00:00And let's start with that, you know, it clearly there is some staying power in that demand at rack scale,
00:07you know, crystallize it for us.
00:08What are you seeing in real time? Yeah, good morning, Ed, and thanks for having me.
00:14We saw tremendous demand throughout the quarter. I think the momentum in AI continues in the build out of the
00:21data center.
00:22But what I'm really pleased is the momentum we see in enterprise. In fact, most of our revenue in AI
00:28that we recognize in Q1 came from the enterprise segment, which shows you two key elements.
00:34One is the adoption of agentic AI into the company's workflow. And second is the growing of inferencing.
00:41A lot of focus is always around the training and, you know, training these new models.
00:45But for us, our focus has been both the sovereign space and the inferencing and enterprise space.
00:51But in our portfolio, we saw tremendous momentum in networking. Our strategy with Juniors has paid off.
00:58And that's why we see double digits year over year growth in the order intake.
01:03You know, post Juniper networking is upside for you, right?
01:08I think you have a lot of confidence that growth will come in networking.
01:11For the audience that doesn't understand what it is you do in that space, why is networking on the rise
01:17in parallel with just kind of the broader AI hardware demand that you're seeing?
01:23Well, I do believe, Ed, and this was the core thesis of the Juniper acquisition, that the next inflection point
01:30in term of disruption will come from the networking connectivity layer.
01:35Think about when you build a data center, you have to connect this data center to other data centers through
01:41the Internet.
01:42And that's what we call the data center interconnect.
01:45Juniper has one of the most innovative products in the routing space.
01:50By the way, this past quarter, we grew mid-20% in order intake.
01:54And then once you are inside the data center, you need to be able to connect a large amount of
01:59GPUs and CPUs together.
02:02And that's why you need the data center switching portfolio in addition to some of the other core tenants of
02:08the technology.
02:09And there, you know, the Juniper portfolio grew mid-40% in the order intake.
02:14So, I will say, for us, that has been a core tenant.
02:19That's why, you know, now they represent almost 30% of the company revenues, but more than half of the
02:26profit.
02:27And for us, that's also an ability to raise the outlook for the remainder of the year.
02:32And also the outlook in free cash flow, because the structural margins of that business and the working capital efficiency
02:38are very, very different than the rest of the portfolio.
02:41I mean, you actually said, look, you're not done raising prices.
02:43You talk about discipline in what is a very dynamic environment, Antonio.
02:48Talk to us about, well, how you're weathering the supply chain issue, in particular the cost, the memory costs at
02:54the moment.
02:54How do you navigate that?
02:57Yeah, Carol, I mean, obviously, the demand and supply has a huge mismatch.
03:02And you actually need to go back all the 22-23 timeframe to understand how we got here, accelerated by
03:08the hypercycle we see in the AI space.
03:12But fundamentally, in our guidance, the new guidance, the new outlook that we raised for 2026, we included our ability
03:21to see the supply that we need to convert that into revenue and profit.
03:26But the reality is that we do not have enough supply against the order intake and the backlog, because otherwise
03:34we'll have even a higher outlook.
03:36So what we're doing, we have taken three very unique steps.
03:40Number one is securing as much supply as we can.
03:43But again, we don't have all the supply that we would like to have.
03:46Number two is taking a very agile posture when it comes down to pricing.
03:51And as I said yesterday, we are not done raising pricing.
03:55I think that that cycle will continue well into 2027, although we will hope that we will reach some sort
04:02of elevated pricing stability in 2026.
04:06And number three, you know, my experience has taught me that ultimately you need to have direct, transparent conversation, both
04:14with customers and our partners.
04:15Last week, I was in Europe.
04:17I met more than 20 customers at the Mobile Congress in London.
04:21And they appreciate that level of transparency, understanding the environment we're in.
04:25I mean, you're actually foregoing supplying some equipment to mobile service providers.
04:29So you're being choosy with who you work with.
04:32At this time of geopolitical angst, and when we question how much the Middle East is going to be able
04:37to build out the data center capacity, as we'd once thought,
04:40has the Iran conflict impacted your view on the world or indeed the supply of the world and chips?
04:48Not on the supply side, Carol.
04:50And obviously, our first priority, because we have businesses in that region, whether it's EUE, Qatar, Bahrain, South Arabia, Israel,
04:58right, is the well-being, the safety of our employees.
05:01We have approximately 1,000 employees in that region.
05:05And the good news, all are doing well at this point in time.
05:08But from a supply perspective, no.
05:12But obviously, as the conflict may get elongated, it may have other implications, particularly on the logistics side of the
05:18equation.
05:19You know, look, air freight routes are a little bit more complicated.
05:23We don't use boats or ships for transporting our equipments.
05:29But over time, we have to assess if there is a revenue impact.
05:33What I can tell you right now, there is even more demand than we saw, particularly, you know, three, four
05:39months ago.
05:40So we have to navigate that together, and we have to be smart about it.
05:44Antonio, you have never let me tear apart an HPE server, and that's okay.
05:49But if I got my hands in the compute tray, you'd have the high bandwidth memory around the GPU, wherever
05:54it comes from.
05:55You'd have the DDRs around the CPU.
05:58And somewhere, you'd have the SSDs, NAND, flash memory.
06:01Be very, very specific.
06:03Of those three, what's the biggest impact to you right now in constraining your sales and your outlook?
06:10Very simply, it's DDR and NAND, or the SSDs.
06:15HBMs, less constrained, but obviously a lot of the allocation on the capacity has moved there.
06:21And as you know, there is also transition from the prior generation of HBMs to the new generation of HBMs
06:28because you need more memory channels.
06:30But it's really the DDR4 and 5, which now nobody almost uses, but DDR5 and the NAND part, which is
06:38the SSDs.
06:39You said just earlier, look, one of the three key steps you took was to get as much supply as
06:45you could and to ensure that that was locked in.
06:47You wish you could have more.
06:48Who is it that you need to push more?
06:51Who is it that you need to have more security for?
06:53Or how can you perhaps get hands-on further supply going forward?
06:57Look, we have a long-standing relationship with the three core suppliers that provide DDR memory and HBMs.
07:07And there is a little bit larger ecosystem for the NAND space, but we're having weekly engagements with them.
07:14We are looking to swap components, drive in different configurations.
07:20But the reality, all of them are significantly constrained, Caroline.
07:24Antonio, just 20 seconds.
07:26What's the dollar figure, dollar terms of what was left on the table?
07:30How much better the outlook could have been?
07:33Yeah, it's pretty sizable, I will say.
07:36You know, we guided five pennies on the midpoint of the range.
07:42And then we raised our outlook for free cash flow by almost 200 million at the midpoint.
07:49But the backlog is very, very large.
07:51At this point in time, if you think about the AI system backlog, it's over $5 billion.
07:55We raised, again, the networking for networks for AI goal for the end of the year.
08:01So it's a very sizable backlog.
08:03So we hope we make progress as we go along.
08:06But we categorize, we level this as a prudent guidance at this point in time.
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