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

Good morning, everyone. We're back. I have the pleasure of hosting Hewlett Packard Enterprise. We've got Antonio Neri, the CEO of the company. So welcome, Antonio. Thanks for joining us.

Thank you, Rod.

[indiscernible] And then we've also got Marcus Kupferschmidt here, Head of IR in the Investor Relations function. Marcus, I know you have a statement you want to read, so please go ahead and do that. And I think I may have just given you a promotion as well. So I know you're one of the IR people at Hewlett Packard Enterprise. So go ahead and read your statement, and then I'll kick off with some questions.

Thank you, Rod, and I appreciate you promoted me, and I look forward to that paycheck. Before we start, let me take a moment to read our disclosures. You will hear some forward-looking statements in today's discussion. These are based on risks and assumptions 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, investors.hpe.com, and our recent Q4 earnings announcement press release from December 1. With that, Rod, let me turn it back to you.

All right. Thanks, Marcus. Appreciate it.

So I wanted to kick off, Antonio, with the demand environment. I guess that's the thing that we're all trying to figure out for the year. It's not an easy environment to predict. But I wonder if you could talk a little bit about what you see in the spending environment now based on your conversations with customers. And I'm curious to know, do you think customers themselves know what they're going to spend yet? Are they still in the budget setting process?

Well, first, good morning, good afternoon, everyone. Thank you for having me, Rod, today. Pleasure to be speaking to you and the audience that join us today. As I said in my Q4 remarks, my Q4 earnings remarks at the beginning of December, we see signs of stabilization in areas we are improving, particularly around the acceleration of the digital transformation the customer has been on a journey already. And we believe that the digital transformation is no longer a priority, is a strategic imperative. The global pandemic has forced customers to think differently. We now work in a much more distributed enterprise. Obviously, we still have lockdowns here in United States in many areas of the world, where our employees are working from home. But that has created lasting and permanent changes and a significant amount of opportunity for us as a company because of our portfolio where we are investing in the future. As we went through December and now beginning of January, I believe customers are getting accustomed to work in this environment. And I actually see steady momentum in the demand as we see it in the marketplace, particularly in areas around connectivity, security, virtual desktop solutions, anything that's driving preservation of cash and therefore, pivot into consumption-driven models, also very, very strong. And then, obviously, anything you can provide to extract insights from the data much faster than before, we see tremendous demand. So we believe the market is kind of stabilizing. There are certainly areas of uncertainty because of the macro environment or political challenges we see every day. But I think enterprises are moving forward with that agenda and be able to operate in this new world. And that's why we are excited about our vision and our strategy and where we're making our investments.

Okay. I wonder if you could talk a little bit about just this question of whether enterprise budgets are set yet? Or are -- do you think people are moving slower to set budgets this year, trying to kind of discern when and how fast things may reopen and so on?

I think a lot of the customers have their budget set because they already have a clear strategy and set of priorities they need to execute. Obviously, by sector, may change. Financial sector may be different than retail or may be different than, obviously, hospitality, which clearly has been impacted. But overall, I mean, the fact that the customers need to implement a cloud strategy, the fact that customers need to improve IT resiliency or whether it is to provide a better experience to their employees, or whether it is to basically deploy new technologies like AI and machine learning, those are going and they're going really fast. And that's why our vision to provide an edge-to-cloud set of experiences and solutions are really playing well in that sweet spot that we see today in the market.

Okay. Great. So as a service, GreenLake, a big focus for you and beginning to be talked about. You were really -- to give you credit, you were one of the first, if not the first in the industry, to talk about this and really make product moves in this direction. We now see Cisco starting to talk about it more. I wonder -- this is going to become a competitive area, I think, important future development for on-premise infrastructure. So I wonder if you could talk a little bit about HPE's competitive advantages in this area. What do you see as the things that will allow you to win that as it rolls out?

