Good afternoon, and welcome to the Fourth Quarter 2015 Hewlett-Packard Company Earnings Conference Call. My name is Amy, and I'll be your conference moderator for today's call. [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, Ms. Diana Sroka, HP Inc. Investor Relations. Please proceed.

Good afternoon, I am Diana Sroka, Head of Investor Relations for HP Inc., and I'd like to welcome you to the fiscal 2015 fourth quarter earnings conference call. Given we operated as a combined company through the fourth quarter of fiscal 2015, we decided to report our results together today. Going forward, starting with Q1 fiscal '16, Hewlett-Packard Enterprise and HP Inc. will report earnings as separate companies. I will outline how the call will flow today since it will be a little different than our typical earnings calls. Meg will kick things off with Q4 highlights for Hewlett-Packard Company, and Cathie will follow with additional details. After that, Meg and Tim will review segment results and outlook for Hewlett Packard Enterprise. Then Dion and Cathie will review segment results and outlook for HP Inc. Finally, we'll open it up to questions. Before we begin, 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 1 year. We posted the earnings release and a slide presentation accompanying today's earnings release on our HP Inc.'s Investor Relations web page at www.hp.com and on Hewlett-Packard Enterprise's Investor Relations web page at www.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 risks, uncertainties and assumptions, please refer to HP's SEC reports, including its most recent Form 10-Q. HP assumes no obligation and does not intend to update any such forward-looking statements. We also note that the financial information discussed on this…

Good afternoon, everyone. Thanks for joining us today. The fourth quarter was the final quarter where Hewlett-Packard operated as one combined company. On November 1, we completed the historic separation and became 2 separate independent public companies: HP Inc. and Hewlett Packard Enterprise. I couldn't be prouder of how we executed on the incredibly complex separation. Throughout the year-long separation process, we saw no disruption to our customers and partners, and we continued to drive the business forward. And now, both companies are off and running. Each company has a clear, well-defined strategy and is well positioned to win in its respected market. Before we get into the business segment performance and outlook, I'll let Cathie provide details on the Q4 results of the previously combined company.

Thanks, Meg. Hewlett-Packard Company net revenue for the quarter was $25.7 billion, down 9% year-over-year as reported or down 3% in constant currency. For the full year, revenue was $103.4 billion, down 7% year-over-year as reported or down 2% in constant currency. Gross margin was 24.7%, up 0.1 point year-over-year and up 0.9 points quarter-over-quarter, with sequential improvement across all of our major business segments. Non-GAAP operating expenses of $4 billion were down 5% year-over-year, driven by a reduction in SG&A, partially offset by our continued focus on increasing our R&D investments. Non-GAAP operating profit margin was 9.1%, down 0.5 points year-over-year and up 0.5 points sequentially. With a net expense of $151 million in OI&E, a non-GAAP tax rate of 22.5% and a diluted share count of approximately 1.8 billion shares, we delivered non-GAAP diluted net earnings per share of $0.93 in Q4, within our outlook range. Q4 non-GAAP EPS primarily excludes pretax charges of $676 million for separation, $591 million for restructuring, $246 million for amortization of intangible assets and net tax benefits of $803 million. For the full year, we delivered non-GAAP diluted net earnings per share of $3.59, in line with our previously provided outlook range. On a GAAP basis, Q4 diluted net earnings per share was $0.73, above our outlook range due to the net tax benefits just mentioned. These were onetime, noncash entries comprising a number of different items, including the reversal of a previously recorded U.S. tax valuation allowance that I discussed on the Q3 earnings call. The total separation costs, CapEx and associated cash flows expected across FY '15 and FY '16, in total, were originally $2.8 billion. And we now expect $2.4 billion in that same time period. The mix of expenses between onetime separation costs, CapEx and incremental taxes was…

Thanks, Cathie. As we laid out at our Security Analyst Meeting in September, Hewlett Packard Enterprise has 5 key priorities for FY '16. We plan to grow top line revenue in constant currency, drive a year-over-year increase in operating profit, grow free cash flow, continue to execute our innovation road map and stabilize revenue and expand margins in Enterprise Services. And I'm pleased to say that overall, Hewlett Packard Enterprise is off to a very strong start. First and foremost, the segments that comprise HPE have now had 2 consecutive quarters of constant-currency revenue growth, and we believe we're in a strong position to deliver on our plans to grow overall in FY '16 in constant currency. Also, while there is more work to do, particularly in ES, our cost structure is much closer to where it needs to be, thanks to aggressive supply chain management, SKU rationalization and workforce rebalancing. With respect to cash, we are starting the year with a net cash position at the operating company level and as separation costs wind down, we are well positioned to increase cash flow at FY '16. The innovation we've been investing in over the past 4 years is paying off. We've introduced breakthrough new solutions and services that have driven a mix shift in our portfolio towards higher-growth products and services. By leaning into new technology, we are ideally positioned to take advantage of market trends that will allow us to continue to take share from our competitors and to drive long-term growth. Finally, while each business segment faces different challenges and opportunities, the company as a whole is aligning tightly around the 4 customer transformation areas we discussed at our Security Analyst Meeting. Customers tell us our focus is spot-on. I'm confident that our clear strategy will accelerate…

