Good afternoon, and welcome to the First Quarter 2017 Hewlett Packard Enterprise Earnings Conference Call. My name is Denise, and I’ll be your conference moderator for today’s call. At this time, all participants will be in listen-only mode. We will be facilitating a question-and-answer session towards the end of the conference. [Operator Instructions] As a reminder, this conference is being recorded for replay purposes. I would now like to turn the presentation over to your host for today’s call, Andy Simanek, Head of Investor Relations. Please proceed.

Good afternoon. I’m Andy Simanek, Head of Investor Relations for Hewlett Packard Enterprise. I’d like to welcome you to our fiscal 2017 first quarter earnings conference call with Meg Whitman, HPE’s President and Chief Executive Officer; and Tim Stonesifer, HPE’s Executive Vice President and Chief Financial Officer. Before handing the call over to Meg, let me remind you that this call is being webcast. A replay of the webcast will be made available shortly after the call for approximately one year. We posted the press release and the slide presentation accompanying today’s earnings release on our HPE Investor Relations webpage at investors.hpe.com. As always, elements of this presentation are forward-looking and are based on our best view of the world and our businesses as we see them today. For more detailed information, please see the disclaimers on the earnings materials relating to forward-looking statements that involve risks, uncertainties and assumptions. For a discussion of some of these of risks, uncertainties and assumptions, please refer to HPE’s filings with the SEC, including its most recent Form 10-K. HPE assumes no obligation and does not intend to update any such forward-looking statements. We also note that the financial information discussed on this call reflects estimates based on information available at this time and could differ materially from the amounts ultimately reported in HPE’s quarter report on Form 10-Q for the fiscal quarter ended January 31, 2017. Finally, for financial information that has been expressed on a non-GAAP basis, we have provided reconciliations to the comparable GAAP information on our website. Throughout this conference call all revenue growth rates unless noted otherwise, are presented on a year-over-year basis and beginning with fiscal year 2016 are adjusted to exclude the impact of divestitures and currency. We believe this approach helps provide a better representation of HPE’s operational performance, given the significant divestitures we’ve recently completed, including the sale of MphasiS, 51% of our H3C business in China and TippingPoint amongst several others. Please refer to the tables and slide presentation accompanying today’s earnings release on the website for details. With that, let me turn it over to Meg.

Good afternoon, everyone. Thank you for joining us on the call today. Let’s start right in. Overall, as I look back on Q1, I’d say our performance was mixed. I was very pleased with our non-GAAP net diluted EPS of $0.45, at the high end of our previously guided range. We delivered normalized free cash flow of $200 million, a $500 million improvement year-over-year. And we saw strong performance across key growth areas of the portfolio. However, we also encountered some unexpected headwinds during the quarter. We saw several external factors impacting our performance that will become more challenging through the remainder of fiscal 2017, and we came up against some execution related problems that we are now fixing. Let me talk a little bit more about the challenges we saw in the quarter and how we think about them. First, we faced a significant challenge on both the top and bottom lines from foreign exchange rates, particularly the strengthening of the dollar versus the euro and the yen. We were able to largely address the impact on our profitability in Q1 with our hedging strategy. However, we expect the continued strength of the dollar as these hedges roll off to present a significant headwind for the remainder of the year. Second, we saw an impact from a challenging industry wide commodities market, particularly tight NAND supply which impacted sales in our storage and compute businesses and elevated DRAM pricing. We were able to mitigate a portion of the impact in Q1 through procurement strategies. However, we expect that the increase in DRAM pricing will accelerate and create near-term challenges to our profitability. Third, revenue was impacted by a tough market environment, particularly in core servers and storage. We saw a significantly lower demand from one customer and major tier…

