Hewlett Packard at Bank of America Conference: Strategic Insights and Challenges

On Wednesday, 04 June 2025, Hewlett Packard Enterprise Co. (NYSE:HPE) participated in the Bank of America Global Technology Conference 2025. The company’s CFO, Marie Myers, provided a strategic overview, highlighting both achievements and challenges. While HPE reported a revenue and EPS beat, discussions also focused on external challenges, such as tariffs and the pending Juniper Networks litigation.

Key Takeaways

• HPE achieved revenue and EPS beats for Q2 2024, with narrowed guidance.
• The Juniper Networks acquisition is pending litigation, with a decision expected post-summer.
• HPE is strategically positioning itself in AI and hybrid cloud markets.
• Tariff impacts have been mitigated through USMCA compliance and a global supply chain.
• The company’s restructuring efforts have reduced headcount to 59,000.

Financial Results

• Q2 2024 Performance: HPE reported revenue and EPS beats.
• Guidance Adjustments: Revenue and EPS ranges were narrowed, with the EPS midpoint lifted due to tariff mitigation.
• Free Cash Flow: Targeting approximately $1 billion for the year, with $1.7 billion used in the first half. Expecting $2.7 billion in free cash flow in the latter half, driven by AI transactions and restructuring.
• Gross Margin Improvements: Anticipated in Q3 due to a large AI deal.

Operational Updates

• Juniper Networks Acquisition: Litigation set for July 9, with outcomes expected after summer.
• Demand Environment: Remains stable, with networking and AI business showing strong pipelines.
• AI Market Strategy: Focus on sovereign and enterprise segments, with increasing adoption in these areas.
• Tariff Management: Leveraging USMCA compliance and a distributed supply chain for flexibility.
• Restructuring: Workforce reduced to 59,000, the lowest since becoming independent.

Future Outlook

• Security Analyst Meeting: Scheduled for early October to provide further strategic and financial insights.
• AI Adoption: Expected to grow among sovereign and enterprise clients.
• Industry Standard Servers: Gen 12 transition progressing well, with anticipated unit growth due to data center modernization.

Q&A Highlights

• AI Business: Noted for being capital intensive due to deal size and structure.
• Cash Flow: Expected to be back half-loaded, with significant AI transactions impacting Q3.
• Buybacks: Contingent on the Juniper litigation outcome.

For more detailed insights, readers are encouraged to refer to the full transcript below.

Full transcript - Bank of America Global Technology Conference 2025:

Wamsi Mohan, IT hardware supply chain analyst, Bank of America: Everyone for joining. Welcome to day two of Bank of America’s Global Tech Conference. I’m Wamsi Mohan, IT hardware supply chain analyst here at the bank. It’s my pleasure to welcome HPE to our conference today. We have EVPN CFO, Murray Myers.

Murray was prior CFO at HBQ, has had a long tenure at both the HBs and combined HP prior to that. And so knows all the assets really well. So delighted to have you over here, Marie. Thank you for joining us.

Marie Myers, EVP & CFO, HPE: Thank you for the opportunities. Yeah.

Wamsi Mohan, IT hardware supply chain analyst, Bank of America: Of course. Before we get started, I will just read out these these disclaimers. Marie’s remarks may contain forward looking statements, so please refer to HPE’s SEC filings, including their most recent Form 10 Q for a discussion of the risk factors that relate to their business. With that out of the way, Marie, welcome. Maybe to kick it off, right, like, this is obviously somewhat topical everyone’s minds on everyone’s minds.

The Juniper deal, can you just update us on where things stand? And and maybe just, like, what’s plan b if if the deal doesn’t go through?

Marie Myers, EVP & CFO, HPE: Yeah. No. Thanks. And good morning, everybody. It’s a pleasure to be here.

I would say on the Juniper transaction, it’s a pretty sort of straightforward at this point in time. The litigation date is scheduled for July 9. It’s going to take a few days, and the expectation is that, you know, the judge will take his time to make a decision post that period, and we’ll know the outcome of the Juniper transaction after that. So at this point, we’re waiting pretty simply. We’re just waiting for an outcome of that litigation that will happen over the summer.

In terms of what happens next, it frankly depends on what happens over the summer, to be honest with you, Wamsi.

