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Antonio Neri, Hewlett Packard Enterprise CEO joins Yahoo Finance to discuss his company's earnings report, the state of the job market and other trends he's seeing in the industry.
JARED BLIKRE: We have a very special guest. We need to talk some earnings, specifically Hewlett Packard Enterprise. And we have the CEO standing by with us, Antonio Neri, and also Yahoo Finance's, Brian Sozzi. Brian?
BRIAN SOZZI: All right. Thanks so much, Jared. Antonio, always good to see you. So HP out with better than expected earnings saying that you're going to buy back $250 million in stock this quarter. Those are good things, we'll get into it. But this is jobs day in America and you've seen jobs, that job growth starting to slow, and it came in below estimates for the month of August. From where you sit as the CEO of HP, have you seen a gear down in the economy?
ANTONIO NERI: Well, Brian, thanks for having me today. We from the IT industry perspective, we don't see a gear down. In fact, we see an acceleration of spend. And as you saw in our results in our Q3, which was an impressive quarter, I spoke at length about the strength of our order momentum, which was up double digits this quarter, and 11% for the year. And I continue to be very bullish about the demand going forward on the back of a digital economy, which needs to support data, cloud, and connectivity everywhere.
In our space, job creation continues to be very strong because obviously, we need the right skills looking into the future. And that also creates an opportunity for us to attract, retain talent in different ways. And that's the opportunity for us going forward. But I have to say, in our space, it's a very competitive market to attract the best talent at this point in time.
BRIAN SOZZI: Are you seeing the talent shortage, Antonio, that we're seeing really hurt so many industries even the auto sector, the restaurant sector, retail sector, is that also impacting your industry?
ANTONIO NERI: Absolutely. And in our case, perhaps it's a little bit different in the sense that we are looking for very specialized talent because obviously, we're talking about a new set of technologies, that power the digital transformations customers are going through. And whether it's connectivity or cloud or whether it's data insights, whether it's software right? It becomes a little bit of a war for talent. And that's why we have diversified our footprint in order to access that talent pool. Definitely is a challenge but in the end, we are very positive because we have a very strong culture. The culture that's guided from a clear purpose to advance the way people live and work.
It's not just about compensation, Brian, it's about everything else that goes around compensation, the ability to come make a contribution, the ability to give back to communities, the ability to fulfill your personal dreams in your career over time, to learn and to grow. These are opportunities we create at Hewlett Packard Enterprise with inclusion and diversity in mind.
BRIAN SOZZI: Antonio, I do want to switch gears a little bit looking at the supply constraints impacting the industry. And I've talked to Intel's CEO, I've talked to Qualcomm's CEO, they recently about a month ago told me that the chip shortage would likely end or come close to an end later this year but I'm not seeing that in the results. And I know these supply constraints impacted your business, what exactly is still-- what is still going wrong here?
ANTONIO NERI: Well, first, I'm very pleased with our results because we were able to mitigate the impact that we see in the market. I was hearing the previous segment about automotive, definitely is pervasive across every industry. But we, as you recall, I spoke about this in Q4 2020 where we start taking actions, where we've begun to take actions at the time.
We start buffering inventories ourself. Our inventory position has gone up by $1.3 billion. And since then, we have taken incremental actions, including putting at work, our best engineering capabilities, which allows us to really steer demand into the places where we think we have the ability to procure and fulfill.
That said, I believe this is going to be here for a while, at least two, three quarters. And that has to do with the recovery of the economy. Obviously, which is strong in general. And I believe the Delta variant is going to have an impact on our ability to drive that order momentum. In fact, I believe as offices get reopened eventually we're going to see an accelerator of that. But definitely, I see Brian, two to three quarters still in the works here to recover the supply that we need going forward.
BRIAN SOZZI: Wow, that takes us into really middle of 2022 I would suspect. Just given those supply constraints, have you had to raise prices on your products just to counteract what you're seeing from the volume perspective?
ANTONIO NERI: Well, listen, Brian, we take pricing actions all the time. It's one of the tools we have in a bag of tools if you will. Obviously, we do a lot of proactive work to mitigate that. But definitely we raise prices all the time. And that will give us, as a combination of the cost actions we took last year through the trough, and very strong pricing discipline to deliver what I believe is the record-breaking gross margins of the company, which is now at 34.7%.
And if you look at operating margin performance, for the year we are up 28%. So definitely, there is an ongoing process there and we are very disciplined. We are a company that has very strong operational cadence to allow us to take positions almost real-time.
BRIAN SOZZI: HPE, Antonio, just won a $2 billion contract with the NSA. I can't believe this has fell-- I think just went under the radar with investors. What are you exactly providing to the NSA? And from a financial perspective, when does that contract start to show up in your top and bottom line?
ANTONIO NERI: Yeah, so we won a $2 billion full turnkey approach with NSA, which means it's not just about providing high-performance computing and AI solutions but the full running of the operations of the entire data center. And obviously, it's about accelerating insights from the data. And that contract will start here soon and start being delivered in 2022.
And over the years, right, this is a contract for 10 years. There will be peaks and valleys because obviously, it's about, the first phase will be quite high. And then from there on there will be a sustained momentum that we're going to continue to drive for them. But it is a full turnkey approach and then we're going to run the entire operations for the NSA for this particular part of their operations.
BRIAN SOZZI: Well, congrats on that win. We'll leave it there. Hewlett Packard Enterprise president and CEO, Antonio Neri, always good to see you. Have a great Labor Day weekend.
ANTONIO NERI: Thank you, Brian. Same to you.