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At the World Economic Forum in Davos, Switzerland, Hewlett Packard CEO Antonio Neri speaks with Yahoo Finance's Brian Sozzi about the biggest trends in the tech industry and HPE's growth outlook.
- World's top leaders, ranging from politics to business, are currently in Davos, Switzerland for the World Economic Forum's annual meeting. Joining us from Davos is Yahoo Finance's Brian Sozzi with Hewlett-Packard Enterprise CEO Antonio Neri to discuss the state of the tech industry.
ANTONIO NERI: It's great to be back, honestly. It's a wonderful place, wonderful time of the year, I will say. Better to be with the sun above us than the snow below us.
BRIAN SOZZI: I have no problems working on my tan. So talk to us-- we've talked many times in the past. And I love how you talk about megatrends in tech. What are some of the biggest megatrends in tech at this point in the pandemic?
ANTONIO NERI: Well, we have been going through obviously an interesting time where everything has changed around us, from the way we work through the way we deploy IT in this new digital economy we live every day.
And in the four key megatrends we see now and being accelerated is number one, through the way we work in a remote environment and hybrid approach, the need for secure connectivity has exploded. If you are not connected, obviously you can't participate in that.
The second is the fact that cloud, cloud being an expedience that is now required everywhere, because when you are now working remotely, it's not just a cloud where you process a bunch of big data. It's also bringing the cloud experience close to where the action is.
The third one is obviously the most important to me, which is the data. Data is exploding around us. And that has tremendous value. I believe one day, Brian, data will be recorded in the balance sheets of company, because it's one of the most valuable thing to have. And that has the requirement to derive insights from the data much faster than ever before.
And then last but not least, the ability to consume IT in a more flexible way. And that's where we see this growth in the asset service models.
BRIAN SOZZI: Talk to us a little bit about that growth. Coming into the World Economic Forum, lots of talk on recession, tech stocks have been hit. How do you see your business?
ANTONIO NERI: Well, I think IT is a little bit counter-cyclical to what we are seeing today, or maybe see in the short term, where there is a lot of pent up demand to modernize your IT environment to become hybrid and multicloud in everything you do, and the fact that data continues to explode. So when I talk to customers, which I do more than 50% of my time, they are really honing in to this digital transformation. It's now a strategic imperative. It's a way to really compete and win.
By the way, one of the things we have done is done a little bit of a study around the brands who have been in the forefront of that. And they are brands that win in the market. So that's why I'm optimistic about that. Demand is strong in the market. And I think it's going to be strong in the foreseeable future are there.
BRIAN SOZZI: So there's no recessionary signals. You've seen cycles. Do you see any recessionary signals in your business?
ANTONIO NERI: I am not an economist to comment about the economic side of that. I relate to the IT side of this. And I have to say, demand continues to be strong around connectivity, around the AI, machine learning, about the fact that customers want to consume as a service. And that's why our strategy is very well aligned to that.
BRIAN SOZZI: President Biden noted, I believe it was this morning, that he might lift tariffs on China. Would that be a big, impactful thing for your business?
ANTONIO NERI: We have to assess. Obviously, a lot of the components that we acquire and we use in our systems as an industry comes from China. On the other hand, there is a trend to diversify, as well, from China as well.
So we have to assess. Generally speaking, when these policy changes take place, it takes time to see it in the actual reality. So we have to go through and see what the impact is.
BRIAN SOZZI: Are you onshoring?
ANTONIO NERI: Well, we already build a lot of our products in the United States, particularly for the federal side of the business, the segment. We have near shoring as well. So that's all good. But we have a global supply chain presence in every part of the region that we participate.
In fact 2/3 of our business comes outside the United States. So we have to have a strategy that makes us resilient and closer to the customer to deliver on that experience.
BRIAN SOZZI: I was prepping a little bit, toiling around the Yahoo Finance platform, looking at some data. And I am shocked to see your stock trading a little bit below book value. Book value-- I don't understand it. We've talked every single quarter, I believe, for the past two and a half years, double digit order growth. Why do you think that disconnect exists? And what can you do about it?
ANTONIO NERI: Well, I think we still need to prove that we can grow and deliver on a consistent metric, which is a free cash flow. And we are well on our path to do so. But again, we are also transforming the way we deliver our experience to our customers.
So when the street looks at our stock, obviously it's been discounted by the sum of the parts. But by any metric you use, whether it is multiple of EBITDA, multiple free cash flow, we are discounted. I believe as we deliver on our commitments, we give to the street last year in October. I think this is going to turn around.
And if you look at our performance as of late, considering all the market volatility, we have done pretty well. In fact, against the S&P 500, we have been one of the most resilient stocks.
BRIAN SOZZI: So you should be viewed more as a software play. You think the market is still viewing you as a hardware player?
ANTONIO NERI: There is a consideration around that. I think they should look at as a solution company that you can consume as a service. And software is the main component of that, because in order to deliver against our promise, you have to have a lot of software.
If you look at it as a service model, 2/3 of that deferred revenue, what we call AIR, annualized revenue run rate, which is a measure of the future growth with expanded gross margins, is software and services. And so that's why I'm so determined to make this transformation happen in a way we can do it further and faster in the short period of time, because we have the right assets. And again it's been validated by customers.
When we deliver that, which we are already well on our way. I think the street will take notice of that and then start recalculating what is the right multiple for the company.
- Well that was Hewlett-Packard Enterprise CEO Antonio Neri with our very own Brian Sozzi.