feels like, especially central banks reserve managers, they can't quit the dollar. I mean, what truly is different this time around? And I that's a ridiculous question to ask, but is this an enough No,

it's a it's a great question to ask. And the interesting thing is, you know, for a long time, I think people have talked about this idea of the dollars demises, like a warning like oh, if the US spends too much or too much qui or something like that, and the you know this, this could be trouble for the dollar. But the problem has been the opposite. It's not that the dollars, but week the problem is that it continues to be too strong and no one can get off

of it. But I think, look, if you have this sort of like forced break where Russia isn't a massive economy, but you know it's a fairly rich country with substantial effets reserves, and you have a country being told what you thought was your own currency, or with what you thought is your own money is no longer your own money. Then I do think like that is a sort of big thing. That's what you know, that's at least you know. In Sulton's argument, that's new, that's different, and it's not

gonna happen overnight. It's not gonna happen over year. Someone's gonna write that story five years from now. But if you think, like, well, what could star the process of a rethink, maybe it's something like this. So Tracy, what replaces the dollar for central banks? Well, I mean this is the key question. And this kind of gets back to the point that Katie was making. There aren't that many alternatives. So Russia does hold a lot of gold reserves,

and this is also something to remember. When they have the physical gold in Russia, they do. I think it's supposed to be in a bank fault somewhere in Moscow. But I'm just parroting um what Sultan said, and he was parroting a report as well. But I mean this is a key thing to understand. Right we say like, oh, it's crazy, people would get off the dollar and the dollar's dominance would be threatened in this way. But to some extent, this is something that Russia already understood. They

kind of prepared for this moment. They did shift out of a lot of dollar denominated assets, including treasuries. They did accumulate a lot of gold, seeing that as an alternative, a type of money that the U. S couldn't necessarily affect.

But you're absolutely right, there aren't that many assets. You know, there's a problem of a safe haven asset short even though we it seems like the world's drowning in debt, but to some extent, we actually don't have a lot of really safe collateral, and most of what's out there is probably things like U S treasuries, coin maybe. You know. The other element that makes this hard is any country or any company that sells anything wants to sell to

the US. Because the US is the richest country in the world, and it has this uh, you know, massive consuming class, the US middle class, and so you know, it's nice to say like, oh, like put in you know, have our money somewhere else, but that you know, that still raises the problem. You want to sell to the US. Anyone does you want to sell oil to the US? You want to sell refined products, commodities, physical goods, uh, consumer goods. You're gonna get dollars, and so you know

that someone is going to have to hold them. You know, there's you could have this sort of like hotpitat or you send them to someone else. But the other thing is, you know, the other obvious currency that people talk about, of course is the Chinese un. But right now there aren't enough and the Chinese eun is not international enough, it's not convertible enough, it's uh, the China doesn't run a significant enough current account deficit to create lots of

uns denominated assets. So while it's a big country with a very large consuming class, the financial assets aren't there. Guys, We're gonna have to leave it there. Joe Wisenthal and Tracy Halloway. They are the co host of the Bloomberg Aubots podcast. Check out their podcast at Bloomberg dot com or wherever get you get your podcast. Check out Today's Big Take two. It's at Bloomberg dot com. Yeah, I'll bet you let me drive. Oh no, no, no no, no, honey, please,

I'll do the ride. I want to drive. It's a good question. This is the drive to the clothes on Bloomberg Radio. All right, less than ten minutes until the market clos on this Wednesday, March Sewod. Let's go to one of our go to voices, Amanda Gotti, chief investment officer at p n C Asset Management Group. She joins us once again on the phone from Philadelphia. Amanda, how are you. I'm doing well. How are you doing? We're doing well. Um, We're trying to make sense of the

risk on mood today. Obviously a lot of that has to do with j Pal's commentary to the House Financial Services Committee earlier in the day. But wow, quite a reversal from what we saw yesterday. The volatility uh certainly

continues to royal markets. Um, how are you reading into it, Amanda? Well, I think that you you hit the head uh for sure on in terms of Pal's testimony and commentary that that is the single biggest driver in terms of the positive and more optimistic mood today for the market and just a really continued period of heightened uncertainty. We finally got some semblance of certainty coming out of Powell. And we've been saying really all along over the course of

this year so far. You know, absent what's happening with Russia and Ukraine. That said policy was going to be the key to the market pass forward, and you know, we have been all over the place as a market and as a consensus in terms of trying to figure out what that March rate hike was going to look at. There was a commentary about, you know, doing something before