Wamsi Mohan, IT hardware supply chain analyst, Bank of America: And

Marie Myers, EVP & CFO, HPE: I think we announced yesterday. We had our earnings call yesterday. We just had a revenue and EPS beat in the quarter, and we narrowed both the revenue range and also the EPS range for the year. And we also announced that we’re going to do our security analyst meeting in early October. So obviously, once we come out after the deal announcement, then we’d go straight into the security analyst meeting where we’d give you all that insight.

Wamsi Mohan, IT hardware supply chain analyst, Bank of America: Okay. Okay. Great. So if we if we kind of think about the broader demand environment, I mean, you just noted your reported earnings yesterday. How are you seeing the broader macro environment?

And maybe you could just layer it in terms of all the concerns and the uncertainty that this tariff environment has created. What are you seeing as you talk to customers? What are you seeing in the demand pipeline? Maybe any any things to highlight within the business?

Marie Myers, EVP & CFO, HPE: Sure. Absolutely. I think as we said yesterday in our call, the demand environment remains relatively in line with normal expectations. Our linearity for the quarter was fairly typical what I described with normal seasonality. I would say that the start of the quarter demand was somewhat uneven, really just due to the fact that we were in the midst of, I think, a very dynamic situation with tariffs.

And as you would imagine, that created, you know, some level of instability as folks were trying to adjust to, you know, really what is the tariff environment. Now, obviously, as the quarter progressed, the tariff environment and the whole, you know, debate on reciprocal tariffs became much more clear. And I think that’s when we saw things start to settle into a normal normal rhythm. But at this point in time around pipelines, I’d say, you know, our pipelines are are solid. There’s nothing particularly unusual across any of our businesses.

The networking business, in fact, is looking like it’s at a point of good health. We’ve seen strong pipeline performance there, similarly across our AI business. I think we gave some color and context around the pipelines, in fact, multiples of our backlog. So that’s how we’re sort of seeing the business right now, Wamsi.

Wamsi Mohan, IT hardware supply chain analyst, Bank of America: Okay. Okay. That’s helpful. So maybe just pivoting a little bit to your earnings that you and the guidance that you spoke about yesterday. You narrowed the range a little bit.

I think revenue came down about a point in constant currency and earnings went up $08 at the bottom. So can you just talk about some of the puts and takes there? The 1% decline in constant currency was the primary driver of that.

Marie Myers, EVP & CFO, HPE: Yeah. Sure. Let me walk you through revenue, then I’ll walk you through EPS. So on the revenue side, you can imagine we’re halfway through the year now. So we’ve got much better visibility to the pipeline and how those deals are going to sort of move through the back half of the year.

The revenue narrowing of the range of the revenue was really driven by one simple factor. It was really just those AI deals. As you know, those AI deals are very lumpy. They’re nonlinear. They rely on customer acceptance of data center readiness.

And so we were actually fortunate in q two that we had one customer that was more ready. So we saw that deal pull into q two and we actually had 10% more AI revenue in q two. What we’ve just seen is that now as we get closer visibility to the back half of the year, some of those AI deals, those customers are not quite ready. So it’s really just a reflection of customer readiness on AI on revenue. On EPS, obviously, we had a beat in q two, so we passed some of that beat through, which is, you know, what you saw in terms of lifting the midpoint up to January.

Part of that was driven by tariffs. You know, the tariff exposure originally was 7¢ for the year. In the quarter, we just had you know, we expected 4¢. It was only 2¢. So we’ve been able to sort of work through that with some compliance opportunities on tariffs.

So we passed through that. And, obviously, as we’re halfway through the year, we narrowed the range on EPS because we have just more line of sight to the back half of the year.

Wamsi Mohan, IT hardware supply chain analyst, Bank of America: So on that AI commentary around pushouts, maybe maybe just to step back on AI for a second. Right? We’ve seen some of your competitors talk about very big sort of backlog and revenue numbers. HPE seems to be very deliberate in where it’s playing. So maybe it’ll be helpful to contextualize and say, what are these opportunities

What should people consider your addressable market? And maybe what are some of the margin, like, whether it’s rates or dollars that you feel like are metrics that are acceptable for you in your business to achieve?

Marie Myers, EVP & CFO, HPE: So let me just walk you through how we view the market and then sort of give you some color around how we think about the business in terms of profitability. So the AI market, as you know, is primarily driven by model builders. So we sort of look at it four key segments. First of all, model builders, secondly, CSPs, third sovereigns, and sort of fourth enterprise. I’d say on those model builder deals, they’re very large deals.

