Hewlett Packard Enterprise Company (HPE) Earnings Call Transcript & Summary

Hello, everyone, and thank you so much for joining us here on day 3 of Citi's Global TMT Conference, Technology, Media and Telecom. My name is Jim Suva, and I'm the IT hardware and technology supply chain analyst here at Citigroup Investment Research. This session is focused on Hewlett Packard Enterprise, stock ticker, HPE. A few housekeeping items. First, media and press are not invited to attend. If you are media or press, please disconnect immediately. Second, any investor subject to MiFID, please ensure you have the applicable research agreement in place. There are disclosures with this on our website. And I'd like to transition it over to Sanjot to talk about safe harbor. Sanjot?

Thanks. Good morning, everyone. My name is Sanjot Khurana, Director of Investor Relations at HPE. Before we start, let me take a moment to read our disclosures. You will hear some forward-looking statement discussion. These are based on risks and adoptions that are described in our annual report on Form 10-K and Form 10-Q. Our actual results could differ materially, and we assume no obligation to update. More details can be found on our website at [email protected] and our recent Q4 earnings announced and press release dated December 1. So with that, let me turn it back to you.

Thank you so much. I'd like to introduce -- we have several executives and professionals from Hewlett Packard Enterprise. First of all, Sonalee. She has over 25 years of global capital markets and operational experience in the technology, media and telecom industries. She currently serves as Senior Vice President of Corporate Development, including mergers and acquisitions and integrations, and Investor Relations at Hewlett Packard Enterprise. Joining her is Vishal. He is the Chief Operating Officer of Aruba. So we have the head Aruba, Chief Operating Officer, who will be with us on the call.

So with that, I'd like to kick it off, maybe with a broader question, talking about demand. Maybe if we can talk about broader demand in enterprise spending. We all know 2020 was tough for the enterprise infrastructure spending, albeit not as bad as one has actually expected at the start of the year. So maybe if you can talk about what are your expectations for the broader enterprise infrastructure spending in 2021.

Sure, Jim, and thank you so much for hosting us today. We're really delighted to be here. First conference of the year. So you're absolutely right. 2020 was certainly a challenging year for not only HPE but the overall IT market as a whole. And whilst there does continue to be a level of uncertainty given the rise in COVID cases we're currently experiencing worldwide, we have seen some promising signs of stabilization. And you saw that beginning with our Q4 results, where we saw a strong rebound in our revenues. And we are focused now on a set of strategic priorities to drive sustainable profitable growth, which we do expect to see coming through. So we expect to see a continuation of that demand stabilization with the vaccine now beginning to be distributed. And I was actually reading various analyst outlook pieces over the last couple of weeks. And I am seeing pieces that are consistent with our thinking and what we're currently seeing, which is certainly a rebound similar to what we experienced in Q4 and that continuing on. And one thing that's become very clear through this pandemic is that it's forced businesses to rethink everything they do, from remote working and collaboration, business continuity, data insights. And the digital revolution has accelerated, and we've seen that across the piece. And digital transformation has become extremely critical. And of course, that is a big positive for HPE because we have enterprises and our customers who are asking us for more, and we are well placed to capture that opportunity. And we've seen that really across the board, we've seen growing momentum across all our businesses, and we've seen a real acceleration towards as-a-service models. And again, we feel like we're very well placed to benefit from these trends. So taking all of this together, what I would say is we expect to see this continued gradual improvement in customer spending in fiscal year '21, which I think is very much in line with the analyst reports that we're seeing coming out. Of course, I have to retain a certain degree of caution due to the uncertainty and the pace of recovery because of the vaccine and how that ultimately ends up being rolled out, but we do feel very good about where we are. And I'd like to hand over to Vishal because I think he can also provide a unique perspective on our Aruba business and what we're seeing in the edge.