Thanks, Meg. As is said earlier, our overall performance in the quarter was somewhat mixed. We did drive solid growth in our higher margin businesses and continued to align our cost structure, which enabled us to deliver better operating profit versus the prior year. However, we also faced increasing pressures from currency, commodities pricing and soft markets in addition to the execution issues Meg discussed. In total, revenue of $11.4 billion was down 4% when adjusted for currency and divestitures. From a macro perspective, we continue to see an uneven global demand environment. Performance in the U.S. was impacted by tough markets, particularly in servers and storage. Revenue in Europe continues to be weak, driven by the UK public sector. APJ was mixed with good performance in Japan, more than offset by broad softness in the rest of Asia. Currency movements were unfavorable throughout the quarter, which resulted in a year-over-year impact of revenue of 140 basis points. Gross margin of 28.9% was up 50 basis points year-over-year but down 150 basis points sequentially. The year-over-year improvement was primarily due to continued progress on the offshore labor mix of Enterprise Services. The sequential margin drop was driven by normal Q1 seasonality in ES and software. Non-GAAP operating profit of 9.2% was up 110 basis points year-over-year but down a 190 basis points sequentially. Non-GAAP diluted net earnings per share of $0.45 was at the high end of our outlook of $0.42 to $0.46. Non-GAAP diluted net EPS primarily excludes pretax amounts for separation charges of $276 million, restructuring charges of $177 million and amortization of intangible assets of $111 million. We delivered GAAP diluted net earnings per share of $0.16, above our previously provided outlook of $0.03 to $0.07, primarily due to lower than expected separation and restructuring charges. Now,…

Thank you. We will now begin the question-and-answer session. [Operator Instructions] The first question will come from Sherri Scribner of Deutsche Bank. Please go ahead.

Hi. Thank you. If I look at the server and storage performance this quarter, the numbers were pretty disappointing, and there seem to be a pretty significant deceleration. I think the bears would say that the cloud model is taking more share and that’s pressuring your core business. Can you maybe comment on your view about how much the cloud is impacting your server and storage business?

Sure. So, listen, I think the cloud is impacting our server and storage business, but no more than we thought at the beginning of the year. And really, if you look at the server business per se and our results, within tier 1, we had a much lower demand from a single large customer that I discussed on the call. And we were also more selective around focusing on profitable deals. And the good news is that helped server margins year-over-year but it did depress the revenue a bit. I think we did deliver strong growth in a number of our higher margin, better attach areas like high-performance compute, mission critical systems and the addition of SGI. And the good news is we also have some things coming up that I think will mitigate that decline. We’re ramping our Synergy offering, we’ve got the power of SGI and our high-performance compute that was part of HPE. We are also pursuing alliances very aggressively. When we owned ES, yes, we did some business with Accenture and Capgemini and the Indian firms, but they were always quite vary of us because they viewed us as owning a competitor. As ES gets spun off, there is a lot more opportunity for us to do business with those partners. And I think that will help mitigate the decline. So, listen, I mean, I’m optimistic that these actions will enable us to stabilize servers in FY17. I’ll also say that Synergy is important because Synergy allows us to provide on-perm private cloud alternatives at public cloud economics, both the total cost of ownership as well as the consumption based pricing model. And we’ve seen a number now of customers move workloads off the public cloud back into an on-perm datacenter because it’s more cost effective. So that’s the server apart. Storage was challenged, I think by a continued contraction in traditional portfolio. Remember, we still have tape and some very old storage products that are in decline. And we also were impacted by SSD supply constraints. But on the positive side, all-flash grew almost 30% and would have been considerably higher than that without the SSD supply constraints. And then, we also announced a simplified pricing model and bundled compression offerings with 3PAR that was previously actually a competitive hole in our product. So, I think we’ve got -- one last thing is of course with the SimpliVity acquisition, we got now a whole new group of storage sellers where we can have broader market coverage, and we’d become a more scale in that area. So, listen, there are real pressures, no question about it, but I don’t think particularly more than we thought there was going to be in the quarter.

And then, just as my follow-up. You took the full-year guidance down by about $0.12, but if you look at the first half, it doesn’t seem like there was that much impact to the first half whereas most of the impact will be in the second half. Can you talk about the linearity of the FX impact and the commodity impact that you guys mention as being part of the takedown in guidance. Thank you.

