Hewlett Packard Enterprise Company (NYSE:HPE) Q3 2019 Earnings Conference Call - Final Transcript
Aug 27, 2019 • 05:00 pm ET
We will now begin the question-and-answer session [Operator Instructions]. The first question comes from Katy Huberty with Morgan Stanley. Please go ahead.
Yes, thank you. Good afternoon. We've heard from some of your peers over the last couple of weeks that lower commodity costs are starting to be passed through to customers in the form of lower ASPs. Can you just talk through how that will influence margins over the next couple of quarters. Can you hold on to the margin benefit from commodity prices or will some of that come out of the model and then I have a follow up.
Yeah, thanks, Katy. For the question. Definitely the commodity prices has started to come down, but I think we had executed with discipline on pricing and cost, and therefore, we are able to hold a lot of that and in the short term, we believe that would be the case. I think about one to two quarters. But at the same time, let's remind ourselves that the content, since you asked the question about ASPs, the content that gets attached to each of the solutions continue to grow. So whether it is memory, sizing or storage sizing continue to grow, while the cost per bit may be coming down, the reality, more overall content gets attached and therefore less impact on AUPs.
But I think, we have done an excellent job in retaining the cost decline through more content attach and better pricing discipline.
And then on...
Tarek has a comment on that.
Katy, hi, I just wanted to add to what Antonio said. There are two effects at play as you point out. One is the tailwind from commodities that Antonio commented on. And it is also the revenue mix shift. The revenue mix shift is really critical to us sustaining the gross margins moving forward. And we are confident that by continuing to grow the areas, revenue streams of higher gross margin, we can maintain the level of gross margins we have overall.
Thank you. And then just as a follow-up on cash flow , you're holding, the full-year guidance despite the over $600 million payment. Can you just talk about what the offsetting positives are to help you hold free cash flow guidance?
Yeah, I'm glad you asked the question. Last time you and I have spoken, you asked us, why we didn't raise the free cash flow guidance if you remember that.
My answer to your prior question was we had a pretty wide range of $1.4 billion to $1.6 billion. So we stuck [Phonetic] to that guidance back then. And now, specifically with the DXC award from the arbitration. We feel that they are essentially three factors that give us confidence to be able to still deliver the guidance at $1.4 billion to $1.6 billion.
Number one, you know that our Q4 quarter is the strongest one from a free cash flow generation. We continue to believe this will be the case