Yes. Well, we were the first in making statements about the future. When I became CEO, I said in 2018 that the enterprise of the future will be edge-centric, cloud-enabled and data driven. The edge is where we live and work. In fact, more than 60% of the data is created at the edge, not in a data center, not in the cloud. And in 2018, I made the commitment that we will invest $4 billion at the edge because we believe that's the new frontier in connectivity, edge computing in the form of cloud, analytics and security. Then, we saw the shift to more a consumption-driven model driven by the public cloud experience and how we bring that cloud experience for all their applications and data, wherever they live, and more and more move into this edge. And that's why we said at the time, the world will be hybrid, meaning you're going to have applications and data everywhere in a much more distributed way. Today, we live in a centralized way with your mobile phone in the cloud, meaning the mobile phone being your terminal, some of us grew up with that architecture. And now we're going to be living in a more distributed and centralized both environments where data and applications can run anywhere. And in that context, we said the world we’ll be hybrid. But then, how we bring that cloud experience? Because to us, cloud is not a destination, it's an experience for wherever the apps and data live. And that's where we invest quite dramatically in GreenLake. And that's why I said, by 2022, we'll make available all our solutions as a service. And GreenLake is our flagship product in the context of our vision to become the edge-to-cloud platform as a service company. And we see tremendous momentum driven by the differentiation and the core of that differentiation road is our software. GreenLake is a software solution, enabled by the services capabilities and the financing capabilities we have in this company. Remember that this company has roughly 60,000 employees in 172 countries. 20,000 of them, 1/3 of it, are services experts, both in advisory and consulting as well as in the RAN. So whether it's build or RAN, we have the expertise to deliver the [ right ] mix of hybrid and obviously be able to implement the right solution for the data. And this is where software makes our GreenLake so unique with financing from HPEFS and our services capabilities. And we have been investing in this space since 2013. When I was running the HPE Pointnext Technology Services in 2013, we introduced an offer called Flex Capacity. And then we made acquisitions in software like Cloud Cruiser, which allows us to give metering capabilities for all aspect of the consumption, whether on-prem, in a colocation or at the edge. But then we provide the managed services layer for applications and data that may be in a public cloud. So when you engage with GreenLake, not only you get the cloud experience on-prem or at the edge, but we can actually curate all the applications and workloads, whatever they are. And that's because of the automation we have in software that's very unique. And that's why we believe we have at least a couple of 2, if not 3 years, advantage. And the biggest growth we see is in type of workloads that customers want that. So for example, ML ops, virtualization, containerization, backup and recovery. Those are areas we see tremendous growth in GreenLake, as you know, continues to deliver high double-digit growth every quarter.

So just a high level or higher level of automation that you are able to provide, and do you think people will have to catch up with that? And then maybe some of the -- what I kind of heard there, maybe some of the financing and charging options as well, the way that you allow people to control their costs and the way you're charging for it. Is that a good summary of what...

It is a platform. Yes, it is -- GreenLake is a platform-oriented solution that the core is all software-driven with high integration of APIs and automation that basically from the cloud because GreenLake sits in the cloud, whether it's on-prem or somebody else's cloud, we can provision the right workload-optimized solution that's fully automated. And then we embed in-product solution, both the financing aspect, whether it's operating leasing or CapEx leasing, whatever the customer wants because some customers are more oriented to one versus the other one, and then they manage services, so the customers don't want to be in the run time. We do it for them wherever that application sits. And that's fundamentally what we can do because on one end, we have a platform with software. On the other end, we have the services expertise, particularly on the run time and the build time. And then with financing with HPEFS, we are able to provide not only asset life cycle management, but the right financing, whether it's CapEx or OpEx, in that solution because GreenLake is a services-led offer with financing included into it. Our competitor offer a financing solution, which is nothing more, in my view, than a glorified leasing kind of offer.

Right. What do you think -- so those are the current -- that's the current state of affairs, I think. And at least I know in your mind, it probably is, even though it will take a few years for that to deploy and then people to adopt it and so on. What's the future? So how do you think about 5 years, 5 years-plus? What -- who -- what will determine who's winning in the as a service on-prem market then versus now?