Sure. So, if you look at FX as an example, we have a rolling hedge program, we do that by country; we do that by product. So, what you are seeing is the hedges that we put in place, call it six to nine months ago, which were favorable as they were all rolled up in Q1. So, there was no real impact from an EPS perspective driven by foreign exchange. And then when you look at DRAM pricing as an example that increased about 50% in the month of January. So, again, we had some supply built up or it’s an inventory built up, so you don’t see the full effect of that. So, you will see both, the FX and the commodity pricing flow through the rest of the year. Now we’re going to try to price for some of that; we’ve gone out with price increases; and it’s really a question of what would the impact be to demand and what would be the competitive response. So, you will sort of see a flow through I would say, and sort of typical seasonality.

Sherri, let me add one thing about EPS takedown of about $0.12. So, when you think about commodities and you think about foreign exchange that was about -- we estimate about $0.12 of degradation. And the decision we had to make is did we want to cut $0.12 more of cost out of our cost structure. And as you all know, we’ve been taking a lot of cost out of this Company over the last four and a half years. And my view was, we’ve got very good investments in field selling costs, in innovation, in automation, in IT, that it’s going to put us in very good stead for the long term. And I did not think it was the right thing to do to absorb all of that commodities and foreign exchange degradation by cutting more costs into what I think are going to be very high return on -- return on investment projects. So, we decided actually that the best long-term thing for the Company was to not cut into bone and meat.

The next question will come from Toni Sacconaghi of Bernstein. Please go ahead.

Yes. At your Analyst Day and also on your earnings call at the end of the year, you provided three sets of the guidance, one for HPE as is which quite frankly is completely irrelevant at this point, given that you’re going to be spinning off services, and you also provided guidance of $1.45 to $1.55 for the current year and $1.25 to $1.35 in EPS for Remain Co. Can you provide updated guidance for Remain Co go forward and current year? And I guess the question is, given that the erosion appears to be all in the Enterprise Group, in fact software and services were better than my numbers, should we be thinking about lowering the current year $1.45 to $1.55 by $0.12 and thinking of Remain Co earnings thereafter as being notably lower than the $1.25 to $1.35, and why not?

So, let me take a cut at that. So, we did guide the $2 to $2.10 as a combined company, because again similar to prior practices, until we actually separate, we will provide that outlook and then we’ll adjust that outlook once the transactions have closed. So, to your -- to one of your questions around the as reported guide, the takedown would apply to that, so the $1.45 to $1.55 would go down by $0.12 on both ends -- in terms of the range. And again, that’s primarily driven by the FX, commodity pricing and some execution challenges. When you look at the $1.25 to $1.35 number, from an ongoing perspective, because obviously we’re not going to report that guide on a quarterly basis, it does have the 2017 assumptions in there. I think you’ll still get within that range longer term. It really depends on how those price increases that we’ve executed, how those take. So, the more that they take, you’d be up at the higher end of that range; if they don’t take given demand or competitive response, you’d be at the lower end of that range.

And then, just to follow-up, if I go back to when you last reported earnings in late November, the currency bundle really hasn’t changed much. And I appreciate that DRAM pricing has changed in the month of January. But, I think most people were aware of a much-tougher commodity environment in November, in fact your sister company HPQ had been calling that out before November and it made provisions to adjust for that, both in pricing and in building inventory. So, I guess the question is, the only thing that really seems new or that you shouldn’t have known about, was either the market changing or execution. Did you -- were you aware of this? I’m sure you were aware in November; did you just think you could overcome them and that’s why you didn’t update your guidance at the end of November or should we really be thinking that the market and your execution are really what the material differentiators are in terms of your choosing to lower the guidance now as opposed to in November when at least two of the forces were very apparent?