No. Thank you, Sonalee. It's very, very similar, right? I mean if you go back in March time frame last year, we really thought that the sky was going to fall, right? And to your point, Jim, the year was challenging, but it wasn't as bad as we thought back in the February-March time frame for all infrastructure companies. That's just the entire market overall. And I would say that kind of from what we see, calendar Q3 or like the summertime, our Q3 was probably the trough, right? And that's really when demand was very, very low. Started coming back around Q4 time frame for us, which is our fiscal Q4. And the momentum continues, right? I mean we are seeing spending increase. The -- our customers are much more open to spending and putting dollars against technology infrastructure. And again, as Sonalee said, as a service is taking on even more of a meaning. But the momentum is building. The market is expanding in my opinion. The infrastructure market is starting to expand, right, as compared to the contraction that we saw late last year. And all these signals basically point to an expansion over the next year as vaccines come in place and people get back into work. But again, to Sonalee's point as well, the world is going to look a little bit different as we go forward, right, coming out of the pandemic and with hybrid workplaces, kind of the way people interact with technology will be different then. The good thing is we are ahead of the curve there. We had a demand for a lot of remote working type solutions over the last year, and then we are building from there as we go forward, especially in areas like our WAN expansion that we did with the Silver Peak acquisition is very well positioned. So we feel good, right? We feel good about kind of the next fiscal year and how the market is -- how we think the market will shape out.

And maybe keeping with you, Vishal, Chief Operating Officer of Aruba, maybe if you can focus on the Intelligent Edge quite a bit. Like what are the factors that are underpinning the market growth and the outlook in the segment? As you look forward, it sounds like you're in a growth segment. And any thoughts around percent of revenues from Intelligent Edge, say, today versus maybe a 5-year outlook?

Yes. So I mean, let me just take the 2 questions one at a time, right? One is what's driving growth. As we are seeing more and more processing of data starting to happen at the Edge, right, what we call the Edge or the Intelligent Edge. And as a result, all kinds of infrastructure are seeing growth or will see growth in the future. We are starting to see some of the momentum there, all the way from networking, to security, to analytics, edge compute, edge storage, right? So those are the types of capabilities that we deploy out to our customers. And those are some of the driving factors, right, that will drive growth as we go forward. And a lot of it is driven by 2 factors, right? One is a set of experiences that customers, end customers, whether they're consumers, whether you go -- somebody checking into a hotel would want to experience or somebody on a cruise ship would experience. Again, we know those are segments that have been somewhat impacted by the pandemic, but they'll come back, right? And so those are the types of drivers that are helping drive growth in that segment. We are seeing that happen now. We are starting to see the momentum come back, and we'll see that go forward, right? And we expect this market to continue growing at least in the high single digits, maybe even higher, depending on kind of some of the tailwinds that we get as we come out of the pandemic. So that's kind of one. In terms of the size of the segment right now, it's about $3 billion overall. So somewhere just north of 10% in terms of overall HPE revenues. We do see this becoming larger over time, right? We do see a clear path to $5 billion over the next 3 years or so. And some of -- a lot of it is going to be organic growth. Some of it is M&A as well because as we enter segments that we haven't participated in historically, like WAN was one area where we see 20-plus-percent growth going forward. We made an acquisition with Silver Peak, and that's doing really well. We are about a quarter in or 1.5 quarter in now. And we are delivering to the business case that we had in mind. So again, good acquisition. Good so far. So net-net, that's kind of how we think about this business, right? The next benchmark for us is $5 billion. We need to get this business to $5 billion and then more from there. But the opportunity is there, and the potential is there, especially as this market expands at the edge, encompass networking, storage, analytics, security, kind of it all comes together.

And still speaking about the Edge area, can you comment about margins? I think we're looking at they're starting to trend up in this segment, but they were under some pressure in the last fiscal year and any margin targets you have.

So I mean, let me answer the question two ways, right? Let me start with gross margin, then we'll get into operating margins. From a gross margin perspective, this business is what you would expect from a networking software business, right, like low 60s type of margin. We don't report that externally, but that's kind of like what our competitors get as well. And as we add more software, we see increasing margins. From an operating profit perspective, the last quarter was about 10%, which was Q4 reported. And then as we go into this year, we see margins expanding this business as well, given leverage with growth that we get as well as increasing mix of software. And then with efficiencies that we continue driving in this business. So again, we feel that mid-teens to high teens is kind of the long-term model for this business, and we are on that trajectory.