Yes. Well, we size this opportunity as a $22 billion opportunity on-prem solution that will be consumed as a service. Today, $6 billion, and we are the clear leader. Remember that our TCV value of GreenLake is already $4 billion, with an annualized run rate -- revenue run rate already getting close to $600 million and growing 30%. This is why we said that we are going to triple that business in the next 3 years and very confident that we will continue to grow 30% to 40% CAGR on the ARR. And that's because of the innovation we already have and continue to deploy in the market. Last month, we made available our first, I think, in the market, HPC, high-performance computing as a service. HPC is a very specialized type of solution for specific workloads, which are exploding like big data, simulation and modeling, AI, deep learning. And generally, HPC has been accessible only to few type of verticals: oil and gas, academia, government. But now how we democratize those solutions in the enterprise is where we took a stance and we made available to GreenLake. We believe that's going to be a source of growth for us going forward. But for us is how we continue to deploy cloud-like services through GreenLake for on-prem workloads that has gravity around data. And we see a series of workloads that continue to be very much oriented to stay on-prem or even moving at the edge for that matter, where we will have the right to play and win. Because we have not only the infrastructure, we have the software, we have the as a service capabilities. And we believe this business will triple in the next 3 years, which is a source of growth for us both on the as a service but also on the infrastructure side. And then an increased margins because everything we do through GreenLake has higher margin both on the hardware side and on the services side.

Right. Yes, the economics are good and should be good for businesses as well as they have more predictable spend. One of the things about the economics, too, seems to me -- I know when I take things as a service, they tend -- even when businesses do as well, they tend to be a little bit more sustainable in pricing. Like you don't get into this -- people get used to paying a certain number, and then they just pay that number over time. Do you agree with that? Do you think that's a...

Well, it's very sticky. [indiscernible] Yes, it is very sticky, a, because you're not going through the usual procurement or reverse auction cycles. You've given them an experience. At the core of this is an experience that's fully integrated. You free up capacity for the customer in term of IT stuff so they can pivot those resources to more the innovation side. We live in a digital economy. Everything is supported by the amount of data we create. So how to pivot that focus to more the data side versus running IT? And the fact that you can scale up and down in an elastic way is the ability for customers to really pace themself instead of making these massive capital deployments that generally tend to be overprovisioned. And what we do with GreenLake, we provision the exact amount for that given workload. So we give them not only the experience, but the right cost per workload that they need. And as they need more, actually shows up. They don't need to do anything because once they are in GreenLake, we do it for them. We have all this automation with AI, artificial intelligence, that you're going to run out of storage, we know it before you know it. And we deploy it for you without you even needed to do anything. And therefore, that spend is elastic as they grow with the data. And we know data will continue to grow, right? So we expect in the next 2 years, the data will be twice as much the amount of data we created for the last 2,000 years, which is amazing. And that's a huge opportunity.

Right. Right. Okay. So confidence on the growth and a pretty clear path to getting there. And then I guess we'll talk about 5 years-plus in 2 years.

Well, I think, listen, there is the -- as always, right, Rod, there is the booking side, there is the revenue side, right? The bookings, obviously, are going to outpace the revenue because this is a deferred snowball that, obviously, over time, gets bigger and bigger and bigger. But the amount of deals and the size of the deals is what's very, very interesting. And we are not only winning more deals or more new customers, but the deals are getting bigger and bigger which is great. But one key advantage we have is the channel reach. Remember that 70% of our business goes through the traditional channel, whether it's distributors or value-added resellers or ISVs or solution integrators. All our solution integrators already have a contract with us for GreenLake and -- which is great for them because they don't need to put that capital in their balance sheet. And then second is the fact that the fastest-growing area for us is through the channel, which is great because once the channel adopt this new way of selling, which is the biggest transition, honestly, then our competitors are going to have a harder time to get into the channel.

Great. Okay. I just want to -- before I ask the next question, I'll remind the audience that there is a Q&A capability here. So if you have questions, we're going to take -- open questions from the audience at the end of this session. So please put them into that system, and then I'll read them off to Antonio as we get toward the end of the session. So I want to switch gears here from as a service to compute. Compute has been declining 10% -- more than 10% some quarters. I know that COVID has affected that. But you've talked about stability there. Can you help us understand, in the context of these declines, how we get to stability. What you see developing in the customer base maybe with regards to that as well.