Yes. So, I’ll address that one and Meg, you can jump in here if you would like. So, let’s start with FX. I think to your point, we guided in October for the full year 2017 outlook at SAM. So, at that point in time, the euro was trading at call at 1.10; and the yen, which has another significant impact was trading at about 103. When we came out on the fourth quarter earnings call, we did highlight that there was some pressure. So, we got a question, I can’t remember who asked it. And we said yes, rates are less favorable than they were. I think at that point in time, the euro was about 1.06 and the yen as was at about 110, 111. But given the fact that we were three weeks into the year, given the fact that we were rolling into a new administration in the U.S. and we weren’t quite sure how that was going to play out, as well as the fact that we had hedges in place that protected the first quarter, we decided to continue to monitor the currency environment, we would make some operational changes that we thought were appropriate. And that’s why we didn’t change the guide down. As we sit here today, we’re now five months into the year, and that euro is still sitting at about 1.06; the yen is still sitting at about 112. So, we felt it was prudent to adjust our guide now. And it’s really -- it was a cognitive choice that Meg alluded to, is we had choices that we evaluated and we decided this was a prudent thing to do, so we could continue to drive the strategy, we continue to make the strategic investments that will drive long-term value. So, that’s the foreign exchange piece. And then, on the DRAM piece, those prices spiked in January, about 50% in January. We did do some advanced purchases in the fourth quarter but there was only so much you could buy because everybody sort of was facing the same thing, and there is only a limited amount of capacity. So again that’s why you didn’t see a lot of that pressure in our Q1 EPS because we were using inventory that we bought at lower pricing. And that’s something that will continue to play out in Q2, Q3 and Q4. I mean, it depends on how the capacity comes on line. And we really don’t see the foreign exchange changing drastically as we go forward as well. So, hopefully, that answers your question.

The next question will be from Kulbinder Garcha of Credit Suisse. Please go ahead.

Just a couple of clarifications really, maybe for Meg. I think you’ve talked about your TAM growing to 2% to 3% and at constant currency, backing out acquisitions et cetera, I think you’ve hit a growth rate in that range or above that range about half the time since separation and half the time that hasn’t been possible, since you’ve separated. And that’s a reasonable amount of time now. I’m just wondering, do you still believe in that growth that the industry participants, do you think HPE can consistently hit those numbers? Does something maybe have to change on the M&A front to accelerate that growth in the revenue side? That’s kind of my first question. And then, the second one on restructuring and cost savings, the fact that you’re choosing not to take more cost out given the current challenges that you’re seeing, is this -- does that also tell us that the efficiency drive and the inefficiency that HPE may have had in its cost now and it’s going to be much more difficult balancing act between projects you want to keep and eliminating this redundant cost?

Yes. Okay. So, let me address the growth question. I think you’re probably right that we’ve grown about the half the quarter since we separated. And you’ve got to look at first what is going to be the go forward Hewlett Packard Enterprise as opposed to also the whole company because in much of the last year, obviously Enterprise Services was more of a drag than EG was. But, let me answer the question about go forward Hewlett Packard Enterprise 2017, which is EG plus HPE Financial Services. I would say, yes. I think we can return to growth but there is one caveat that I would make and that is a single tier 1 service provider who was a big customer of our, slowing down orders dramatically. But for the rest of the business, ex that large single tier 1 service provider, I think we’ve set ourselves up well to be prepared to tackle the future. I like our portfolio. We’ve really reshaped this portfolio both inorganically as well as organically. I think you should feel very good about TS. Remember, over the last three or four years, there was a lot of question, could we return TS to growth? And orders precursors revenue we’ve seen orders grow and the last couple of quarters you’ve seen revenue grow and orders grew again this quarter. So, we’re very confident about the TS growth rate, and of course that happens to carry a much higher margin than our infrastructure products. Aruba continues to do very well and as I said, some of our other high growth areas. So, I’m going to say yes, with the possible exception of the tier 1, the single tier 1 service provider and that could throw us into slightly negative growth for 2017. On the cost out, so, listen, we have taken a lot of cost out of this Company. We’ve improved the efficiencies, the business process reengineering. And by the way, embedded in our forecast for 2017 is all the reshaping that we did around Remain Co; costs are coming out. We’ve totally reshaped how that business is run with far fewer layers and much more efficiency. So that will continue. I do think after we’re separated, there’s going to be potentially some more cost to come out. Right now, we’re carrying almost the full IT load because the IT team is doing all the separations. We’ll skinny down IT. Obviously some of IT will go to software, some will obviously go to CSC. So, I think that will help us. And then there’s some other things that we can go after, but I have to say, quite honestly, the low-hanging fruit is gone.

