HP Enterprise 3Q17 Earnings Call Notes

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Meg Whitman

Industrial internet of things

“In the internet of things and in particularly the industrial internet of things, we see a tremendous opportunity as customers are looking to transform everything from retail environments to manufacturing floors.”

Uber is an interesting company

“listen, I thought, I was called in very late in the Uber search and I thought it was a very interesting business model to me. It’s actually quite similar to Ebay in many ways. It’s very disruptive, that relies on a community of drivers just like Ebay relies on a community of sellers and the growth prospects reminded me of Ebay in its early days and as you know, I am also an investor in Uber and – but, in the end that wasn’t the right thing.”

UK is challenged

“Yes, so, listen, I think when Brexit was first announced, we did see a pause in the demand in the UK market. No question about it because customers were trying to decide do they want to build their next datacenter in the UK or should they be building that datacenter someplace else in Europe. I think we are still feeling some after-effects from Brexit, because it’s not clear exactly how this is all going to work. So I would say, the UK market is a bit challenged for us. It’s not only Brexit, it’s also the public sector that is cutting back spending quite dramatically. So the UK is not one of our stronger markets. It’s a very important market for us. But I wouldn’t say it is doing as well as the rest of Western Europe and frankly the United States, Canada, Latin America and Asia are all outperforming the UK right now.”

Government shutdown is not our friend

“So, the federal business is an important part of our business in the United States. I think it’s roughly 10% to 15% of our revenue in the United States and we have an excellent position there. We’ve got longstanding relationships with almost every agency and every part of the federal government. So, a government shutdown would probably a blip honestly for us. There would be a speed bump there. What I will say is a lot of these purchases are long head, they buy and then the delivery is over a long period of time. So probably that would not – if there was a government shutdown in October, that probably wouldn’t affect us until a little bit later in 2018. But listen, the government shutdown I don’t think is our friend or anyone else who sells to the government. That’s not our friend and we certainly hope that will not happen.”

Tim Stonesifer

Competitive pricing in a challenging commodities environment

“From a macro perspective, we are seeing some overall improvement in the market, but continue to see competitive pricing in a challenging commodities environment. Currency remained unfavorable, but to a lesser extent than prior quarters with a 70 basis point year-over-year headwind to revenue in Q3. HPE’s performance in the U.S. excluding Tier-1 improved as core servers returned to growth and networking performance accelerated but storage remain challenged. Revenue in Europe has also returned to growth with strong results in Germany and broad stabilization across Western Europe. Asia Pacific similarly improved with double-digit growth in Japan, China and India.”

Harvey has had a substantial impact on our Houston operations

“Also, as Meg mentioned, Hurricane Harvey has had a substantial impact to our Houston operations. Our top priority has been ensuring the well-being of our employees during this challenging time. From a business perspective, we are continuing to assess the impact. Fortunately, we have a limited amount of production in Houston which we’ve been able mostly shift to other locations. So we don’t expect the disruption to our customer deliveries.”

Currency should become a tailwind in 2018

“The other thing that we should see some headwinds, although I am a little bit hesitant is foreign exchange. I mean, if rates stay where they are today and hold, then that would certainly provide some tailwinds for us. Now we’ll have to see what happens at the beginning of the year, but as I said, if they hold where they are today, that should provide some uplift.”

Full year impact of DRAM next year and a difficult pricing environment

“As far as some of the pressure points that we’ll continue to see, although DRAM may soften a little bit, just keep in mind, we are going to have a full year impact of that versus what we had this year. So we do expect that to be a significant pressure point going into 2018, when you compare year-over-year, I mean, DRAM cost will be roughly double. We are expecting and we will see what happens but we continue to expect to see a very difficult pricing environment. We are not anticipating that easing up in the near term. So that would provide some pressure and then we are obviously going to continue to invest in the business.”

Commodity cost pressure but will shift from high cost to low cost countries

“So, again, we are going to continue to see commodity cost pressure, one of the things you’ll see that we did very effectively with ES is we are going to hire people as we shift rules from high cost countries to low cost countries, we are going to be out hiring people and then we are going to continue to invest in the business. But net-net, it should drive some significant savings for the business going forward.”