They’re like big whales. So they will absolutely distort your pipeline and distort your revenue recognition because when they happen, you know, it’ll obviously be a tremendous impact to revenue. So, you know, those deals come in and into our into our desk, and we obviously, you know, look at them very carefully. We have a framework that we use around large deals, and we look at them and scrub them and making the decisions around those deals. It also has a big impact to working capital, so we have to take all of that into consideration.

As you look at CSPs fairly similar sort of nature, I’d say the two that we have perhaps a right to win and a right to play that we see, you know, potentially being better profit pools are sovereign and enterprise. Sovereign is really a reflection more of the the supercompute heritage we’ve had as a company. We’ve had long relationships with a lot of governments over the course of the years, and, you know, it gives us naturally an entree into a lot of interesting sovereign opportunities. And then enterprise, and in fact, I think Antonio did comment yesterday that, you know, if we looked at the pipeline and the pipeline definitely had a much better mix of enterprise this quarter than what we’ve seen historically in the past. So we’re seeing some level of increasing maturity in terms of adoption in the enterprise.

And if I sit back and sort of just look at this AI market, what I would say is, you know, a year on, if I look back when we had this discussion a year ago, we probably didn’t see as much diversity in the pipeline geographically. Today, there’s definitely a lot more, you know, international nature sort of sovereign type deals that we just didn’t see. And secondly, there is a maturity level that’s starting to happen in the enterprise. Still a long ways to go yet, but definitely enterprises are, adopting not just GenAI, but AgenTik AI, for example, and looking at how to drive both their business models and business efficiency through AI. So that’s how we see the market.

And as I said, I think we have we are playing in model builders and CSPs where it makes economic sense, and then we will absolutely, you know, have a right to win an enterprise in sovereign.

Wamsi Mohan, IT hardware supply chain analyst, Bank of America: And which of those two, which one do you think comes to fruition faster? We’ve heard of some large sovereign deals in Middle East, for example, like being spoken about recently. Would you say that, like, as you think about those deals coming coming through, is that traditionally, like, first of all, where your supercomputing has played historically in and it are those the air the customers where you expect to have the initial traction, or are you doing something to build out other areas to tackle within sovereign?

Marie Myers, EVP & CFO, HPE: Well, I’d say it’s a combination of both relationships, which obviously we’ve had for decades, frankly, and secondly, technology. So, you know, we’ve had a long history, and I think we spoke about this at AI Day last year around direct liquid cooling that came from that capability. So, it’s a combination of both, frankly. I mean, lot of these, you know, governments around the world have worked with with us for for many, many years. And so we have a natural foot in the door, which is helpful.

You’ve got established credibility. Plus they’ve just seen the historical performance of supercompute. You know, we run some of the fastest computers on the planet. So, you know, you’ve got proof points in terms of technical capability, know how, and then the technology that frankly is required to to run some of the newer NVIDIA GPUs.

Wamsi Mohan, IT hardware supply chain analyst, Bank of America: Okay. And then just in terms of relative pace of adoption between sovereign enterprise, would you say one faster than other? Like, any any any color you can share on that?

Marie Myers, EVP & CFO, HPE: Yeah. I’d say, look, there’s very different drivers. The reason for sovereign sort of adoption is typically related to countries and states around what they want to do and how they wanna develop AI in those countries. In some cases, they’re developing, you know, data centers to actually just actually promote AI within that country. So and really being able to build a network and allow, you know, startups, etcetera, to really start to grow enterprises.

It’s now we’re seeing enterprises look at AI through a lens of not just productivity, but business transformation. And I think that is very I compare and contrast to a year ago. You know, we weren’t even discussing agent AI a year ago. Folks were it was probably something that was out there in the future. Today, it’s real.

You know, we’re implementing it actually in my own team, and I know we’re gonna talk about that later on here, but it’s become a lot more real and current than it was a year ago. So different drivers for companies and and and governments, but they’re both starting to to pick up some pace. But it’s it’s going to take time.

Wamsi Mohan, IT hardware supply chain analyst, Bank of America: Okay. Maybe it’s a good segue to talk about just sort of what your initiatives are within HPE and how you’re using AI. I I think you made some comments yesterday on the call as well, but would love to understand what is how did the decision process evolve? Like, what did you look at to say, like, yes, we need to invest x amount of dollars. This is the ROI we’re gonna get.