Yes. Just to elaborate on that a little bit, if you look at our OpEx for Q1, we were down year-over-year about $340 million. Now, granted, we have the TippingPoint divestiture, so I’ll call it from an operational basis, it’s roughly $220 million. So, we do have a lot of cost takeout in the plan; we’re executing upon that. I think when we get to -- when we talk a little bit about this at some point, when you get to the Q4 of 2017, we do this benchmarking as an example on all of our functions. From a run rate perspective, we’ll be at that benchmark, except for the IT and the real estate component. So, again, it takes us a little bit of time to get through these separations and then we can really zero in on the IT and the real estate front to continue to capitalize on those savings. But, I think our view is there’s always opportunity for cost, it’s just a question of how much and how quickly can you take that out. And right now, we feel like we’re taking out quite a bit of cost.

The next question will be from Steve Milunovich of UBS. Please go ahead.

Hey, Meg, could you talk a bit more about these management changes? You mentioned the Head of Sales -- the Head of TS, who I thought was supposedly doing a great job; you’ve always spoken very highly of him, and all these GEOs. I mean, it seems to kind of coincide with the spins-offs but I don’t know why that would affect a lot movement around EG. So, maybe you could talk about some of the individuals involved and why all the changes?

Sure. So, remember, as we go forward as Remain Co, if you will, which is EG plus HPE FS, we need to set up EG to be a very lean and cost effective competitor because this way in Europe we compete against the Chinese, obviously this is a very, very competitive market. So, we wanted to reorganize ourselves in a way that we thought would be much more cost effective and more efficient. And the first was, we appointed Peter Ryan to be the new Head of Global Sales. We’ve actually never had a Head of Global Sales. He is now the Head of Global Sales and he has got three new regions heads, Jim Merritt, who used to be in Asia and did a fantastic job for us in Asia, has come back to the United States; and then we promoted Andy Isherwood to be the Head of Europe, who filled in behind Peter Ryan because he had been Head of Europe. So, I’ve got three new region heads plus a new -- Peter being a new Head of Global Sales. They are not new to HP, but they are new in their roles. Secondarily, we have now real plans to grow TSS, which is our Technology Services Support business as well as TS Consulting. So, Scott Weller still runs TSS; Rafael Brugnini still runs TSC, but we have hired someone to take both of those businesses and really drive growth overall in the services business because we’ve got to grow our advisory and transform service; we have to grow our support services business as we have in the past, and there is a lot of opportunity in some of the new products, particularly around Flexible Capacity Services. So, we hired a new executive named Ana Pinczuk, who is…

And I wouldn’t, I mean, this doesn’t go under the org change category, but I wouldn’t underestimate at the local level the impact on the country leaders which obviously do a lot of selling for us. I mean, when you do a separation like this, you have to go out and speak with customers, you have to explain to them the ES separation from HPE; you have to deal with workers’ councils that they are going to be any organizational changes. So, there is quite a bit of work that kind of ripples through the organization.

And we’ve got two separations going on now at once. And I’ll add one more thing. When we separated HPI from Hewlett Packard Enterprise, it was one family; there was one adult that was supervising both the separation of the siblings. Now, we’re doing separations, that is a merger with the third-party and that actually adds the complexity that we knew about, but has created some complexity. And by the way the most intense time for the ES separation was in Q1, no question about it. And now, we’re on sort of nice glide path to March 31st.

