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Making Markets EP30: From Macroeconomics to GreenLake Momentum, a Deep Dive with HPE CEO Antonio Neri
by Daniel Newman | March 23, 2022

In this episode of Making Markets, HPE CEO Antonio Neri returns to the show as the company sees a strong run of growth in its as-a-service business. He and host Daniel Newman talk about the company’s recent earnings, the slate of announcements in its GreenLake portfolio, and kick off the discussion around world events from geopolitics to the economy. They also take a look at where the business is heading and why investors and customers should be encouraged by all the progress. All this, and more, on this episode of Making Markets.

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Transcript:

Daniel Newman: A bevy of macroeconomic forces come into focus as HPE CEO Antonio Neri returns to the show, following the company’s most recent earnings. We dive into the company’s recent triple digit growth in GreenLake, as well as the rapidly growing order backlog.

We also discussed the company’s recent GreenLake event, where Neri and his team announced a series of new services for the company’s cloud that comes to you. Tune in. All this and more on this episode of Making Markets.

Announcer: This is the Making Markets podcast brought to you by Futurum Research. We bring you top executives from the world’s most exciting technology companies. Bridging the gap between strategy, markets, innovation, and the companies featured on the show.

The Making Markets podcast is for information and entertainment purposes only. Please do not take anything reflected in this show as investment advice. Now, your host. Principal analyst and founding partner of Futurum Research, Daniel Newman.

Daniel Newman: Antonio Neri. CEO. HPE. Welcome back to Making Markets.

Antonio Neri: Well, thanks for having me again, Daniel.

Daniel Newman: Yes. It’s super exciting. This by the way is great. Over the last few months, I’ve finally had the chance to sit down face to face a few weeks ago with one of your partners.

I was with Pat Gelsinger at Intel at their Investor Day live. I got to see Cristiano Amon with Qualcomm Live, and you. You’re the third out of more than 30 episodes that I’ve actually gotten to sit down.

Antonio Neri: That’s great. Great that you’re getting back with people face to face. You can’t replace that interaction over the digital aspects of what you do.

Daniel Newman: No, it’s so nice. I can still think back to about three years ago. The last time I saw you live on the big stage. I’m going to talk to you about that later, because we’ve come full circle.

Antonio Neri: It’s coming back. It’s coming back.

Daniel Newman: Three big years. Discover is coming back. But no, it is great to get here live. By the way, we are sitting in the beautiful new headquarters.

Antonio Neri: Yep.

Daniel Newman: Houston, Texas. Now, both of our homes … I’m in Austin, but both Texans. What a beautiful place you guys are building out here.

Antonio Neri: We are really proud. Well, thanks for coming to visit us in our home. But we are really proud of what we have built here. It has taken us a little bit of time, but we have given to our employees a state-of-the-art, digitally enabled site, which is a wonderful experience for the more than 2,500 employees we have at the site.

Really proud, because this is my second one. If you recall, we built the one in San Jose. We are now completing the one in India, in Bangalore, which is for 12,000 employees.

Daniel Newman: That’s going to be beautiful. I do also remember there was one here that was built that didn’t make it for very long. Because right afterwards, there was the hurricane and it flooded out. And so, I was here for that grand opening, here in Houston.

There’s been a lot of ups and downs, but this is a big up. This place, like I said, I walked up, beautiful. San Jose was super nice. It is super nice. That facility is beautiful, but this place is just, it feels like you guys are making it home.

Antonio Neri: Well, we get the best of both worlds, Daniel. We built, again, a state-of-the-art site in San Jose. In the middle of Silicon Valley, where you have to be when you think about leadership, long-term vision, architectures of the future and whatnot.

There we have now a great presence all in one converged site. Here in Texas, we brought the official headquarters. But also, we do a lot of innovation here. Let’s not forget that we do a lot of computing here, services as well. We get the best of both worlds. We learned a few things about the Sans Jose site, and we built it here. But again, really proud of what we have done here.

Daniel Newman: Absolutely beautiful. There’s a lot going on in the world and it’s great to have you back. Geez. It’s only been maybe three or four months since you were on the show and the world has changed a ton. It feels to some extent like we may be coming out the other end a little bit of COVID.