Like, any color you can share on that?

Marie Myers, EVP & CFO, HPE: Sure. Absolutely. And in fact, you know, I’m just pleased to let you all know as a CFO, I leaned in on an opportunity to drive with Deloitte a what we call Zuora AI, which is a c suite AI platform specifically designed for CFOs. We’re actually collaborating to put it on our own architecture, actually on PCI. So we see it as a unique opportunity to really drink our own champagne and be able to talk to customers about not only how we’re using our architecture, but how we’re deploying AI inside of finance to actually drive, you know, better reporting, greater productivity, and frankly, accuracy in reporting.

So, in the midst of that, super excited about what that would bring to my own team because I just see that the ways of working can be substantially improved and increased. And it’s a great opportunity then for us to embrace inside the company. And particularly what I’m excited about is actually go to sell that externally to other CFOs. Sure. And I gotta tell you, got a lot of calls.

So I’m not sure I’m quite ready for sales yet, but, there’s just a lot of interest from other CFOs who are trying to figure out how do I democratize AI in my organization, how do I keep it safe and secure, and that’s where our PCAI platform makes it easy for CFOs to get started. That’s just one example. And then, look, honestly, the company, we’re looking at opportunities, everything from customer service. We have a very large service organization. Huge opportunity there that we are starting to embrace around using AI and helping us really take a lot of the mundane work out of sort of service organizations.

Trujeet, frankly, you know, even my earnings call yesterday, Wamsi. You know, we use AI to help us prepare the scripts. So, hopefully, you saw some good scripts there yesterday. We actually, you know, even use AI to help us get better and more precise on our earnings calls. Actually, predict your questions.

Unidentified speaker: That’s quite

Marie Myers, EVP & CFO, HPE: got there, Wamsi. Yeah.

Wamsi Mohan, IT hardware supply chain analyst, Bank of America: Yeah. Well, I wasn’t on the call yesterday. Unfortunately, they always get stuff here, but I’m sure you’ll try to predict it for the next one. Exactly. Maybe a Juniper question.

Right? Like Well, it Kash you mentioned about cash conversion and sort of the intensity of of doing business around AI sometimes can can be can have a materially different cash conversion cycle. Can you just flush that out a little bit? It just, like, maybe compare to an industry standard server business that that you’re pretty large in. How does that cash cycle differ for AI from from ISS?

Marie Myers, EVP & CFO, HPE: Yeah. Look. I I think I’ll start up by saying there’s no doubt that the AI business is more working capital intensive. And I think you’ve seen it from all the players in the industry. It has a whole different dimension because of the, you know, the structure of the bond, frankly.

So, and also just the size of these transactions. They’re, you know, very large deals. If you, you know, are working with model builders, those deals can be significant in size and scale. And so all of that ties into to working capital. So and I’m gonna sort of, you know, distinguish that from our leasing business, which is a whole different sort of operating structure.

But it’s absolutely one of the considerations that we look at as we look at these large deals and large transactions, what impact it has on working capital. But I think as we commented on cash flow yesterday, I reiterated, you know, we’re approximately a billion for the year, and and that’s really attributed just to the dynamics around working capital.

Wamsi Mohan, IT hardware supply chain analyst, Bank of America: Yeah. Maybe on that. Right? So the first half of the year, you used 1,700,000,000.0 in free cash. You’re guiding to a billion, so you got another 2.7 to deliver here in the back half of the year.

Some of it is related to this large AI transaction that you noted, but what are some of the other puts and takes, and how do we get to 2,700,000,000.0 in the back half?

Marie Myers, EVP & CFO, HPE: So I think you probably are familiar that historically, you know, HP, HP, Q and E actually have a very seasonally back half loaded in terms of free cash flow. So the company generates most of its cash flow in the back half of the year, which is into q three and q four. We typically see that occur from here on. And then as you mentioned, we’ll have that large AI transaction that’ll move through inventory into revenue recognition in q three in this current quarter. And then, obviously, we just see the sort of drivers, the fundamental drivers of all of our business that drive the volume in the back half of the year.

Wamsi Mohan, IT hardware supply chain analyst, Bank of America: Okay. Okay.

Marie Myers, EVP & CFO, HPE: All of that contributes to cash flow. But I think I noted in the prior call, obviously, we we’ve got some restructuring around the cost program that we expanded yesterday to include Catalyst. So some of that is also in our cash flow this quarter as well. Can we just talk about this year as well.