Yes. The way I look at compute, and again, we have a unique segmentation in our company to give the investor transparency and clarity, right? So if you look at the server category, right, you need to think about segments like enterprise, telco, HPC and the cloud, right? So those are the 4 big segments. And within that, there is enterprise which generally tends to be general compute. Obviously, HPC is very specialized. Cloud is mostly commoditized. And then you have the telco, which obviously, with 5G and virtual radio access network, we see that as a source of growth. So for the general purpose compute, which is what we report as the compute segment, which includes the hardware and the operational services of Pointnext in the segment. In Q4, we actually stabilized the business. We have returned to normalized pre-pandemic level. In fact, our performance was flat year-over-year. On the HPC, which is more the specialized with mission-critical workloads and the big data analytics workloads and AI and so forth, that business exploded, right? So we show a 25% growth year-over-year and 50% growth quarter-over-quarter. Because last year, the way we measure the performance was on a sequential growth because obviously Q2 was the lowest point because of the pandemic. And so when you bring now HPC and compute into the servers category, actually, our business will have grown year-over-year. And that's where I feel confident about it because we have a truly differentiated portfolio, whether it's on the compute side with Silicon Root of Trust security which become in top of mind these days, which is hardened in the solution, not in the software but on the hardware. And we see pent-up demand in the enterprise to modernize some of the estate and then cloudify that estate into private clouds with the experience that we talked early on, that business should be stable going forward. And then there, we are really focused on the segment of growth, whether it's Tier 2, Tier 3 in the cloud because those are SaaS company or hosting companies beyond the large public cloud providers where we see growth and demand and then the telco. And the telco, we are unique because it's not just the infrastructure, but because of our software business with a portfolio called CMS, the Communications Media Solutions business that provides virtualization, orchestration and some unique virtual functions for the 5G. In fact, Hewlett Packard Enterprise provides 6 of the 15 virtual functions you need to deploy 5G. And that's a business that we built over 2 decades. And now the business has been pivot to the new way to deploy these new solutions, particularly in an open 5G approach. So those are the growth areas. But in the enterprise, obviously, it's delivering workload optimized solutions with a security hardening. On HPC, it's all up to the right. And remember that in that space, Rod, we already won more than $2.5 billion in business that we have to build and ship over the next 18 months. But that business is a little bit lumpy, right, because it takes several quarters to build, deploy and get the customer acceptances because the way we recognize revenue in that business is after the customer acceptances. But out of the 6 exascale systems, we won 5 of them. And those are generally between $500 million and $700 million that we have to build over the next 18 months. And that's unique because that will not only help us, but it will help the country, particularly in areas of life science and defense and security and so forth. That's why I'm confident about the business in terms of stabilization. And as we said earlier, right, there is pent-up demand also in enterprise to modernize some of the infrastructure, but in a cloud-oriented way, particularly because some of our competitors, particularly public cloud have made a statement that 96% of the applications is still on-prem, and they want to come on-prem. But in order to be on-prem, you just don't need software, you need more than that. You need expertise. You need deployment capabilities. You need services, which is what we have.

Yes. I don't doubt your on-prem capabilities. I would say that when we look at the unit declines, there's kind of been -- like April was in our model down 19%. So big unit declines. But of course, COVID-related units are up a little bit in July. But they were down, we think, 8% in October. So it's hard, as an analyst, quantitatively, to feel this is stabilizing necessarily. It looks like maybe the unit declines continue next year, but I don't know what you would say to those numbers.