Crossing fingers. Because every time we’ve thought that over the last couple years, there’s been a surprise. But of course, at the same time, some serious macro events going on. I would probably not be doing my job if I didn’t ask you first your thoughts in HPE. How you guys are addressing what’s going on with the Russia-Ukraine conflict.

Antonio Neri: Before I get to that, I’m entering now my fifth year as a CEO of the company, which has been a remarkable journey for me. But as I reflect back, boy, I have managed with my team crisis after crisis after crisis. I always think about 2018. We had floods here in Houston. You mentioned that early on.

All sorts of natural disasters that impacted us … By the way, we had at the time geopolitical tensions. 2019, we had other events, including the beginning of the pandemic in 2020. Now, we have a major supply chain disruption. Obviously, what we see now in Russia and Ukraine, which is completely unacceptable.

It was an unprovoked invasion for no reason whatsoever. No justification for anything. We all need to stand up. We, as a company, what we have done first and foremost? Taking care of the employees as we always do. We don’t have full-time HPE employees in Ukraine, but we have several dozens of contractors.

We have reached out to them and we are treating them not different than if they were full-time employees. What help they need … Whether or not they need to move out to the country, which obviously we have seen the humanitarian crisis, where more than 2.7 million have now left the country.

We are doing everything we can to help them and their family, even though they’re not full employees. We’re working hand in hand with those agencies. And then, on the other side, we don’t need to forget that there are several hundred people that we employ in Russia. They have no part in any of this. And so, they’re also, obviously at the different level, suffering the same challenges.

Because now, they are totally isolated. And so, how we pay them, how we keep them engaged is a problem. We need to work together to make sure this crisis ends as soon as possible. And then, as always, we have to align to the global trade sanctions. But that to me was the last thing to think about.

Because, in the end, it’s the right thing to do. No matter what. Sanctions or not. And so, that has been our process so far. As you know, Daniel, this changes every day. My only hope is that the political side of this … Together, with us as human beings, we can go solve this problem.

Daniel Newman: I absolutely am hopeful every day. You wake up. I look at Twitter. I look at the news. I’m hoping for progress. I’m really glad to see the response largely throughout the tech community.

Antonio Neri: It’s been remarkable. Think about it. It’s not just the response from the United States and the European Union, but all countries at large. The acts of all of us as a human being, basically, sending a very strong message.

But in the meantime, the country is being destroyed and people are suffering. That’s why this has to end as soon as possible.

Daniel Newman: Absolutely. And I’m glad that you mentioned the whole continuum of people affected, because there are many people in both countries that have nothing to do with this. Like you said, the people you employ in Russia who are suffering in their own right, as they’ve lost access and connectivity.

Antonio Neri: If this doesn’t get resolved, eventually this may have other consequences. Obviously, they’re not suffering as the Ukrainian people …

Daniel Newman: It’s different. Yes.

Antonio Neri: Some of them are losing their lives. And then, they’re leaving their homes. Going to countries they don’t know anything about. But it is a complicated matter. We live in very turbulent and uncertain times. A really warring time.

Daniel Newman: Well, I appreciate the fact that the company has taken its stance and done it proactively out of what it believes in. Rather than just because of an obligation.

Antonio Neri: It’s not just me as an individual. Obviously, when you are a CEO of a Fortune 100 company, you have to stand up and make your voice heard. But at the same time, it is aligned to our purpose, our values, who we are as a company.

Listen, our employees are very vocal about this. And so, one of the other things we have done is helping our employees around the region. In particular, Poland, Romania, Slovakia, where they’re willing to donate their time to volunteer to help these families, the refugees, to be taken care.

We have increased our volunteerism and supporting them with matching funds. Because, you won’t believe it, but in the first 48 hours, we raised more than $200,000 for our employees. Given to help these families.

Daniel Newman: That’s great. I’m really glad to hear. I hope everybody out there is paying attention to the companies that are taking these events into their hands and doing meaningful things to help people who are suffering.

