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Supply chain constraints: 'I have no concerns' with our ability to fulfill demand, HPE CFO says

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Hewlett Packard Enterprise CFO Tarek Robbiati joins Yahoo Finance Live to discuss the enterprise technology company's positive outlook on anticipated supply chain obstacles.

Video transcript

BRIAN SOZZI: Hewlett-Packard Enterprise shares are getting dinged after the company forecast quarterly earnings below analyst estimates, as the company navigates industrywide supply chain disruptions. But HP stayed upbeat on its longer term outlook, noting continued strong demand for its products and services. Let's dive in here with HPE CFO Tarek Robbiati. Tarek, nice to see you again here. Let's start on that quarterly outlook because it is something we have gotten some questions here about it on. Is that more a function of supply chain disruptions or a shift in demand, given everything we're seeing with the pandemic?

TAREK ROBBIATI: Well, Brian, first of all, good morning. And thanks for having me on your show. It's a great way to start a conversation. I would say our results and momentum is extremely strong. It's not a matter of demand. Demand has been extremely strong and increasing in the second half of our fiscal year that ended October 31st. We still see, like every other player in the industry, some disruptions in supply chain, but we're navigating those well. And if you really look at the chart that you have on your screen right now, our revenue grew 7% sequentially, which is a pretty good result from our standpoint.

Most importantly, order growth in the fourth quarter has been outstanding. We're entering fiscal year '22, which just started, with a substantial order book ahead of us that we look forward to fill. So demand is there. Supply chain is still a little bit disrupting. But we have to navigate this just like we did for the past five quarters. We have been navigating this very well. We have been buffering inventory and taking other measures to ensure that we can meet the demand. And so far, so good. I have no concerns with respect to our ability to fulfill that demand during the course of fiscal year '22, albeit on a supply chain environment that is a little bit disrupted.

BRIAN SOZZI: You know, shout out to our team here. They do some great work with these charts, always blowing my mind. Tarek, when does these-- when do these supply chain disruptions end for an HPE? Is that early 2022, or it's going to take some time?

TAREK ROBBIATI: I would say it was going to take some time. Honestly, right now, from our vantage points, we think it's going to take all the way on to the end of calendar year '22 to see the supply chain constraints that we're witnessing abate. It's going to take three or four quarters, but it's fine. If you really think about where we stand today, we posted revenue of $7.35 billion in Q4.

If you look back at our results, our historic performance, this level of revenue in Q4 is the highest since the first quarter of 2019, so considerable progress coming out of the global lockdown from the pandemic. And we are on the way up and feel very comfortable about where we stand. We have all the assets that are needed to compete. And we are very well positioned for the new world that is coming, the new world that will be a lot more digital, a lot more edge centric and cloud enabled and data centric that we've been waiting for.

JULIE HYMAN: Tarek, it's Julie here. I'm curious about your conversations with clients about this whole supply chain situation. I know it is so widespread at this point that maybe there's some level of getting used to it. But I'm curious if they're frustrated, right? I imagine you must be somewhat frustrated by what's going on. And so, are you hearing that from them as well?

TAREK ROBBIATI: Yeah, it's a great question. I mean, it's a new reality. The fact of the matter is, if you look back before the pandemic, the world was flat. And the world was not disrupted. The supply chains were magically working. You could place an order anywhere you were in the world. And somehow, all the bits and pieces that made up that order would show up to your door. You'd manufacture, ship to your customers. There wouldn't be any issues.

The pandemic has changed things. It's a very different and very new reality. Supply chains are no longer just about cost. They have to be built in terms of resilience and speed. And we've equipped ourselves to rethink our supply chain to build it for resilience, speed, and cost. We feel good about it. But we just have to adjust to a different set of expectations and a different reality. It is maybe frustrating for customers, but so far, so good.

We haven't seen any customer throwing in the towel and saying, I'm going to cancel orders. There are no order cancelations from our standpoint. Our book is solid. It's just a different way of doing business than before. And most of our customers are very understanding of the situation. They place orders early because they need the equipment to modernize. They just navigate through this just like we do.

BRIAN CHEUNG: Hey, it's Brian Cheung here. So having that book, I imagine, gives you a bit more stability. When you take a look at what your projections are in the future, but especially when we talk about these supply chain issues, which a lot of companies are having difficulty in predicting how long they'll last, how difficult is it to offer forecasting guidance at this time?

TAREK ROBBIATI: It is a bit difficult to forecast, but we've been so far pretty much on point. We met every single guide that we gave to the market, including revenue for the fourth quarter relatively smack on consensus. And our EPS has been very solid and above consensus. We attained every single metric we said we would target. And so, yes, you have to be a little bit more scientific in your forecast. You have to be a little bit more precise. You have to account for the uncertainty. But it's no big deal. It's just a new reality we have to navigate through, and we're well equipped to do so.

BRIAN SOZZI: Tarek, we've seen-- I mean, your stock is getting-- is under a little pressure here. We've seen tech hit more broadly. Are you inclined to ramp up your buybacks in the near term, just to offset some of this weakness we are seeing? Just listening to you, it sounds as though your backlog is strong, and you're having a lot of success with pricing.

TAREK ROBBIATI: Yes, it's true. So our backlog is strong, and we are having a lot of success in pricing. If you really think about where we are market wise, you said it very well a couple of interviews ago. The market is volatile, it's emotional. It suffered from the two punches on the new variant, omicron, and also the comments from Chairman Powell from the Fed with respect to inflation.

But when markets are emotional, there is opportunity for those investors who are more discerning and look at the fundamentals of the company. And we're doing extremely well. We've navigated the pandemic very successfully. The trough from a performance standpoint for us was hit in May 2020. We're well above where we were in May 2020.

And we have set very ambitious targets out there for ourselves. We are targeting an EPS of $1.96 to $2.10 in fiscal year '22. And we're targeting delivering $1.8 to $2 billion of free cash flow, and for the next three years, free cash flow of $6 and 1/2 to $7 billion. Not many companies in the S&P 500 have these targets out. We're confident we can achieve them, notwithstanding what the current market emotions and nervousness is about. One has to be a little bit more discerning and look at us with a different lens, given our track record and what we're able to deliver so far, which we feel very comfortable we will continue to do.

BRIAN SOZZI: Well, good luck this quarter. Hewlett-Packard Enterprise CFO Tarek Robbiati, always good to see you. We'll talk to you soon.

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