Wamsi Mohan, IT hardware supply chain analyst, Bank of America: Can we just talk about restructuring for a second? Right? So I mean, if we just step back for a second, I know over the years and even prior to your HPE being at HPE, there have been plenty of restructuring programs. Right? But when you look at the overall sort of flow through of those maybe to the bottom line externally, it’s not entirely obvious, like, how much is flowing through.

So can you give us some context as you think about either this expansion of this most recent, like, plan? Like, how much should investors expect flows through to the bottom line versus things that it might be offsetting, because of external headwinds?

Marie Myers, EVP & CFO, HPE: Yeah. Luke, I mean, I think what’s different here is that we’re very focused on the impact of the savings. And I think I mentioned on the call yesterday, that actually our headcount hit 59,000, which is the lowest it’s been since an independent company. And to your point, you know, you need to see those impacts flow through in terms of opex structure, and then obviously through to profitability. So maniacally focused on that is what I would say, Wamsi.

And then, you know, I I we did announce a broader catalyst plan that includes beyond not just workforce transformation, but other structural cost initiatives aimed at efficiency portfolio and even using AI more effectively for productivity. And we’ll give a broader sort of update on what that does to our longer term outlook when we get to the security analyst meeting in October.

Wamsi Mohan, IT hardware supply chain analyst, Bank of America: Okay. Okay. Yeah. Looking forward to that. Maybe just step back and just talk about tariffs for a second.

Right? It’s created a lot of volatility. I been it’s been hard for people to kind of really understand where the bogeys are, like, where to move things even around. Like, just talk to us a little bit about how you’re handling this uncertainty from an HPE perspective. Where are your assets?

What can you do strategically if things get more fluid from here?

Marie Myers, EVP & CFO, HPE: So I think I’ll underscore your comments about uncertainty. It’s been for all of us, I think an unprecedented time in terms of that. I would say that when we guided last quarter, we’re probably one of the first companies out the gate that had to incorporate tariff guidance. And at the time, we hadn’t had the reciprocal tariffs. So we estimated about 7¢.

And then post that original announcement, we availed the opportunity of the USMCA compliance, which really, you know, initially, we you know, it was our server business, but we were able to take advantage of that in terms of a lot of the activity in our server portfolio. So we’ve mitigated some of the tariff exposure. And as I commented, it would stand to 4¢ now for the year. So I think the key, though, if I step back and look at this in the more broader context is having a, you know, a globally distributed supply chain. And we were fortunate that we we do have that.

We have a, you know, a supply chain that’s well distributed and not highly concentrated in one particular part of the world. I think many of us learned through COVID that, you know, you need to have resiliency, and you need to have a much more sort of distributed operation given what many of us face during that period of time. So, you know, obviously, you need to have flexibility in that supply chain as well to sort of deal with some of the dynamic nature of what we’ve experienced most recently, and we’ve been able to, you know, navigate that, I think, you know, fairly well to the point that we’re able to reduce the tariff exposure. I was pleased to be able to update that and pass that through in the guide yesterday.

Wamsi Mohan, IT hardware supply chain analyst, Bank of America: And just from a physical location of where those assets are and how you’re sourcing, like, how much of your bases like USMCA compliant versus not? Is there a move to is the other are you doing incremental moves within your supply chain to any particular countries or regions that that you think is notable?

Marie Myers, EVP & CFO, HPE: Look. I’d say we’re always looking for opportunity, Wamsi, to sort of expand our global footprint. And certainly, you know, the USMCA compliance was important for us in terms of being able to, you know, mitigate some of the tariff exposure. So we’re constantly scanning the market to look at ways to to optimize our supply chain.

Wamsi Mohan, IT hardware supply chain analyst, Bank of America: Okay. Marie, maybe just thinking about industry standard servers. Where are we at a replacement cycle with respect to that? I mean, I think at the start of this year, most of us anyway felt that we were looking at a very strong IT spending year after some pent up demand and sweating of assets for a few years. It’s improving and not just maybe quite to the degree that we had hoped it would.

So any color you can share on how you see that evolving from here?

Marie Myers, EVP & CFO, HPE: Yeah. No. I I think, first of all, we announced our gen 12 transition, and I would just sort of comment that that’s been going very well. We’re seeing higher AUPs. I think you’re absolutely spot on.