Because there is suffering. Sometimes here, we’re isolated in the US from really feeling these effects. Thankfully, the media’s able to expose us to it to some extent.

Antonio Neri: Well, obviously we …

Daniel Newman: But we’re still at Starbucks grabbing our coffees. You’re going to work and having dinner out and doing things and not realizing the world can be very cruel. So I appreciate that. On a macroeconomic note, just before I head in, because I want to talk. You guys had some really big news at HPE, but I do like to take these chances when I’m talking to you.

We’ve got a lot of other external factors. This war just added to the complexity. We’re dealing with inflation through the roof. I’m building a house in Austin. I can tell you, it is crazy what’s happening to the values of homes, automobiles, luxury goods. But even groceries, gasoline. That’s through the roof.

You got interest rates rising. But then, at the same time, with the war going on. With economics … You raise rates. Just take a minute. Because I know we could spend an hour on this. What are your thoughts on that overall environment? How do we stimulate growth?

Antonio Neri: Well, I’m not an economist.

Daniel Newman: Fair. Fair.

Antonio Neri: I never was and never will be.

Daniel Newman: Noted. Noted.

Antonio Neri: But I lived in different times in different countries, where we had high inflation and other disruptions. In many ways, I guess I have a lot of experience. Also, being part of a war. Although they were different times, when the UK and the Argentinians had the conflict around the Falkland Islands. But that’s why I say, it’s a turbulent time and it’s an uncertain time.

I think, over the next few months, we’re going to see where we go from here. Because some financial analysts and better respected analysts, they believe there may be a recession in the coming year or so. I’m more optimistic. Because I see the economy is still growing, but it’s growing in different areas than we have seen before.

Obviously, services is a very important sector. Manufacture is coming back also, because there needs to be some resilience in that supply chain. But what we see is data. Data everywhere. And that data has so much value. So much value. Think about it, Daniel, from the pandemic perspective. When the pandemic hit, everybody worked from home.

The disruption wasn’t that big. We believe productivity was high, although I believe working from home all the time is not the right thing. You need to have a hybrid approach. You need to have sites like this, where people come collaborate, innovate, socialize.

Think about the challenge with mental health. I argue if you’re working at the office, you will have less of those problems. Because at least you’re not isolated. You don’t have that anxiety. You and I can have this conversation. Or other people.

But in any case, what we see is the acceleration of digital transformation. With our market team, we have done multiple analyses. What we see is the brands that really accelerated that digital transformation are winning the marketplace. And the reason why is because they’re using the power of the data they create.

Daniel Newman: Yes.

Antonio Neri: Whether it’s to improve their business operations. Or whether to improve the way they target customers. Or create new revenue stream opportunities or obviously improve their resiliency with cyber. What we see is a massive acceleration. And that data has value.

We talked before that I believe one day data will be recording the balance sheets of companies. No different than this building. It’s an asset that the company has. That’s why, yes, inflation may have an impact. What that growth will be, interest rates, for sure. Because cost of growth will be more expensive.

But I believe us, as an information technology company that now plays in the edge, the cloud, and the data, we have a tremendous opportunity to help customers be more efficient, be way more outcome oriented. And then, obviously deliver better experiences to the customers and their own employees.

I believe that’s why, as a company, we believe we are extremely well-positioned. But we have to navigate all these challenges, including the supply chain disruption we see today.

Daniel Newman: The disruption, it sounds like there’s parts of it that are easing. And then, you end up with a conflict like this and you end up with very specific materials that come out of neon or palladium. You’re like, “Oh my gosh.” Every part of the world actually touches the supply chain.

The chips end up feeding everything. You can’t build software on air. You got to have the semis. But I’m actually glad you pointed out the overall acceleration. Because my thesis has been that, yes, an interest rate increase might slightly compress valuation. Especially, for growth companies, since everybody’s so forward.

Antonio Neri: And we have seen that.

Daniel Newman: But I was going to say, when you talk about recession, we’re already down. In a lot of cases, very good companies are down 60%, 70% and 80% off their highs.

Antonio Neri: A good time to invest in HPE, I guess.

