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Paul Sweeney
Indiana University strengthens tomorrow's workforce with practical real world experience.
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IU grads make a difference in your
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Paul Sweeney
community, serving as teachers, nurses and engineers who rise to tomorrow's challenges and meet them.
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Learn more at iu.edu impact,
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Podcast Host
Bloomberg Audio Studios Podcasts Radio News.
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Paul Sweeney
Antonio Neri joins us here, CEO of hpe. Antonio, thanks so much for joining us here. Talk to us about what are the key issues for you guys going forward here? This AI story is a story that's playing out across the tech stack.
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Antonio Neri
Well, good morning Paul. Thanks for having me. Yes, of course. Today the narrative is all around AI and the ability to use AI to change the world. And so for us as a technology company, how we accelerate the deployment of AI in the enterprise. And today we talked about the, you know, the evolution of just large language models, intro agentic models, which allows, you know, to increase productivity across the entire enterprise, across processes and functions. And so we have made a series of announcements here which brings together the infrastructure, the software and the cloud experience into one integrated unified operating model, including governance and compliance, so that build the trust within the enterprise to go forward.
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Podcast Host
And how does this change your growth trajectory going forward? I know that, you know, one year out might look very different from five years out versus 10 years out. Just walk us through how you see this changing what you had anticipated to what you now think you can achieve.
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Antonio Neri
Yes, Carlos. So if you go back and read our earnings in Q2, we grew the company as a whole 40% year over year on revenues and we expanded margins because of the content that we bring into the revenue now has a bigger mix of networking software and cloud services. And in that context, we believe networking is going to be the thesis of our company. If you think about developing these frontier models, whether proprietary or open source models, you need a lot of GPU power, but that GPU needs to be very productive in you don't want to keep it idle. And the bottleneck of that is networking. And so we have now with the acquisition of Juniper, an amazing portfolio in the three key elements, scale up, scale out and scale across, which position us to be core element of that infrastructure build out. So this is why we believe the company is going to grow double digits going forward and will continue to expand operating margins and that will translate in free cash flow. So we already guided, which is unlikely and you know, in many cases for six quarters ahead. So think about it, because of the confidence we have in our growth trajectory.
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Paul Sweeney
Antonio, where do you think this technology, this AI technology story is? I mean, a lot of folks are saying we're still in a very, very early innings. But you just think about the amount of capex that is being spent by a variety of players within the substack. It's just extraordinary. Where do you think we are in that compendium there of AI investment?
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Antonio Neri
I concur with that. We're still early. And Paul, what you have to understand that is three customer segments. You have to look into it. Number one is the model builders. And the hyperscale is the new cloud. We're building large amount of compute capacity. We believe by the end of the decade we're going to build 250 gigawatt of power that will host these GPUs. And that's the capacity you're talking about it. But then ultimately, what is the mix of that capacity? It's going to be shifted from training models to inferencing models. And that's where we're going to see the large adoption of, you know, AI enterprise to drive that productivity. But if you put it in context of industrial revolutions in the past, this actually is very small compared to that spend that was done, you know, in every inflection point, including the turn of the past century. So, yes, I understand the concern about the amount of capex. But when you put it in context of changing the way we work, the change in our society was still small relative to that.
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Podcast Host
You know, just looking at how you might be deploying cash, I know that you tap the debt debt market in March to refinance some upcoming maturities. You've got strong liquidity with cash and equivalents of more than $5 billion at the end of the second quarter. What might prompt you to go to the debt market again to raise more money?
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Antonio Neri
Well, we, we do that very regularly because remember, inside HP we have an operating company. Obviously we are, we are paying down the debt and refinancing where we need to. And that's the operating balance sheet you're referring to. So our balance sheet is super, super strong. And then we have the financing company which has $13 billion under asset management. Think about the financing we do for customers and we do it also as a part of the asset life cycle management services. And basically we have debt securitized against those assets. But, but the return on equity on that is super high, super, super high. So we use those vehicles when it's necessary. But what we announced just at the beginning of this month in our earnings is that we're going to pay down that debt much faster. In fact, we expect to return to two times leverage by the end of this fiscal year, which is one year ahead of plan. And we're going to start returning 75%, approximately of our future free cash flow in 2027 to shareholders, which we expect to generate at least $4.5 billion in, you know, in dividends and share buybacks. That's how we're going to return it. So we are very strong. And that goes back to the question you asked me before, where it comes from the growth and the operating margins.
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