We sweated assets a lot longer, particularly I think COVID was one of the contributors to sweating those assets during the period of time. And our folks had a lot of Gen eights out there. So the newer Gen 11, Gen 12 provides an opportunity for folks to really modernize their data centers. So we’ve seen that certainly play out. And I would say from a traditional server perspective, albeit this last quarter, we did see some unit volume adjustment as we were moderating pricing.

We still do expect to see, you know, unit growth in the back half of the year. So and I think that just echoes your comments around the fact that we still have, you know, good expectations around the growth and strength of data center modernization. Okay.

Wamsi Mohan, IT hardware supply chain analyst, Bank of America: Would you say that just from a enterprise customer standpoint, you know, I think some of your peers noted a slightly weaker close to the quarter, a little bit of uncertainty, whether some some noting either public sector weakness, some noting some European weakness, North American weakness.

Marie Myers, EVP & CFO, HPE: Mean, it’s all weakness everywhere. Yeah.

Wamsi Mohan, IT hardware supply chain analyst, Bank of America: Weakness weakness across the board. So as you as you in like, what did you guys see as you’ve closed the quarter out? I mean, I I think you actually said that you saw the saw some uncertainty at the beginning of the quarter. Yeah. How was linearity towards the end of the quarter?

How has it been early days into this quarter?

Marie Myers, EVP & CFO, HPE: Yeah. Look. I look. I first of all, say we’re all dealing with macro uncertainty. I think everybody and I think there’s one call that hasn’t where folks haven’t used those words.

I think I’d contrast the beginning and the end of the quarter. When we started the quarter, we saw more uneven demand. When we ended the quarter, it was probably more consistent with normal expectations. We went back and look at linearity. There was nothing out of context in terms of what we’ve seen in terms of normal seasonality.

So I’d say ended the quarter with normal sort of seasonal patterns and, you know, was relatively strong pipeline in terms of orders.

Wamsi Mohan, IT hardware supply chain analyst, Bank of America: Okay. Okay. As as you’re looking at your own internal, like, spend metrics, given the uncertainty more broadly in the macro, are you changing anything internally as you’re planning, like, you know, as most companies plan for their fiscal year, like, budgets? I mean, I think given all the recent changes, everyone’s reevaluating to some degree. And I’m just curious to hear, like, how you guys are are thinking about it from a HPE perspective.

Marie Myers, EVP & CFO, HPE: I can tell you I’m always looking at it once, know, but probably too much. I’m always looking at ways to drive cost structure in the company. In fact, last quarter, you recall we actually announced that we were going under going to undertake a significant workforce transformation exiting around 5% of our workforce. So I think to a certain extent, we got ahead of it. We saw the tariffs coming.

So, you know, we didn’t want to wait. So we got ahead of, I think, a lot of that uncertainty. And frankly, we’re just continuing on from there. That’s why we announced Catalyst, which, you know, includes a broader suite of efficiency opportunities both at driving cost structure, improving COGS, and and frankly, driving top line. So, nothing’s off limits here is what I would At

Wamsi Mohan, IT hardware supply chain analyst, Bank of America: the beginning of the end, q one, there was some mis execution around pricing and inventory and a few other things that happened in the quarter. Can you help in to maybe give confidence to investors that that thing’s kind of in the rearview? What are some of the actions that you’ve taken that won’t cause issues like that in the future? And maybe just to share, like, you know, what what were some of the things that maybe failed from a process standpoint that you could fix?

Marie Myers, EVP & CFO, HPE: Sure. If you look back at what caused those execution issues, there’s really just two big buckets. One in traditional compute, which is around pricing and discounting management. And the other was really in the AI space where we were, you know, managing through the transition in the GPU cycle in terms of AI inventory, which I think is an industry wide acknowledgment. And I don’t wanna you know, I think we worked through a lot of that through the quarter, and we still got more work to do, but the entire industry is processing that GPU transition.

On the traditional service side of the house, what happened there was really a combination of pricing and discounting controls. And so we have put in place much more stringent controls around our bid desk during the quarter. We did have backlog that was priced at a different point, and so henceforth, that’s why we guided the way we did into q two. So the expectation is that q two would be the trough of server margin. I think you saw that happen.

And then we’ve guided to sequential improvements q two on q three, q ’3 on q four, you know, exiting the year with server margins approaching, you know, back to the sort of bottom of the range that we had guided of 10%. So you can see that evolution of margin as we’ve improved the controls around pricing and discounting. And, you know, I can just say we’ve got very, very stringent controls there today.