Daniel Newman: I had Kelly Steckelberg, CFO of Zoom, join me. We were talking about that. Zoom was at almost $500 a share. It’s at $100 a share now. And they’ve been growing. What I’m saying is they’re-

Antonio Neri: Let me just say, Daniel. Eventually, you have to make money.

Daniel Newman: Absolutely.

Antonio Neri: That’s why the rotation of the market, when you have these type of dislocations in the financial economic side of the house, the people value growth, but at the same time value also profitability. Those who can grow in a profitable way at this time have been favored.

We, as a company, we know we are significant to their value. Because last quarter, we had that very nice growth in revenues. We obviously blew off the roof through the orders, bookings.

Daniel Newman: Yep.

Antonio Neri: Third consecutive quarter growing 20%. But we make a lot of money. And that it goes to shareholders in one way or the other.

Daniel Newman: Whether it’s dividends. Whether it’s buybacks and of course continued investments in your R&D and hiring people later on.

Antonio Neri: Which gives more return later on.

Daniel Newman: And so, you started my next question. I was going to ask you about that, because you guys are just a few … I think a few weeks now off your most recent earnings.

Antonio Neri: Yeah.

Daniel Newman: Very good. Overall this is something, by the way, Antonio, I’ve been trying to feed the market for some time. Whether I’m on CNBC or whether I’m having conversations in the back offices. With HPE, watch the GreenLake growth. Watch the GreenLake growth.

Because when you got on stage and talked about switching everything as a service, that’s where the business is going to grow. Whenever you go from rotating big CapEx to selling consumption, the top line may always have to somewhat slow in terms of that, so you can change the buying paradigm.

Antonio Neri: Right.

Daniel Newman: Your numbers were outstanding in GreenLake, but just give me the quick recap of the quarter.

Antonio Neri: We had a very solid start for the fiscal year of 2022, which as you know, starts on November 1st. We had a solid revenue year over year growth. More than 5%. And then, we delivered fantastic profitability. It was 11% on operating margins. And in that, what we saw is the continued momentum in our orders, bookings, which was 20% in the third consecutive quarter in a row.

But to your point, we have a strategy to become the edge-to-cloud company that you can consume as a service. We focus on four things, which are aligned to the mega trends we see in the market. One is the edge. The edge is here, where we live, where we work. The need to have cure connectivity to the on-ramp to digital transformation is critical.

Aruba is on fire. This was the fourth conservative quarter that we grew 35%. And that business will continue to grow very, very rapidly. We are driving a lot of innovation in that business that will sustain that growth. On the cloud side, obviously, GreenLake.

This was the quarter that, again, we doubled the business year over year. We grew 136%. There was a very interesting chart there that shows the hockey stick from five consecutive quarters of growth from the twenties to the thirties to the fifties to the sixties. Now, 136%.

We have now, with the addition of Aruba into the platform, from edge-to-cloud, more than 120,000 customers. Think about it. Before it was just GreenLake, which was more computing storage. Now, we add in the edge with the connectivity, and we brought in more than 120,000 customers. That, to me, is exciting. Because everything we do in this company will be all accredited to GreenLake.

Because whether you buy as a CapEx or as a OPEX, it doesn’t matter. In the end, you will be able to run your day one and day two operations through GreenLake. The GreenLake is a true hyper platform, where it also includes the aspect of the public cloud, which customers need one operating environment to run their business.

Daniel Newman: You sort of alluded to some of the new offerings. You have this big GreenLake moment that just happened in March 22nd. I had the chance …

Antonio Neri: The second day.

Daniel Newman: Yeah. I had a chance to sit down with you as well, on my Six Five series with Patrick Moorhead. But this show, we don’t tend to do as much of the product.

But there was some great. You kind of talked about the acceleration. 130% ish, plus. I believe, 138%, you said?

Antonio Neri: 136%.

Daniel Newman: 136%. I should memorize that, but you’ve only said it twice. Now, I’ve got it. But 130% plus growth. Just outstanding. Now, a whole new diversified set of offerings. What was the real catch moment of the announcement?

