Irvin Liu

Irvin Liu asked about the timing of Digital Realty's greater-than-5 GWs of developable capacity becoming available for lease, and if a step function increase in sellable inventory should be expected given the consistent development lifecycle.

Answer

President and CEO Andy Power stated that the development schedule is consistent, with projects often delivered ahead of schedule. He noted that Digital Realty is greenlighting projects into a record $10+ billion pipeline at attractive double-digit returns, activating shells, and adding land capacity, emphasizing that they are replenishing capacity as fast as, if not faster than, they deliver to accelerate growth for both enterprise and hyperscale customers.

Irvin Liu asked about the timing of Digital Realty's greater than 5 gigawatts of developable capacity becoming available for lease and whether a step function increase in sellable inventory should be expected as the year progresses.

Answer

President and CEO Andy Power stated that the development schedule is consistent, with projects often delivered ahead of schedule. He emphasized that Digital Realty is continuously greenlighting new projects, activating shells, and adding land capacity, effectively replenishing capacity as fast as it is delivered, if not faster. He clarified that the schedule reflects an acceleration of the runway for growth for both enterprise and hyperscale customers.

Irvin Liu from Evercore ISI inquired about the long-term financial implications of the new U.S. Hyperscale fund, specifically asking about its potential contribution to fee income and Core FFO per share growth.

Answer

CIO Greg Wright outlined the fund's structure, and CFO Matt Mercier explained the financial impact. He noted that DLR will receive its 20% share of development returns from the up to $10 billion fund, which will ramp over several years. The most significant near-term benefit will come from asset management fees based on committed equity.

Irvin Liu of Evercore ISI asked about the drivers behind the strong pricing for new leases, particularly in the Americas greater-than-1-megawatt segment, and whether any one-off factors were at play.

Answer

CEO Andrew Power attributed the pricing strength to a compounding of demand in the U.S. from enterprise IT, cloud computing, and AI. He specified that recent success was concentrated in key markets like Northern Virginia, Dallas, and Chicago, with Northern Virginia leading in the last quarter. He anticipates this trend will globalize due to data sovereignty needs, positioning the company for future growth.

Irvin Liu asked if the strong backlog and commencement schedule could lead to upside versus the prior 'mid-single-digits' growth expectation for 2025 and how to frame the medium-term growth algorithm.

Answer

CFO Matt Mercier expressed increased confidence in achieving accelerating growth in 2025 and beyond. He confirmed the mid-single-digit growth for 2025 remains a solid foundation, noting the significant backlog ($350M commencing in 2025, $300M in 2026) substantially de-risks the company's growth trajectory and provides a clear path to acceleration.

Irvin Liu sought to understand the rationale behind HP's newly announced company cost savings initiative, questioning if it was a response to higher memory costs or a broader program, especially given the recent completion of the Future Ready program.

Answer

CEO Enrique Lores clarified that the new initiative predates the memory cycle and is driven by the opportunity AI presents to accelerate product development, improve customer satisfaction, and boost productivity. He explained that after two years of pilots, HP is now shifting to specific initiatives, redesigning processes with AI, and expects to achieve approximately $1 billion in productivity savings over the next three years.

Irvin Liu sought clarification on the rationale behind HP's newly announced company-wide cost savings initiative, questioning whether it was a response to higher memory costs or a broader, AI-driven program, especially given the recent completion of the Future Ready program.

Answer

Enrique Lores, CEO, clarified that the new initiative is not a response to memory costs but is driven by the opportunity AI presents to accelerate product development, improve customer satisfaction, and boost productivity. He explained that initial pilots over two years have shown significant impact, leading to a company-wide program focused on redesigning processes with AI, aiming for approximately $1 billion in gross run rate savings over the next three years.

Irvin Liu asked for clarification on whether AI PCs carry a higher average selling price (ASP) or margin profile than standard PCs. He also sought to understand the drivers behind the stronger-than-historical sequential EPS growth forecasted for Q4.

Answer

CEO Enrique Lores confirmed that AI PCs command a price uplift of 5% to 10% compared to similar non-AI models. CFO Karen Parkhill attributed the strong Q4 EPS guidance to expected sequential revenue growth and margin improvement in both Personal Systems and Print. This is driven by the Windows 11 refresh, AI PC adoption, the holiday season, and a seasonally higher mix of Print supplies.

Irvin Liu, on behalf of Amit Daryanani at Evercore ISI, asked about the expected impact on average selling prices (ASPs) and margins as the AI PC mix grows, and how HP is positioned to mitigate potential new U.S. tariffs.

Answer

CEO Enrique Lores reiterated that AI PCs are expected to drive a 5-10% ASP lift in the category once they reach a 40-60% mix. Regarding tariffs, Lores stated that HP has worked for three years to build a more resilient global supply chain, putting it in a strong position relative to competitors. He noted it's too early to speculate on specific policies but the company is prepared to manage the environment.

Irvin Liu inquired about the current macroeconomic environment, asking if Rackspace has observed changes in customer behavior, such as delayed decision cycles or onboarding timelines. He also asked for an update on the evolution of the sales pipeline and win rates over recent quarters.

Answer

CEO Amar Maletira explained that while the company is cautious about the time it takes to convert bookings to revenue, customers are not delaying decisions on transformational projects, as evidenced by strong Q1 bookings and a robust funnel. He attributed the strength to a successful sales organization refresh over the last two years, the launch of new offerings, and a strategic shift to value-based selling in the enterprise segment, which has improved both the pipeline and win rates.

Irvin Liu asked about headcount utilization in light of the strong bookings performance and whether an increase in staff would be necessary. He also requested clarification on whether AI was a meaningful driver of booking strength and asked for a quantification of its contribution.

Answer

CEO Amar Maletira explained that Rackspace uses a 'labor minus' model focused on automation, unlike traditional SIs. While acknowledging a surgical increase in headcount for professional services and data, the primary focus is on improving utilization of existing resources. Regarding AI, Maletira confirmed it was a key driver for data services bookings. He quantified AI's contribution as currently less than 2% of revenue, up from nearly zero a year ago, with a conservative estimate of it reaching over 5% in the next couple of years.

Irvin Liu, on for Amit Daryanani, asked if tariff-related price increases apply to existing backlog or only new orders and what customer feedback has been. He also asked if public safety budgets are shifting to accommodate new AI technology investments.

Answer

EVP and CFO Jason Winkler confirmed pricing actions apply to new orders. EVP and COO Jack Molloy added that services contracts have periodic opportunities for price adjustments and that customers generally expect pricing actions in the current market. Chairman and CEO Gregory Brown clarified that cost reductions, not pricing, are the primary mitigation tool. On budgets, Molloy noted that major cities are appropriating more funds for integrated tech, while EVP and CTO Mahesh Saptharishi explained AI is being embedded to enhance core products, driving value rather than requiring a separate budget line.