Wamsi Mohan, IT hardware supply chain analyst, Bank of America: Right. So and and on that trajectory to to 10%, you also noted in q three, you’re going to have this very large AI So we should really expect that to be more q four loaded in terms of magnitude of quarter on quarter improvements as we think about the next couple of quarters.

Marie Myers, EVP & CFO, HPE: Absolutely. Yes. As we said on the call yesterday, we do expect a large AI deal to ship in q three, and that what you know, that was actually driving both the revenue and the operating margin profile for q three, as you correctly said.

Wamsi Mohan, IT hardware supply chain analyst, Bank of America: In terms of attach, right, of the portfolio to your AI opportunities, how do you think about the broader attach of services? Obviously, much higher margin, much more relevant in enterprise and sovereign than it does at tier two CSPs. So in in aggregate margin terms, is there a number you would be comfortable sharing on, like, what could be the operating margin when you when you think about some of these large server deals?

Marie Myers, EVP & CFO, HPE: I think we’re not gonna get into the specifics on those deals and the operating margins. But in terms of services, what I would say, actually, we do disclose now in our investor deck the mix between product and services. And if you look actually at the most recent disclosure, you’ll see that the mix of services has grown, you know, quite nicely from a sequential perspective. So it’s trending in the right direction. We’re starting to see services mix grow.

And, you know, that’s what gives me sort of pause for, the opportunity, particularly in sovereign and enterprises where those services are really going to perhaps be greater asset to those types of deals. Model builders may have a lot more of that capability in house where sovereigns and enterprises who don’t necessarily have all of that capability will rely more heavily on our services capability and portfolio.

Wamsi Mohan, IT hardware supply chain analyst, Bank of America: Maybe to just step back and think about sort of the, you know, from a valuation standpoint. Right? I mean, it just feels like you guys have a portfolio that I mean, this last past fiscal year, you generated 2,400,000,000.0 in free cash flow $2.2.2 400,000,000.0 free cash flow. And, obviously, you’ve had this year with more volatility and things that that were unexpected. But if the portfolio independently is able to generate something to the order of that, and you look at

Marie Myers, EVP & CFO, HPE: Mhmm.

Wamsi Mohan, IT hardware supply chain analyst, Bank of America: Your financing debt, which is largely backed by very high quality receivables

Marie Myers, EVP & CFO, HPE: Mhmm.

Wamsi Mohan, IT hardware supply chain analyst, Bank of America: You really are trading at, you know, very low multiples. And now you have a company that actually just delivered six, seven points of growth. You’re projecting something higher than that for the year. So as we think about putting all those pieces together, it feels that investors are not giving you credit for what you can deliver here in the next several years. I know you’ve been super focused on costs, and you’ve obviously shown and delivered that in your prior roles.

So when we put all those things together, why is this not a great time to kind of go out there to do, you know, significant amounts of of buybacks? Because I think, like, from a from a value creation standpoint, that that does come up as, like, a fairly significant option.

Marie Myers, EVP & CFO, HPE: Well, what I would say in terms of the portfolio, you’re absolutely spot on. I mean, there are drivers in each of these businesses that I think are very positive. I think we’ve seen the momentum in hybrid cloud. We’ve seen the momentum in service, discussion we’ve had on AI. And I think the great thing about networking, we’re starting to see that there’s definitely a shift in the whole industry.

And so what’s interesting is that each part of the portfolio is very well positioned in terms of drivers. And, yes, I would agree with you. The stock is certainly undervalued. You know, what I would say, I think we started the conversation here, and I think it’s like looks like we’re gonna end it there, which is, you know, we have a very important transaction that’s coming up over the summer, which is the Juniper litigation outcome. And so we’re waiting for that as a sort of key next step in terms of how that would impact our capital allocation strategy going forward.

So I’d say stay tuned for Sam, Wamsi.

Wamsi Mohan, IT hardware supply chain analyst, Bank of America: Yeah. Okay. Fair enough. Well, Murray, we’re just about out of time. Thirty minutes is just too less.

I know. Quick. Pick pick your brains on on all these important topics, but thank you so much for being here.

Marie Myers, EVP & CFO, HPE: No. Appreciate that. Thank you for the opportunity. It was a pleasure. Thank you, everybody.

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