Antonio Neri: Well, there were three key messages, you remember. One is the unification of the experience across edge-to-cloud. As I said earlier, now, all the things we have done in Aruba were already a mobile-first, cloud-first approach in a true cloud operator environment. Plus our core business, compute, storage, and data, coming together unified into one integrated experience under the GreenLake platform.

And in there, we provide a consistent service for logging, monitoring, telemetry, billing. Everything that you need to run your business.

Whether you learn, try, and buy, you go to the platform. And then, you have an account called Daniel Newman. You can see everything you’ve consumed throughout the life cycle, working with Hewlett Packard Enterprise. Whether it was CapEx or OPEX. To me, that was the first major step.

Again, we have now more than 120,000 customers on the platform, which is very sizeable. Second, is the introduction of 12 new cloud services. In that, we introduce NaaS services, network as a service services … Six of them as an extension of our Aruba portfolio with wireless, WAN, and LAN connectivity.

Customers now, they want to consume the entire stack. Not just the software subscription aspect, but the hardware and the services that come with it. That’s why we put together a network as a service offering, including the financing. We already have customers on the platform using that, including The Home Depot. They are a very large network as a service customer, but now they can do it all through the platform.

The other big introduction was our storage services and data management services. Block storage. Very much standardized set of offerings, that you can consume the storage in a very elastic way. But at the same time, all the data protection services that we have had for some time. They are all available now in the platform.

And then, at the same time, we introduced new capabilities in the HPC space. Including functions like GPU consumption, Slingshot, which is an interconnect fabric to be able to run mission critical workloads at massive, massive scale. At the same time, we also introduced our compute operations managers, which means we are here in Houston, Texas. The home where ProLiant was invented.

Now, you can run any of the ProLiant software services to manage the fleet, to deploy the fleet, to lifecycle manage the updates through the cloud inside GreenLake. Very exciting. That was the second piece. And the last on the list, which I think is a very important point, we brought into the platform four key distributors.

Tech Data and SYNNEX, which obviously their merged also, which is a very big distributor in Europe, Ingram Micro and Arrow. And so, all of them now. Through their marketplace reach, fully integrated through APIs with GreenLake. Now, we can reach more than a 100,000 value-added resellers in the marketplace.

Daniel Newman: I think that’s great. And if I can make two comments on what you just said. The first would be the provenance of GreenLake is important to point out to everybody out there. Because there are a number of companies.

Everybody’s going to enter this “as a service” space. You were early. And I wrote about this numerous times. I’m going to ask you about that in a moment, but three plus years ago,  I think it was about three years, actually, when you got on stage.

Antonio Neri: 2018.

Daniel Newman: Yeah. When you got on stage at the last in-person Discover in said three years. I think the question was, “Is it really achievable?” But the second thing is this on-prem cloud concept. A lot of companies have done a piece here or a piece there, and they’ve launched a service to the market.

Your portfolio has become very expansive. Especially, compared to everyone else doing the on-prem cloud, to where you’re talking about the various layers. From control plane all the way out to the varying services. Like you said, data services, GPU services, Ed services, storage, network, compute. Where a lot of them it’s right now, it’s just maybe one or two things.

You’ve got a nice head start. Of course, everyone knows that when you’re on top, the hardest thing to do is stay on top. There’s a huge market. You’re competing with Public Cloud, but you’re also their friend. You’re competing with the others, but at the same time that provenance, that early arrival should really be noted.

This wasn’t something that you’re doing just to, “Me too.” This is something you recognized early. You’ve gotten out in front of it, and that’s worth pointing out. Just quickly on the partner thing, Antonio.  love that. I’ve asked for about a decade. I’ve wondered how these big partners are going to shift to consumption. It’s going to take companies like HPE, simplifying and making these offers deliverable at scale.

Because their model is selling volume. They understand how to do that, but not necessarily how to make customers move from buying lots of boxes to software services and consumption. But that’s what they’ve all wanted. All these big distributors have been looking for it. How do we add margin, value, service and stickiness to our customers? When they’re now subscribing to public cloud, and they know they can swipe a credit card and spin up a workload? You’re going to help them get there.