But actually, you have to look not just units, but you have to look at the structural average unit price. So I used to run the server business, we can get on the technical side. But remember, every server now comes with more options attached to it. And that's because of new technologies like more memory density and more storage density. And technologies like NVMe and so forth will allow to attach more per gigabyte into the same form factor, which means 2/3 of the pricing of a compute platform is structural. And that, with the cycles that we normally tend to see, should drive higher AUPs over time because of the higher density we can attach to these platforms, which in return also drives higher attach on the operational services side. So yes, there is no question in the enterprise has been a unit kind of rollercoaster, if you will. But on telco, it's all positive. And on HPC, it's absolutely all positive because any of these systems we deploy, think about on a exascale system. You will be deploying 2 basketball court field to build an exascale system, which if you stack all the servers together, will be taller than El Capitan Mountain in the Grand Canyon. And then basically, we'll be able to process because of our technology with interconnect and so forth and the software with the cloud-native solutions, 1 billion-billion transactions per second. So it's a 1 billion square transaction per second. That's a lot of servers. That's a lot of memory. That's a lot of storage that goes with it.

All right. So AUP gains offsetting maybe the whatever unit volatility we end up getting over time?

Yes. And obviously, we can...

And HPC, of course.

Exactly. And HPC is all growth and telco's all growth. I think we have to see what the commodity prices are going to do, right? Right now, it's a little bit hard to see, but we tend to see an inflationary commodities pricing over time because of the demand and some of these will be phone-driven and PC driven, which cascades into the enterprise as well.

Yes, it looks like those commodity suppliers are rushing to bring capacity on sort of capacity.

Yes.

Okay. So that's helpful. How about storage? Let's talk about storage a little bit. You've been seeing increasing momentum there. Could you talk about the opportunity of your market share gains? Some of your competitors like NetApp has very openly talked about gaining market share as other major players in storage are going through product transitions. What do you think about your prospects there?

Yes. We have a unique portfolio, right? So it's a history of 2 decades of portfolio through organic and inorganic acquisitions, right? So we actually believe with -- we are not a direct competitor to NetApp because NetApp plays into what we call the file space. We play in the block space. A more direct competitor is obviously Dell with the VMAX and all those solutions and Pure versus NetApp. That said, what we see right now is a transition on architectures. And so our strategy is to pivot our entire portfolio to Software-as-a-Service because it supports not only the way customers are deploying data services. So don't think to think about it just storage as an appliance, but think about as an intelligent data platform. And in that, be able to orchestrate the right data service for the right workloads, whether it's block, file or others, in that way, object, obviously, particularly for cloud-native workloads. But in that context, we have been pivoting our portfolio to Nimble and our new platform called HPE Primera. And both are showing tremendous growth and momentum. Primera is the most intelligent data platform. It is, at the core, an operating system that's completely designed from the grounds up with AI. And just to give a sense, that platform is growing triple digits already and over 3 million hours with 0 downtime, which we guarantee 100% data availability, one single touch upgrade and then a consumer-grade experience when you deploy, which is generally storage platforms are very complicated. In that sense, we see traction. And obviously, we saw tremendous traction last quarter with hyperconverged, where we gained tremendous market share. And we are now the #2 vendor ahead of Nutanix, which Nutanix, as you know, was born as a hyperconverged platform, and they are trying to pivot to become more a SaaS vendor. But in that, we took advantage of that momentum. And now we are the #2 vendor behind VMware with VxRail. So we see that shift. What I'm really excited, Rod, is that what you're going to see in the next 6 months is a ton of innovation around data services that also fuels our HPE GreenLake offering because that's a source of growth for ARR as well.

Give us any hint on what kind of innovation you're talking about there?

Well, it's not that complicated. You will be able to deploy data services from the cloud, whether on-prem and off-prem. I mean -- and that's because we have a very diversified portfolio. And we are bringing that actually, Rod, as a context of that edge-to-cloud architecture. So it would be compute the same, by the way, general compute provision from the cloud with fully automation, storage with data services. We already have HPC as a service. And then we have not yet spoken about the edge, which to me is the bullish case for Hewlett Packard Enterprise is what we are doing with our Aruba platform because every step to digital transformation starts with seamless secure connectivity.

Do you -- as you talk about the edge, do you intend to add more compute capability out at the edge with Aruba? And maybe could you -- since you brought it up, could you talk a little bit about that?