the March meeting. Then the market had priced in a foregone conclusion of a fifty basis point hike, and so getting some clarity around what action the Fed is most likely to take I think is really important in terms of the pass forward. They have to take a step, they have to you know, tighten policy here. But this is very digestible as the first step for the market and you're seeing that in the release rally today. Well, Amanda, all over the place when it comes to market. Uh,

that definitely feels like what we've been watching. And I'm curious to hear what you make of the reaction that we saw in the bond markets to Palace testimony, because I mean, I see the two year treasury up, yield up a lot, I see the ten year treasury yield up a lot. Uh. Could we say that there were

any hawkish undertones here. What's going on? Well, I think volatile is the equity markets have been the bigger story in terms of volatility continues to be in fixed income markets, even in the face of no moves on the policy front. Market driven interest rates have been all over the map, not only this year but since the onset of the pandemic. We've been on a roller coaster ride these last two weeks.

In particular, Pen, you're peaked out. I think it's two oh four just in the last two weeks, and so we've been up and down really significant, if not record breaking moves on an intra day basis. I think a lot of market participants were reading following yields as the you know, dramatic flights of safety. Our take on is it's just the market wrestling with trying to reprice um, the policy backdrop and what the set is ultimately going

to do on a day by day basis. And so we think today, you know, the move higher in yields is reversing what happened yesterday. UM And again it's the function of what Powell said. Again, it's not a dent, sir and t but a lot more clarity around what's likely to happen in two weeks, since I think the fixed income market, bond market really just trying to price

that in or just accordingly in advance of the meeting. Man, I'm going through the notes that you were kind enough to send our producer Paul Brennan here, and it just goes to show how quickly oil has risen. Because your notes here say that brun Brent is at one oh five, but Brent today topped one fift after the market closed for the first time since two thousand eight. What's going on? Yeah,

we're we're in this. I have to laugh, but we're in this mode where I'm like putting notes together and ripping them up and throwing them in the trash on an hourly basis here. So so yeah, these were notes from from this morning, and of course it's been a very wild ride. I mean, I think the net effect here is a lot of concern across the energy complex about potential structural impairment, meaningful disruption to the energy complex

and oil production. I think, you know, you're seeing the fixation on it, certainly from policymakers, and that they're trying to do everything they can in terms of messaging in terms of implementing sanctions to get around that and not fully shut off Russian oil production to the rest of the globe, because they know how disruptive, how systemic that that can ultimately be. That being said, you know, we haven't gotten a lot of clarity and certainty on the

ripple effect what that might ultimately look like. I mean, the swifts in that's going into effect isn't a blanket, it's much more targeted. I think in that way that helps, uh, you know, frame out that we're not going to shut off Russian oil production completely here, but we're not getting a lot of other clarity in terms of levers that are likely to be pulled. The i A releasing sixty million barrels yesterday certainly served to help to a degree.

Ope OPEC plus meeting this morning didn't move the needle at all. It was basically irrelevant that that production agreement was well in effect prior to what's happening with Russia and Ukraine. And so my take on this is they

probably could have done more. They should have done more, that is OPEC plus, And so I think you're seeing you know, prices move in response and not getting that offset there from earlier today, and Amanda, when we talk about energy and oil markets, clearly thoughts go to energy stocks, but I also think about the high yeld credit market because if you look at those indexes, there's a lot of energy exposure there. What are we seeing in that market?

It doesn't seem like there's been a ton of stress. There has not been, and that actually is a fundamental bright spot, I think as it relates to the broader economy and the broader backdrop. We've seen credit spread specifically for high yield wide and but we've been sitting at record lows, you know, over the course of the last twelve to eighteen months, and so widening on a relative

basis doesn't mean all that much. If that TOBE last week, high yield spreads narrow, believe it or not, just despite all of the turmoil, and so our read on this is, yes, there is a significant component as it relates to energy, but we're not seeing signs of acute dress showing up in US credit markets. That is, volatility is very significant in the short run, but it's likely to settle um longer term. It's not a fundamental breakdown as of yet.

Amanda Gotti, chief investment Officer at p NC Asset Management Group. She joins us on the phone from Philadelphia. Amanda, always great to speak with you. Thank you so much for taking the time. Thanks for listening to Bloomberg Business Week. Download the podcast on iTunes, SoundCloud, or Bloomberg dot com, and you can also listen to our radio show at two pm Eastern on Bloomberg Radio or watch us on YouTube. Sar to Bloomberg Global News