Chapter 1: What is the main topic discussed in this episode?
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Subject to credit approval, Apple Card issued by Goldman Sachs Bank USA, Salt Lake City branch. Terms and more at applecard.com. Bloomberg Audio Studios. Podcasts. Radio. News. Shares of HPE modestly higher up, about six tenths of one percent. Been chopping around in the session, but the company gave a strong sales and revenue projection for the current quarter. What's driving it? Demand.
Demand for AI hardware in particular. Let's discuss with HPE CEO Antonio Neri. And let's start with that. You know, clearly there is some staying power in that demand at rack scale. You know, crystallize it for us. What are you seeing in real time? Yeah, good morning, Ed, and thanks for having me. We saw tremendous demand throughout the quarter.
I think the momentum in AI continues in the build-out of the data center, but what I'm really pleased is the momentum we see in enterprise. In fact, most of our revenue in AI that we recognize in Q1 came from the enterprise segment, which shows you two key elements. One is the adoption of agentic AI into the company's workflow. And second is the growing of inferencing.
A lot of focus is always around the training and training these new models. But for us, our focus has been both the sovereign space and the inferencing and enterprise space. But in our portfolio, we saw tremendous momentum in networking. Our strategy with Journeys has paid off. And that's why we see double digits year over year growth in the order intake.
You know, post Juniper networking is upside for you, right? I think you have a lot of confidence that growth will come in networking. For the audience that doesn't understand what it is you do in that space, why is networking on the rise in parallel with just kind of the broader AI hardware demand that you're seeing?
Well, I do believe, Ed, and this was the core thesis of the Juniper acquisition, that the next inflection point in term of disruption will come from the networking connectivity layer. Think about when you build a data center, you have to connect this data center to other data centers through the Internet, and that's what we call data center interconnect.
Juniper has one of the most innovative products in the routing space. By the way, this past quarter, we grew mid 20 percent in order intake. Then once you are inside the data center, you need to be able to connect large amount of GPUs and CPUs together. And that's where you need the data center switching portfolio in addition to some of the other core tenants of the technology.
And there, you know, the Juniper portfolio grew mid 40% in the order intake. So I will say, for us, that has been a core tenant. That's why now they represent almost 30% of the company's revenues, but more than half of the profit.
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Chapter 2: What factors are driving HPE's strong sales forecast?
I mean, you actually said you're not done raising prices. You talk about discipline in what is a very dynamic environment, Antonio. Talk to us about how you're weathering the supply chain issue, in particular the cost, the memory costs at the moment. How do you navigate that? Yeah, Carol, I mean, obviously the demand and supply has a huge mismatch.
And you actually need to go back all the 22, 23 timeframe to understand how we got here, accelerated by the hypercycle we see in the AI space. But fundamentally, in our guidance, the new guidance, the new outlook that we raised for 2026, we included our ability to see the supply that we need to convert that into revenue and profit.
But the reality is that we do not have enough supply against the order intake and the backlog because otherwise we'll have even a higher outlook. So what we're doing, we have taken three very unique steps. Number one is securing as much supply as we can. But again, we don't have all the supply that we would like to have. Number two is taking a very agile posture when it comes down to pricing.
Chapter 3: How is AI hardware demand influencing HPE's revenue?
And as I said yesterday, we are not done raising pricing. I think that that cycle will continue well into 2027, although we will hope that we will reach some sort of elevated pricing stability in 2026. And number three. You know, my experience has taught me that ultimately you need to have direct, transparent conversation, both with customers and our partners. Last week I was in Europe.
I met more than 20 customers at the Mobile Congress in London. And they appreciate that level of transparency, understanding the environment we're in. I mean, you're actually foregoing supplying some equipment to mobile service providers, so you're being choosy with who you work with.
At this time of geopolitical angst, and when we question how much the Middle East is going to be able to build out the data center capacity as we'd once thought, has the Iran conflict impacted your view on the world or indeed the supply of the world and chips?
Not on the supply side, Carol, and obviously our first priority, because we have businesses in that region, whether it's UAE, Qatar, Bahrain, Saudi Arabia, Israel, right, is the well-being and the safety of our employees. We have approximately 1,000 employees in that region, and the good news, all are doing well at this point in time. But from a supply perspective, no.
But obviously, as the conflict gets elongated, it may have other implications, particularly on the logistics side of the equation. You know, look, air freight routes are a little bit more complicated. We don't use boats or ships for transporting our equipment. But over time, we have to assess if there is a revenue impact.
What I can tell you right now, there is even more demand than we saw, particularly three, four months ago. So we have to navigate that together, and we have to be smart about it. Antonio, you have never let me tear apart an HPE server, and that's okay. But if I got my hands in the compute tray, you'd have the high bandwidth memory around the GPU, wherever it comes from.
You'd have the DDRs around the CPU, and somewhere you'd have the SSDs, NAND, flash memory. Be very, very specific. Of those three, what's the biggest impact to you right now in constraining your sales and your outlook? Very simply, it's DDR and NAND, or the SSDs. HBMs, less constrained, but obviously a lot of the allocation on the capacity has moved there.
And as you know, there is also transition from the prior generation of HBMs to the new generation of HBMs because you need more memory channels. But it's really the DDR4 and 4, which now nobody almost uses, but DDR5 and the NAND part, which is the SSDs. You said just earlier, look, one of the three key steps you took was to get as much supply as you could and to ensure that that was locked in.
You wish you could have more. Who is it that you need to push more? Who is it that you need to have more security for? How can you perhaps get hands-on further supply going forward? Look, we have a long-standing relationship with the three core suppliers that provide DDR memory and HBMs, and there is a little bit larger ecosystem for the NAND space, but we're having weekly engagements with them.
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