Yes. Listen, I'm incredibly bullish about the edge. We have done a very good job in building a differentiated cloud platform. Aruba is the first acquisition I did in 2015. And the thesis there at the time was to combine wireless and switching into a common architecture. We did a reverse integration. So when I brought Aruba into Hewlett Packard Enterprise, we reverse integrated our switching into their business. And then we added functionalities and experiences along the way, which resulted in the introduction of what we call Aruba Edge Services Platform, which is a cloud platform which allows you to provision and life cycle manage any type of connectivity that you need for any type of use case, including the IoT scale. So whether it's provisional or remote access point for your home or an access point in a campus or branch or a switching, or a wireless -- or sorry, a wide area network. And we introduced in 2019 the SD branch solution. But as you know, in September, we closed the acquisition of Silver Peak, which is a pure SD-WAN for the enterprise, which will allow us now to connect all the edges and all the clouds in a software-defined and autonomous way. Because as more cloud-native applications are developed, you don't need to manage that traffic through the fixed networks. You go through the Internet to the cloud. And now we have a complete portfolio. So what is our next step? Over the next 12 months, you're going to see the integration of 5G in the same control plane because customers want the same way to manage and provision, in particular on the policy side, a wire port, a wireless port or a 5G port. And that's important, particularly for verticals like manufacturing, transportation as obviously, the number of clouds at the edge will grow exponentially. So we're going to do that. And then we already have the ability to provision an edge compute in the form of cloud also from the same platform. But we're going to verticalize those offerings because the edge compute may be different or manufacturing where you bring the OT and IT worlds, the physical and digital worlds together, which you already have a platform called HPE Edge Line. Or whether it is just a standard virtualized or containerized platform at the edge maybe in a warehouse or a -- or maybe in an oil refinery type of thing. So those are the 2 big things you're going to see. What we are doing is taking that cloud architecture that Aruba gave us in a native way and extending it to the core business. This is where I said earlier, you're going to see the solution with storage built on the same platform and then also with compute with the same platform. But ultimately, all benefit is supporting the as a service pivot with GreenLake.

Okay. Great. One thing on Intelligent Edge, and I want to make sure we hit on cash flow before we end. There's a lot of people interested in your cash flow. Intelligent Edge, it's been -- you've targeted 6% to 10% CAGR, though, just putting this in numbers, has been declining. You look back and talk about why maybe that's been a little bit disappointing, what -- you've kind of identified the things changing in the future that probably ought to accelerate that momentum. But why has that performance not -- maybe not lived up to what you had hoped historically?

Well, I think it was market-driven. I mean listen, if I look at our competitors' performance, even though they don't break it, obviously, what is our biggest competitor is Cisco. And last quarter, they declined 16%. And they own more than 50% of the share. So -- and we actually grew last quarter our business, and we believe we gained share again. So -- but as I think about now the demand environment and particularly what we are seeing the growth areas, I am very bullish about this business growing and delivering a strong growth performance, particularly with the inclusion of Silver Peak. But we should, say, expect organic growth and then Silver Peak comes on top of it. And that's because now, we have an integrated platform and we are winning clearly in the enterprise. And as we go down market, we should be able to win even more business where we already have strong presence, particularly in verticals like health care, entertainment and higher education, which are very important. Listen, the signature deal for us was last quarter, the win at Pentagon. We were already the wireless vendor. And now we won the wire because of that integration in the platform.

Great. Okay. All right. Let's talk about free cash flow. That's a -- one of the most popular questions we get on Hewlett Packard Enterprise. So we were forecasting just over $1 billion now in this current or coming fiscal year. We know that there were -- and that's up a little bit off last year, but quite a bit actually, and there were one-off impacts last year. But we were thinking the sustainable free cash flow in this business was $1.6 billion, $1.7 billion. Can you help us understand -- one of the things that's really hard for investors, I think, is to understand what this real sustainable free cash flow in this business is, given all the volatility that we've seen and the fact that we're only looking at maybe $1 billion in this coming year.