So mid to high teens seems like the target, which is encouraging. Is it mostly the puts and takes like more software and more as a service? Because I know there's other parts of the business that Sonalee can talk about, where things like memory impact the margins a lot more, or does memory and component pricing impact your business a lot?

It doesn't impact it that much, given the gross margin profile of the business if you think about it, Jim. More of -- most of it, kind of the benefit that we are getting from a margin perspective, one is leverage, right? As we get more scale, go to market, R&D, et cetera, kind of don't scale as fast as revenues, right? You can expand. So there's leverage from scale. And the second is just from an execution perspective, we've kind of tweaked the operating model in such a way that we're getting more benefit from channel leverage, for example, right, the way we interact with just the overall kind of execution and operations that we are driving, improving efficiencies kind of on an ongoing basis. So again, my take is between gross margin expansion through adding software, better leverage from scale. And third, better operations and operating model benefits, we are seeing that margin expansion. And we'll continue seeing it over the next year.

I know out of respect for your one-on-one schedule, you've been meeting with investors a lot. And so you probably didn't see some of the other company presentations. But it seems like in TMT today and yesterday and the day before at our conference, 5G was everywhere. 5G, 5G, 5G. So can you maybe talk about the impact of 5G on your business, how it impacts it, why and how?

Yes. So I mean, if you look at 5G, it's a complementary technology, right? I mean most of what we do is connectivity. 5G is an element of connectivity if you think about it from an enterprise perspective, right? Our products today cover everything from wireless to switching, all kinds of protocols like Bluetooth, et cetera. And then 5G is another protocol. And over time -- over the past, what we've seen is -- and if you remember, go back 4 or 5 years ago, it was 4G then, right? And before that, it was 3G. Every time there's a new generation of mobile technology, it drives a whole bunch of infrastructure upgrades, right, for our enterprise customers, which means a refresh of technology, a refresh of infrastructure for our customers from -- on an enterprise side as well, which means more revenue for the market, right? And that means more revenue for us. So over time, as 5G gets rolled out, we are feeling very bullish about that driving an infrastructure refresh cycle, which means that we get the tailwind benefits of that. So that's kind of one, right? The second is that 5G will open up new opportunities that we haven't seen in the past, right? For example, automation in factories, et cetera, which will drive incremental growth for us as we build out infrastructure in those types of customer bases. So again, it's -- it should be a good tailwind. The challenge with 5G has been -- it's been a little bit slower in this rollout than we thought it would be about a couple of years ago. Just from when the customer adoption perspective has gone mostly -- starting with consumer, but eventually, it will come into the enterprise. But we feel very good about the potential of the tailwind that we get from 5G implementations.

And what about IoT? It seems like people have talked about IoT a lot in the past. They haven't talked about it recently, but it seems like 5G will allow IoT a lot more. Are we in the early innings? Have you seen some success there? And I assume Intelligent Edge and IoT have a opportunity to go hand-in-hand.

Absolutely. IoT is also -- the way I think about IoT, Jim, is another enabler, right, for us. But what IoT does is that it enables all kinds of data to get collected at the Edge. And we can process it. We can communicate that data. We can secure that data, right, under connectivity. So IoT -- think of IoT and 5G as they go hand-in-hand in a way, right, because 5G enables more IoT. IoT enables -- requires more connectivity. It requires more security, and it requires more processing of data. So all in all, they all go hand-in-hand, and they all drive growth for our businesses over time. And again, this is -- these are long-term trends. We are in very early innings. I think we are in like earnings -- innings 0 or 1 right now when it comes to areas like IoT. There's a lot more run time here. I mean I think about it as the next decade, right? So we'll see the benefits over the next 5 to 10 years in areas like IoT. They're relatively small, but again, huge potential as we look at the next 5 to 10 years.

And it seems like Intelligent Edge and Aruba is definitely a growth area for Hewlett Packard Enterprise, but it seems like such a big company, there's other growth businesses like high-performance computing, which now includes Cray, which was acquired, I believe it was last year. Any thoughts about how you think the pandemic has impacted the demand in the outlook for HPC?