Antonio Neri: Well, I think all those are distributors and many other value-added resellers, they have to transform themselves if they want to be relevant. One thing I always said is that, generally speaking, we are all important to customers, because they’re doing business with us. The question is how you become relevant in this new world.

Relevance to me means, when you have a big problem, who do you think first? And then, ultimately, are they capable to delivering a solution to deliver the business outcomes? That’s why GreenLake is so important, because GreenLake is not the on-prem thing. GreenLake is a true edge-to-cloud platform. Inclusive of the public cloud, by the way.

Because customers have choice and a lot of workloads and data will leave there and a lot of it will stay on-prem. By the way, the vast majority will stay at the edge. But what they want is a true hybrid experience. That’s why we call GreenLake, “The cloud that comes to you with all the services you need.”

With the introduction of these 12 services, just a few days ago, now, we have more than 50 cloud services running on the platform. That’s important. But now, we are in a cloud operating environment, where services get deployed on a weekly or monthly or quarterly basis. Not on a two-year basis like it used to be.

Daniel Newman: Which aligns you quite a bit more closely to how the big hyperscalers have been doing this. That’s why I said, that is an advantage that’s notable.

Antonio Neri: The other thing that customers really like is the fact that they have choice, access, control and flexibility. On the partner side … Yes. Before, they had a lot of choice to sell. Whether it’s HPE, HP, Dell, and whatnot. Now, they were reselling the public cloud. But ultimately, that’s not how you create relevancy.

What we are doing with GreenLake is allowing them to be relevant. Because they can bring the services on top of the platform and be the partner of choice for those customers. Ultimately, we know as we go through that deferred revenue, higher margins, they become way more profitable. That’s why they’re excited to work with us. And that’s why we brought four new distributors to the platform.

Daniel Newman: Well, congrats on all the success. We’ve got about a minute left and I’d be remiss to not ask you, it’s three years. When we get to Discover in a couple of months, it’ll have been three years to the date from when you said this would be done.

In the sense of, “It’s never done,” but everything as a service, did you meet your goal? Once that moment’s hit, what is going to be the next story? Can you share anything on that?

Antonio Neri: Well, I will not give you the surprise.

Daniel Newman: Okay. I had to ask.

Antonio Neri: But I will say, reflecting back, when I became CEO on 2018, I said, “The edge is the next frontier.” We committed to invest four billion dollars over the next four years. We see the results of that in the growth that we see at the edge with our Aruba set of services now part of GreenLake.

2019. Like you said, we’re going to offer everything as a service through a platform type of approach. We are pretty much complete on that. In fact, we also rearchitected the back end. People don’t understand, to be an “as a service” model, you need to have a whole different set of operations. It’s not the typical, “Build the product, ship it, and install it.”

You are operating in an outcome-based, isolate-based. And that’s a whole different way to run your operations, which means your IT and process have to change. That, to me, is the secret sauce that is going to take others many, many years to catch up. It’s not just the offer, but it’s how you deliver that offer. And the experiences have to come together.

It’s easy to copy the offer. You can make an offer look the same. But if you have manual process on the back end, that’s not a great experience. That doesn’t mean you can compete with the public cloud. We have done that. What I’m excited, honestly, Daniel, is the fact that  over the next few quarters, you’re going to continue to see things like we just did a few days ago.

But you should think about it more in the data space. More in the hybrid space. Because ultimately, that’s where I think the value is. That’s why, I already said it, right? We entered the new age of insight. Stay tuned and I hope to have a great event at Discover in June.

Daniel Newman: There may have been a hint in there. I don’t know. But congratulations on all this success.

Antonio Neri: Thank you.

Daniel Newman: It’s great chatting. Great having you on. We’ll have you back next quarter or two, when we have a chance to talk about how this momentum continues. Antonio Neri. CEO. HPE. Thanks so much for joining Making Markets.

Antonio Neri: Thank you.

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About the Author

Daniel Newman is the Principal Analyst of Futurum Research and the CEO of Broadsuite Media Group. Living his life at the intersection of people and technology, Daniel works with the world’s largest technology brands exploring Digital Transformation and how it is influencing the enterprise. Read Full Bio