Yes. So we expect this year to be a little bit north of $1 billion, which is more than 40% year-over-year growth as we execute our Project Accelerate, which is something we announced at the end of Q2. We felt at the time, based on the pandemic, our ability to go transform the business was unique in areas where we feel we can do a better job in automating and simplifying the company. That's on the heel of HPE next, which obviously had a lot of work done around the IT systems and the supply chain, but it still had tremendous opportunity to optimize the footprint, particularly in real estate and business processes that we feel that will free up also capacity to reinvest in these areas of growth that we just talked about it. Generally, I agree with you, this business should be in the 1.7, 1.8 business, and we feel that is totally achievable, and we will deliver that by the end of 2022 as we committed at the Securities Analyst Meeting. But as we look at the business going forward, we are, first of all, super committed to return to -- capital to investors in the form of dividend. We believe our dividend is very attractive. And that's something we'll continue to do because that's the first thing we do. And then obviously, use the balance of the cash to continue to invest where it make sense using a very stringent return on invested capital discipline, which I believe we have a track record for over the years, particularly on the M&A side, which as a CEO and I’ve done multiple M&As, combined probably more than 18 acquisitions. And those have been always very accretive to the company in helping us pivot the portfolio. But again, from the free cash flow perspective, confident about what we see in 2021, and we will return to a normalized level by 2022.

Well, you brought up M&A, another popular topic. So do you see M&A -- we've always been curious as whether your business, to us, looks if anything, like it's subscale. That would, to me, be the primary strategic challenge you've got is being smaller scale than some of these other competitors like Cisco, even though we recognize you operate in different environment -- slightly different environments. Is M&A a way to scale up? Or is it more a way to add technology in your opinion?

It's kind of both. But Rod, the way I think about it is as follow. I think about in the context of innovation, right? So innovation has 3 forms: organic, inorganic and through partnerships. So obviously, we have made some very smart investments organically from our own balance sheet to drive growth in these future areas over the years. Partnerships are very important because you can innovate everything. And obviously, when you have a very large channel like we do, it's important we bring them along because that creates preference and stickiness over time. We also have a program called HP Pathfinder, where we invest in emerging disruptive companies where we have the first right of refusal, but we let them to do what they need to do, but yet, we incorporate in our go-to-market in a solution-oriented approach. And we have a very large portfolio of technologies that we continue to curate and support. Great example of this is what we're doing right now with Pensando, which is a next generation of SmartNIC technologies and distributed connectivity that will allow us to provide a unique on-prem cloud secure architecture with our computer storage as a part of GreenLake. And then I think about M&A, how we bring the right intellectual property and talent that we can scale through our go-to-market. And obviously, there is valuations. Obviously, you have to think about it, right? And I will say, the Aruba-like deals or the ones we have done in between has been very good. Now if there is something out there that makes sense, we will always look at it and make the right decision. But as always, right, timing is important. Shareholder consideration is important, obviously. But we use a very stringent return on invested capital, which is something I committed myself, and my CFO, Tarek, and I are incredibly well aligned on this topic. Because scaling is one aspect, but scaling in terms of free cash flow and margins, right? And then obviously, how we drive growth over time is the key area where we move forward, right? So that's what we're looking right now.

You think valuations are overheated now?

Absolutely. There is no question. No question.

[ So waiting ].

I come from the old school that, yes, you have to grow. And for our company, we don't need to grow double digits all the time because, obviously, we are more value-oriented in many ways. But when I look at some of our competitors, not to name them, that actually are not growing as fast as before but losing hundreds of millions of dollars a year, that's obviously something we can't afford ourselves. And so when I look at their valuations, I come from the school -- the old school, you need to make money. At least at some point.

Yes. It's a strange idea, Antonio. I'm not sure...

Yes, exactly. Exactly right.

All right. Great. Well, thank you very much. We're out of time. I really appreciate you spending time with us today.

No, thank you. Thank you for having me today, Rod.

Thanks, Antonio.

Thank you, everyone. I hope everyone is staying safe and well.