Sure. I'll take that question. So you're absolutely right. We did close Cray at the beginning of last year, and we're currently fully integrating and -- or it's fully integrated into our numbers now. And what I would say is we feel we're very well positioned in the HPC business, and the team has done an incredible job of converting the backlog that existed as a result of the pandemic. You're exactly right. It did impact, not so much orders but our ability to actually execute on those orders on client premises because these are very complex pieces of equipment. So we did manage to deliver record levels of revenue, close to $1 billion, and that was 50% sequential growth and 25% year-on-year growth. And we saw strength across the MCS portfolio, so not just Cray but right across the board. And we do maintain a #1 market share position in our HPC business with about 37% market share. That's based on calendar Q2, which is the latest data that's come out. And that's about 10 percentage points, 10 market share percentage points above our closest competitor. And if you look, there is a list that has published about the top 500 supercomputers, which was released fairly recently, and HPE and Cray make up 39 of the top 100 systems. And again, that is more than any other company. So we told you at SAM that we won or we have already won more than $2 billion of exascale contracts within our high-performance compute business and including signing several large ones and some of our largest in Q4. So we do feel even with the pandemic and even with the slight resurgence in COVID, we still feel very, very good about the growth potential in that business. And we expect HPE's HPC business to outpace the market, which, itself, is growing 8% to 12% over the next 3 years. And the other thing I would just mention is we've also, like Vishal's business, we've started to see margins expand, and we reported 12.2% in Q4. And we expect those to benefit from the operational leverage as we grow and as revenue momentum builds, and we extract further synergies from the Cray integration, which I can happily tell you my team manages alongside Pete Ungaro's team. So because as part of my role in CorpDev, I look after integration as well. And we are on track, slightly ahead, actually, on those synergies. So again, I would say that we feel very good even with the current macro backdrop on what we can achieve in that business. And one other thing I would just add, you were asking Vishal, and it was a good question about the revenues from Aruba. But when you look at HPE as a whole and our growth businesses and where we're -- we have a laser focus on driving growth. If you think about our guidance and where we're likely to be in fiscal year '23, we expect over 1/3 of our revenues to come from growth businesses [ then ]. So just to give you an idea, whereas it's below -- just slightly below 20% today. So again, we feel very good about the direction of travel.

Sonalee, this question is probably first for you and then also for Vishal, but you mentioned up synergies and restructurings and cost optimization. I believe you embarked on a major cost synergy cutting initiative. I think it was around savings of about $1 billion, if my memory is right. I may be off on that.

Your memory is right.

Can you update investors on where we stand at that? And does it all flow through to the bottom line? Or do certain businesses need additional investments? And when we think about that, and the reason why I ask is it seems like Vishal's business is very much an Intelligent Edge on a growth trajectory. Are there some missing parts? Or is [ T ] left alone for restructuring and actually allocated some more budgetary funding? Or if you can update us on restructuring.

You sound like you're an advocate for Vishal. But no, you're absolutely right. And that is the way we think about it, the way we look at it. And certainly, even in the planning stage, when we were first, contemplating the cost optimization and prioritization plan, it was very much with that in mind. It was ensuring that we don't just cut into muscle and starve businesses that are important to our growth, like an Intelligent Edge business or as a service GreenLake, HPC, MCS. So we were very cognizant of that when we set out our targets. But the targets we did communicate to you aren't our net target. So they're net of reinvestment. So you would expect to see that full amount flow through to the bottom line. And we felt we were very proactive and prescient into actually in announcing those actions. It was a very deliberate set of actions to strengthen our foundation and become -- we used it as an opportunity, and I think we're now increasingly seeing more companies doing this, our competitors, but also within other industries, using this as an opportunity to modernize and become more agile and as you exactly said, align resources to critical areas of growth. And to date, what we've done is significantly improve our supply chain execution, and you've seen results from that already in the reduction of our backlog, which I'm really proud to say is now back at normalized levels. We simplified our operating model and aligned it to our financial segmentation to increase transparency, partly for you, the analyst community and the investors who cover our stock. And we also feel that, that improves accountability among managers within HPE and incentivizes them in the right way. And then finally, we re-envisaged -- re-envisioned our go-to-market strategy to improve the customer experience and to accelerate our as-a-service offerings. And what I would say is we're comfortably on track to hit the numbers that we projected, that we originally gave you. Originally, we have communicated $800 million. And we then said that we would comfortably exceed that amount. And we think the -- we still feel the majority of those savings will come through this calendar year, so in fiscal year '21. I'll let Vishal comment. They are taking some cost action within Intelligent Edge as well. And that's partly part of the margin story, but I'll let Vishal comment specifically on Aruba.

