Hewlett Packard Enterprise (HPE) is set to acquire hardware manufacturer Juniper Networks (JNPR) in a deal that is valued at up to $14 billion. HPE CEO Antonio Neri joins Yahoo Finance's Seana Smith to discuss the networking company's growth, especially in its cloud segment.
"So there's a lot of room to grow, but this is the first time in the company's history that we will have all the capabilities to participate in the entire total addressable market," Neri explains. "Generally speaking, that doesn't happen, nobody participates in the sleeper of the market, whether it's the bottom or the top or the middle. Now we have everything we need to compete in a $180 billion. We own all the IP to really deliver these AI-driven solutions."
Neri also comments on HPE's cooperation with antitrust regulators, ultimately anticipating no issues.
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SEANA SMITH: HP is reshaping its business with a massive deal to buy Juniper Networks, a move that will accelerate HPE's AI innovation. Here with that and more, we want to bring in Antonio Neri, CEO of HPE. Antonio, congratulations. Thanks so much for taking the time to join me here today.
ANTONIO NERI: Thank you, Seana. And thank you for having me today.
SEANA SMITH: So let's talk about this deal because it is the biggest for HP under your leadership. Why does this deal or why is this deal a game changer for not only your business at HPE, but the industry at large?
ANTONIO NERI: Yeah, I think it's a defining moment not only for HP, but for the networking industry at large. We are living an amazing times where AI is a massive inflection point. And we truly believe the networking architecture of the future has to evolve to accommodate the high demands of these AI-intensive workloads.
So HP has been on the forefront of AI with our supercomputing business. We have been at the forefront of the cloud journey with our hybrid capabilities with HP GreenLake. And now with this acquisition, we have the core tenant of the new architecture to deliver the capabilities to build and deploy these large AI models. So super exciting, but at the same time I'd say, Seana, is a very, very accretive to our shareholders. And that will drive long-term value for them as well.
SEANA SMITH: Yeah, Antonio, before we get to the reaction from shareholders and from Wall Street, I want to ask about just this for you personally. Because just leading the transformation of this legacy tech giant, what has that been like and more importantly, why this deal makes sense right now?
ANTONIO NERI: Well, it has been almost six years since I've been CEO, but I have been with the company 29 years have been a journey of a life, I would say. An amazing company with an amazing culture and an amazing talent. My job is to create value for shareholders, but at the same time make the company relevant.
And as I think about the journey in the last five years, I declared that the enterprise of the future will be edge centric, cloud enabled, and data driven We invested at the edge. We turned that business into a powerhouse. We grew the business in the last year almost more than 30%. Now, represent 18% of the company revenue.
We established the hybrid cloud platform with GreenLake. We have now 29,000 customers on the platform. And we have now a massive opportunity with AI because we have the capability to process data at scale. In fact, HP today owns the largest supercomputers in the world with a performance of exascale.
But now with this transaction allows us to really be in the center of that transition with an intellectual property and talent at scale that's very unique. So personally, it has been an amazing journey. I'm super excited, but obviously proud of what the team has accomplished here.
SEANA SMITH: Antonio, talking about that scale, this deal really creates an AI networking giant. How quickly do you think you will be able to take away some of that market share from rival Cisco?
ANTONIO NERI: Well, let's talk about the market, Seana. I mean, the market is $180 billion market. On a combined basis, the company will be in the networking business $11.5 billion.
So it's only 10%. Think about it. Even though it's a large transaction, so there is a lot of room to grow.
But you know what, this is the first time in the company history that we will have all the capabilities to participate in the entire total addressable market. Generally speaking, that doesn't happen. Normally, you participate in a sliver of the market, whether it's at the bottom, or the top, or the middle.
Now we have everything we need to compete in the $180 billion. And we own all the IP to really deliver these AI-driven solutions. So this is a major inflection point for the company. But I will say it's good for customers because they're going to get a modern architecture and a different choice and for our shareholders because the position has to deliver long-term profitable growth.
SEANA SMITH: And Antonio, let's talk about the positioning here for shareholders because there has been some criticism of the deal. UBS was out with a note this week saying that maybe shareholders would have preferred a larger buyback versus this acquisition. What are critics missing?
ANTONIO NERI: Well, I mean it's all a matter of expectations, Seana. I will say, as I think about the last five years, we have returned almost $10.5 billion of capital to our shareholders. In fact, we delivered to the penny all our commitments, including the spin off that my predecessor did. And if you think about that return in between '18 and '19 was almost $7 billion. Obviously, we went to the COVID and the recovery period.
But that didn't do anything. It didn't do anything for in the long term. In fact, our P multiple was reduced dramatically. And we need to continue to invest in the business, so that we can deliver more value. If you think about the commitment from 2024, we are committed to return 65% to 70% of the free cash flow that we generate to shareholders.
We actually increased our dividends by almost 8% starting in 2024. And this creates even more free cash flow that down the road we can return to shareholders, but in a more sustainable way. So I can't think just short term, but our fiduciary duty is to understand what is the best use of our capital for our shareholders that create value in the long term.
And the use of cash at this point in time on this transaction was the better use than just doing buybacks because we understand in the long term doesn't do anything. So it's a matter of expectation as they understand the deal, they understand the opportunity in the upside. We think this is going to be well understood.
SEANA SMITH: Antonio, the antitrust discussion has come up a few times since you announced this deal. I know that you have said you're not worried much about facing any pressure here from regulators. Why aren't you worried about any pushback on antitrust concerns?
ANTONIO NERI: Well, you know, obviously, we're going to work with our regulators as we always do with any transaction small, medium, and large and collaborate with them with all the information they need. But we don't anticipate any issues. The reality is that when you look at the combined company in the networking business, it's still smaller than the largest networking vendor on the market today.
When they look at the customer interest, I think they're going to understand this is a better solution for our customers. So in the grand scheme of things, we don't anticipate any issues, but we're going to collaborate with them. And we expect this deal to close between 9 and 12 months.
SEANA SMITH: Antonio, before we let you go, I want to ask just about your personal thoughts about some of the risks associated with AI given the fact that this deal you will now be a larger player within the AI space. How are you looking at-- I guess what are some of your biggest fears, when it comes to the future of AI? And what are some of the steps that you're taking in order to mitigate or limit some of those risks.
ANTONIO NERI: Yeah. Well, I believe AI is going to be the most disruptive technology in a lifetime, at least in my lifetime, you know. I think it's going to be bigger than web 1.0 or mobile was at the time. It's going to change the way we live and work. There is no question about that.
At the same time, I'm very optimistic about what we can do with this technology. But we have to be responsible and sustainable along the way. And so when I talk to our customers, they're all excited about the potential. But they're equally concerned about privacy, the leak of intellectual property, and the use of AI in a responsible way. And also, remember, that AI has a huge impact on the carbon footprint because it requires massive amounts of computational power.
SEANA SMITH: Antonio, always great to have you. Once again, congratulations on this deal. And thanks so much for taking the time to speak with us here at Yahoo Finance.