You talked about market’s being difficult, but can you talk a bit about competition, particularly against folks like Cisco, Lenovo? And do you feel like you’re missing a window a bit to take advantage of whatever disruption is happening at Dell EMC?

No, I think we actually did quite a good job of intercepting that merger, and we’ve recruited a lot of new channel partners, they’re beginning to ramp, a much as we did a good job intercepting the server move from IBM to Lenovo, that we did a very good job intercepting a lot of that business. So, I think we’ve taken advantage of that to some degree. Lenovo is around -- they’ve got their hands full on a couple of other things, the server business and Motorola. But, Dell is being very aggressive, particularly in the server side of things. And we’re countering that. When we think it makes the right sense, we’re not doing share for share sake here but we’re being smart about it. And then in Europe, we actually are seeing the Chinese. We’re seeing Huawei being more aggressive. And we’re trying to avoid what we learnt in the PC business, which is they do the land and expand. If you can keep them from landing, then that is a much better long-term strategy. So, we’re working hard on that too. I’d also say that joint venture in China is actually working quite well. There’s been some growing pains there but actually we’re quite optimistic about that and optimistic about the Shingwa team that is now in charge of that business. And listen, given the trade situation and what may or may not happen with the administration, I’m very glad I’m part of a joint venture in China.

The next question will be from Katy Huberty of Morgan Stanley. Please go ahead.

When I look at the storage business, a number of the headwinds you’re discussing including the clients in the legacy business and higher commodity prices or dynamics that some of your big competitors also face. And yet when I look at NetApp, the closest public peer, they grew their business 5% sequentially; your storage business declined 12% sequentially. So, that’s a huge gap. And I just wonder if you can talk a little bit more about what changed your momentum so quickly relative to peers, and then what needs to be done to get back on track?

So, I’d say, listen, the bright spot in the storage portfolio continues to be the all-flash growth, which was almost 30% and it would have been considerably higher if we’d had more SSD supply. So, we’re feeling really good about our all-flash display -- I mean, our all-flash product. Some of the other parts of the business were weaker than probably they should have been. I think I’ll attribute some of that to execution and some of that to market. So, we’re not happy with the storage performance this quarter. I’m quite happy with the all-flash situation but there’s other things that we’re going to buck up as we go forward. So, I think that’s the way I would characterize the quarter.

And then the weakness at a major tier 1 service provider, can you talk about that little bit more, it’s got a HP year-on-year comp issue or is there just a change in the momentum of buying at that particular customer?

It’s actually both, it’s a year-over-year comp issue and it is a different buying pattern than have been anticipated. And so, we will see if that corrects over the next two or three, four quarters. Built into our forecast is that it does not correct. So, if it does, that would be an upside. And again, remember, these tier 1 deals, we do make money on them but they are not as profitable as the core ISS. So that doesn’t translate as dynamically into operating profit as it does to revenue. So, they are facing a very competitive business; the tier 1 business is very competitive, and we’ll see what happens there.

The next question will be from Maynard Um of Wells Fargo. Please go ahead.

Within TS, if I exclude the SGI services business, which I presume is in there, I’m calculating that the core TS was maybe down on 2% year-over-year. And I’m just wondering if this is purely a function of slowing hardware or is there slowing in that re-classed ES revenue that you moved in there? And I guess, what I’m really trying to figure out is whether the larger hardware declines that are happening now, will have an adverse impact on TS or if the new services are now growing significantly more? And then, I have a follow-up.

So, Maynard, the organic TS result was 2.5% in constant currency, 2.5% growth in constant currency. So, we’re actually feeling pretty good about that. And it is driven by the new product acceleration, data center care, proactive care, FSC. And if you go back three or four years on TS, in all rights for a while there that business should have been down 25% a year because it was so driven by our mission critical business. The TS team deserves a huge amount of credit for diversifying the product and actually having that business down only single-digits. Now with the new products coming on line and being actually quite successful, orders are up and we anticipate that business will grow organically, forget adding the SGI services on top of that. So, we’re feeling pretty good about that business and anticipate we’re going to see growth.