It's less about cost reduction, Jim. What the pandemic did was it forced us to think through rebalancing our investments, right? And kind of the way we look at the overall market is we basically cut it in 3 ways, right? It's based on industry verticals, right? It's based on geographies, and it's based on customer segments. And even though, yes, we [ picked ] out some dollars, but we did rebalance quite a bit, right, based on where we thought the market would grow over the next 2, 3 years, for example, right? We invested more behind things like the WAN business, we -- the inorganic investment we did, right? Secondly, kind of we are spending much more on R&D, for example, on work-from-home solutions, right? As the world goes into more of a hybrid workplace, we know that there will be more demand there. So we are pushing -- we are spending more in that space, right? We did cut back on certain geographies, right, and in certain industry verticals, like hospitality, for example, because we know that those will be depressed for a bit, right? So again, we did rebalance quite a bit in terms of we had moved dollars around, both from a go-to-market perspective and in R&D perspective. So we've done some of that. And I mean, the other thing is like what we've done over the last couple of years is we've changed our go-to-market model completely. I think we've spoken about that over the last few earnings calls. We have invested a lot in kind of SMB products and go to market, which we didn't have back in the day. So those are the areas that are driving growth for us now. I mean if you look at the last quarter, we grew 5%. Our competitors declined 10% to 15%, right? So it's differentially, we are taking share. We're growing faster. We see the same trajectory in Q1 as we kind of hear back from our channel partners. We hear back from our suppliers. So we are seeing that differential growth in the market, right? And we are growing because we are able to rebalance funds much faster, in my opinion, to where the growth is in the market, right? We are executing better. We have a better product portfolio in our opinion. And if you look at Forrester and Gartner and IDC, you kind of see and hear the same thing. So net-net, all of it is coming together from a product perspective, a better go-to-market model perspective and better execution. And we are seeing that's kind of what's driving growth for us, right? But again, we -- the pandemic did force us to rebalance our funding. And it goes for the right reasons.

Sonalee, I think a large part of Hewlett Packard's -- Enterprise investment story is contingent on free cash flow generation. Can you talk about your targets there and understand the puts and takes? And does as a service impact your targets at all for free cash flow?

So you're absolutely right. Free cash flow is essential, well, to our stock and the investment case and also to the management team and leadership team here, and we are absolutely incentivized on hitting free cash flow target. So it's an extremely important part of the story. I think it's really important to look at the history of our free cash flow profile pre-COVID. So if you look back to fiscal year '19, we were generating -- or we posted a $1.7 billion free cash flow number, but that included a one-off onetime payment to DXC. So what it really demonstrates is this business, when it's humming, is capable of generating well in excess of $2 billion of free cash flow a year. So fiscal '20 was impacted by COVID, and that damaged and dampened near-term profitability and pressured our working capital. So we posted a free cash flow number closer to $600 million. In fiscal '21, we've guided $0.9 billion to $1.1 billion of free cash flow, and that is driven by a significant increase in OP as well as investments in our core transformation and growth areas, like exactly, as you said, GreenLake, and also our HPC exascale deployments, the ones that I referred to earlier, that great pipeline that we have sitting within Cray. And they do consume capital upfront. So looking beyond '21, when cash costs for the transformation normalize and lessen significantly because, as I said, a lot of that cost-cutting optimization will take place in '21. Our investments for growth start to pay off, and we will start to see those dividends -- not dividends, but the operating profit growing as a result of the higher ARR that we will generate from both the Exascale business but also the GreenLake business. And we recently reiterated our 30% to 40% ARR growth in GreenLake and feel comfortable reiterating that today. And again, feel very, very good about the demand drivers and orders in that business. And as a result of that, we expect to exceed those historical levels of free cash flow by fiscal '22 of greater than $2 billion by fiscal '23. So in other words, if you think about where we ended fiscal year '20 and where we expect to be, and I think there's definitely line of sight to where we should be by fiscal '23. That's a greater than 50% increase in free cash flow. And again, I was an equity analyst for many years, and I think that, that's a pretty compelling trajectory and a pretty compelling road map. So you're absolutely right. We are targeting cash flow in fiscal '21 of $0.9 billion to $1.1 billion. But we think that you need to look beyond that to the '22 and '23, whereby '23, we will expect to exceed the $2 billion run rate.

And then on capital allocation, you paused your stock buyback. Other companies have started to re-implement those, but you're still also doing a dividend and some companies have completely stopped their dividends, and you've kept your dividend. Is there anything we should read into about your capital allocation? What does it mean? Does it mean more M&A in the future? The integration of Aruba, the integration of Cray, these have been doing well. Does it mean more of a focus on M&A? Or am I just reading into something?

Yes. So you're right. We did pause our buyback as much of the world did, much of corporate America did as a result of the pandemic and macro and just uncertainty. And we felt -- certainly, Tarek, our CFO, felt like it was right to be conservative with regard to our balance sheet. And looking back, it was absolutely the right decision. And as you've heard us communicate before, we do follow an extremely disciplined returns-based capital allocation framework. And we have a rigorous investment evaluation process that is always focused on maximizing shareholder value. And I'm glad you brought up some of the recent deals we've done, which I think are great examples of how we deliver value for shareholders. Our balance sheet does enable us to make investments to fuel growth as well as return capital. And you very correctly pointed out, we have a generous dividend. Dividend is very important to our strategy, our capital allocation strategy. We're currently yielding just around about 4% and declared our regular cash dividend of $0.12 a share, which is payable, I believe, yesterday. So dividends will remain an extremely important part of our framework going forward. On the topic of buybacks, we paused in 2020. And going forward, we always retain flexibility to pursue buybacks within a dynamic capital allocation framework. On the M&A side, we feel we've established a strong track record. You mentioned some of the more recent deals, but we've also -- Aruba was a great one, Nimble, SGI. We will always look for opportunities to accelerate our strategy that will deliver value for our shareholders. So I would say, in terms of priority, our top priority right now is delivering sustainable, profitable growth to create long-term value for shareholders. And within our capital allocation framework, that will include, within the framework, dividends, buybacks and value-enhancing acquisitions.

There's been a lot of talk and discussion about GreenLake in your company, the service -- as-a-service offerings. Can you talk about your product offerings, your services within GreenLake and any differentiation that you have versus some of your peers for as-a-service offerings? It seems like as a service is really much becoming a -- everybody is saying that in every sentence from a traditional hardware company.