Keep in mind that business -- about 85% of those revenue streams are recurring. So that’s why we are confident in the growth throughout the course of the year.

Yes. And so, listen, of the lot of the server business that was weak, didn’t have high attach to it anyway. Okay, so, tier 1 service provider has no service attached to it. So, it’s not a drag on our services business.

Great. And then, with the incremental cash you’ll be getting from the divestitures, any guidance on how you intend to use that cash, particularly against the backdrop of the Company being more acquisitive lately, and the possibility for a tax repatriation holiday? Thanks.

Yes. So, I think that we are going to continue to execute the returns based capital allocation strategy. We feel like that that’s been working well for us. So, in Q1, as an example, we will return $750 million in cash in the form of share repurchases and dividends. So, we’re still committed to that $3 billion that we’ve talked about at SAM, again in the form of share repurchases and dividends. Now, I will say, we are biased toward share repurchases. But we feel like that framework is working well with us, and we are going to continue to operate within that framework. As far as the repatriation, we haven’t incorporated any of that into our plans because we are not sure what is going to happen, to be quite honest with you. But if there was a onetime holiday as the majority of our cash is offshore, we would certainly benefit from that, like many other companies. But, I would just balance it with, even if we were to see some sort of holiday, I’m not so sure that it would change our returns based approach; I’m not so sure it would change our approach or strategy towards M&A as we go forward.

I agree with that. I mean, remember what we’ve said is the kind of acquisitions that have worked well for this Company are 3Com, 3PAR, Aruba; SGI is actually going to be very successful and SimpliVity, we’re excited about it; it’s too new to declare a victory, we just closed on Friday. But what do they have in common? They’ve got reasonable valuations; they leverage our distribution channels, they’re complementary technologies and they drive profitable growth. So, I think the best indication of the future is the past.

Thanks, Maynard. I think we have time for one more question, please.

And that will be Shannon Cross from Cross Research. Please go ahead.

Just can we go back to the tier 1 service provider? I’m just curious as to whether or not the changes you saw there were basically a slowdown from a capacity need for them or was it a competitive decision, so you’re just facing more competition, maybe from white box? I guess, I’m trying to figure out if this is sort of just a one-timer or if there is something fundamentally changing in the business model?

Yes. I mean, I’m not entirely sure; what I will tell you is that they have dramatically decreased their purchasing below commitments that they had made to us.

And then, Tim, just a quick clarification, and maybe talk a little bit about cash flow during the year. You gave us few comments on how we should think about it from a linearity standpoint for fiscal second quarter. But, I just wanted to confirm it, so we’re down to $1.9 billion, then what should be the pension funding? And then is there anything -- so, that’s all done now; there won’t be any more coming out I guess in this quarter. And then just how should we think about the opportunity to drive more working capital out of the model? Maybe you’re not going to be cutting costs as much in the P&L but is there more room from a working capital standpoint, as we look forward?

Yes, sure. I’ll just give you a total year perspective. So, our guide, we’re still comfortable with the negative $1.8 billion. We have, to your point, we’ve paid out the $1.9 billion in pension. Now, there’re some more payments to be made because we don’t finalize everything until we close the transaction. But, we do expect that those payments will be less than the $2.5 billion that we’ve communicated at SAM. So, we’ll see some favorability there. The reason why we’re sticking with our guide is because obviously with the $0.12 takedown, that drives some earnings pressure. So, net-net, we still feel very comfortable with the free cash flow guide. As far as working capital, again, we have some timing elements here and there. But I would say overall assumptions over the course of the year have not changed since the guidance we gave at SAM.

Great. Thank you, Shannon. So, I think with that, thank you everyone for joining today. And we’ll wrap up the call. Thank you.

Ladies and gentlemen, the conference has concluded. Thank you for attending. You may now disconnect your lines.