Absolutely. And it's part and parcel of who we are now. And I can tell you, and I'm sure Vishal will back me up here, in every leadership meeting we have, it's front and center. And we're just talking about capital allocation. And within a company, you choose how and where you spend your dollars, and as-a-service is front and center of what we do. So what I would say is we do feel, and we've heard from our customers that we are very differentiated in terms of our offering. We have a leading edge to cloud portfolio and the broadest in the market with truly optimized solutions for any workload. So combined with our Ezmeral Software portfolio, we believe that we are years and years ahead of the competition in terms of enabling a true consumption-based experience from edge to cloud for our customers' workloads, their apps and their data, wherever they sit. And we are delivering true cloud services that are automated and self-serve, such as VMs, containers, ML ops, optimized and standardized hardware and software that we can deliver to our customers at their location, which we're doing right now, and provide them with the fastest time to market and enable them to bring solutions to market 75% faster than traditional CapEx. And what's unique about GreenLake and for customers is we are the only true pay-per-use on-prem model in the market. And the other thing I think the pandemic has shown, and we're seeing this even from some of the large cloud providers, they're saying this, that the world is truly hybrid. And we actually provide a pay-per-use on-prem model, which customers are extremely excited about, and we provide actual metered usage, whereas our competitors often use leases that are disguised as consumption model. So we believe we -- our model allows customers to free up capital, and it remove the risk of expensive over provisioning. And on average, we save our customers 30% to 40%. And our approach means there's no data egress charges that you would otherwise incur with the public cloud. And we've increasingly heard customers complain about that. And then another point I would make is we have our HPFS business, our Financial Services business, which is really the only leading asset life cycle management and consumption-driven business model out there. And we feel it's a big differentiator. When we go in and pitch to clients, they are right there next to us. And I think it's a strong, strong differentiator and one of our -- a business that we feel really proud bringing and pitching to clients. So when you take all of that together as well as our Pointnext organization, which is world-class and the operational support and experience we give to clients, we feel that HPE GreenLake provides the broadest, most flexible and best solution in the as-a-service world today. And we even hear that from our partner ecosystem. And we have very strong relationships with channel partners across the board, and we're getting that feedback from them. So I think it's a truly, truly differentiated. And it actually is an as-a-service model, not just a disguised as something else.

Well, as we wrap it up now, I'd like to ask each of you somewhat of a similar question. First, Vishal, then Sonalee. Vishal, what are kind of the 2 or 3 things you want to leave investors with on this meeting about why they should be very excited about Aruba and what you're doing, and if you ever get any common questions that you can help clarify the misperceptions of. And then for Sonalee, as Head of Corporate Development as well as Investor Relations, anything that frustrates you that investors you think are asking the wrong questions or confused about that we can clarify about why coming out of this meeting, investors should be buying and owning HPE stock. So Vishal?

Yes. Let me start with this. I think we've covered most of it, Jim, through your questions, but I'll reiterate and summarize, right? One is Aruba definitely is a growth story, right, a strong growth story. I think as we look at the next year, we are targeting anywhere between 6 to 10, maybe even a higher growth than that, right? So it's a sizable business at $3 billion, growing fast, expanding operating profit. So if you kind of look at it from that perspective, very attractive story overall, right? And we are positioned and very well to deliver against that story. The second part is always, I think the questions come is, hey, Aruba is a small element of HPE. But the way I would say is it is small from a revenue perspective. It is growing faster. It's pretty significant from an operating margin perspective and an operating profit perspective. But as you look in the next 2 to 3 years, it's going to get much more sizable, much larger, continuous growth trajectory. It's a very differentiated business, right? It's taking share in the market, and it's expanding into new market. So again, I think it's a fantastic story. I mean I sit here, hence, I say that, but it's a beautiful story. I think there's a lot of growth potential here, and it's going to get to be a bigger and bigger part of HPE over time.

So I know we're running out of time but, of course, I concur with Vishal. And what I would say is we've given you the segmented reporting. We have some incredible growth businesses. Vishal highlighted the Intelligent Edge. You mentioned I was Head of CorpDev. The Silver Peak transaction is one that we are extremely excited about. We're already seeing great things from that team. That SD-WAN market is growing 20% plus. Our Intelligent Edge business -- sorry, our HPC and MCS business growing 8% to 12%. And the really beautiful thing is that our growth businesses are also expanding margins. And then finally, I would just say that the free cash flow delta, the opportunity to buy a stock where free cash flow will grow by greater than 50% over a 3-year period. So I would say we feel really excited about where we are today, and we hope you all do as well.

I want to personally thank Hewlett Packard Enterprise, stock ticker, HPE for joining us here today and sending their representatives, the head -- Chief Operating Officer of Aruba as well as the Head of Corporate Development and Investor Relations. Ladies and gentlemen, this now concludes and we look forward to having this in future in person, hopefully, when coronavirus is behind us. Thank you so much for joining us.

Thank you.

Thank you.