Thanks, Meg. Hewlett Packard Enterprise finished the year on a strong note, and we're already executing against the financial architecture we laid out at our Security Analyst Meeting. This calls for solid growth from EG, with stable to slightly up margins, stabilizing revenue and ES with strong margin expansion, stabilizing software revenue with good profitability, all while leveraging Financial Services with their good return on equity. In Q4, our segments collectively delivered revenue of $14.1 billion, which was up 3% year-over-year in constant currency. This marks the second quarter in a row of delivering year-over-year constant-currency growth, and we expect to take share in x86 servers, storage and networking during the third calendar quarter. For the full fiscal year 2015, we estimate HPE's contribution to HP's total non-GAAP diluted earnings per share to be $1.84, in the middle of the previously provided outlook. Similarly, we estimate HPE's contribution to HP's total free cash flow for the year to be $1 billion, just below the previously provided outlook. We benefited from a push-out of separation costs that was offset primarily by the timing of value-added tax receivables and restructuring payments, along with the higher-financing receivables that Cathie mentioned in her remarks. Now turning to the segments. The Enterprise Group continued its strong momentum, growing revenue 2% year-over-year or 9% in constant currency. Operating profit improved sequentially by 1 point to 14% and was down 0.8 points year-over-year, primarily due to currency. Industry Standard Servers grew 5% year-over-year or 13% in constant currency and was up across all geographies in constant currency. The work we have done segmenting the market and delivering innovative products has enabled us to capture more than our fair share of this strong market. We expect server momentum to continue next year but at a moderated pace given…

Thank you, Tim. The Printing and Personal Systems markets are experiencing challenges right now. As we discussed on the Q3 earnings call and in more detail at the Security Analyst Meeting, we expected to have several tough quarters, and Q4 was indeed a difficult quarter and somewhat weaker than we expected. Following separation, we remain confident that we are well positioned for the long term in the marketplace. The market challenges do not intimidate us, and we are keenly aware of what we need to be focused on going forward. Turning to the results. Overall, in Q4, our business performance was mixed. In Personal Systems, we executed well against the expected tough market backdrop, while Printing represented a much greater challenge due a number of factors that have changed our near-term view of the market and the supplies revenue trajectory. Before I go into those details on Printing, let me briefly reflect on the Q4 results for Personal Systems. The PC market continued to be tough, especially in Consumer, where industry channel inventory remained elevated in the market. While we saw improved performance in the U.S., EMEA remained weak, with market units declining 22% year-over-year in the third calendar quarter as we foreshadowed at the Security Analyst Meeting. As I've said in the past, when markets are down, our ability to outperform the market profitably is key. HP gained unit share in calendar third quarter in each of our 3 regions, achieving 19.7% market share worldwide. We continue to extend our lead in the market with Commercial PC share of 23.7%, our highest share position ever. And we managed to do this all while improving Personal Systems operating profit by 0.8 of 1 point sequentially to 3.8%. We believe that innovation and sprinkles of magic are key to differentiation as…

Thank you, Dion. Printing net revenue was down 14% year-over-year as reported or down 9% in constant currency. As expected, the year-over-year currency impact was greater than past quarters as favorable long-dated financial hedges matured. From a channel inventory perspective, we've reduced both hardware and supplies levels year-over-year and sequentially, but we are still slightly above-target weeks of supply range for supplies. Supplies revenue was down 10% year-over-year as reported or down 5% on constant currency and was 65% of the revenue mix in the quarter. We had some bright spots in the quarter, including constant-currency revenue growth in Graphics. Also, Managed Print Services revenue grew double digits in constant currency year-over-year in Q4. And for fiscal '15, we saw strong growth, both as reported and in constant currency, in total contract value for our partner MPS offering. From an operating profit perspective, we delivered 17.4%, down 0.8 points year-over-year. Currency headwinds and competitive pricing were only partially offset by strong supplies mix. Turning to Personal Systems. Revenue was down 14% year-over-year as reported or down 7% in constant currency. Consumer and Commercial PC units were each down year-over-year, but we outperformed the market in calendar Q3, gaining 0.3 points of share in Consumer and 1.6 points of share in Commercial. We've done a lot of work to drive to a variable cost structure, which supports our profitability in these down quarters. Personal Systems' operating process improved sequentially to 3.8% on the strength of gross margins but was down 0.2 points year-over-year as a result of reduced operating expense leverage on lower volumes despite OpEx reductions and improved gross margins. Gaining cost efficiencies will position us well as the market slowly recovers. Considering the combined performance of the Printing and Personal Systems segments in the context of the overall Hewlett-Packard…

[Operator Instructions] Our first question is from Katy Huberty of Morgan Stanley.

It sounds like some of the businesses, printers in particular, deteriorated as you moved through the quarter and, yet, DSOs are up 3 days year-on-year. So can you talk about linearity and just the overall tone of business as you exited the quarter? And then I have a follow-up.

So at the kind of Personal Systems and Printing side of the house, so PPS because we don't have HP Inc. today, at the PPS level, our cash conversion cycle actually was a bit better than what we had laid out for you at the Security Analyst Meeting. And so from our perspective, we performed very well with respect to working capital.

And then on the Enterprise side of the business, how did linearity look versus normal?

True. I mean as we spoke about at the Analyst Meeting, we had -- in 3Q, we had about 30 days and that was a little bit elevated given by the fact of our business continuity plans that we had in place. So as we had anticipated, we have worked those down and we're sort of in the mid-20s range. And that's what I would think about as you think about 2016.

Okay. And then, Dion, you mentioned that some of your peers in printing are going through strategic reviews and I imagine that may, over time, open up competitive opportunity. But curious whether you have interest in the near term at looking at any assets, not mentioning any in particular, but looking at some of those assets that may come for sale and driving scale in the Printing business.

Yes. Thanks, Katy. Look, obviously, as a matter of policy, we don't comment on those sorts of matters. But our general approach to M&A has not changed since we had the discussion at the Security Analyst Meeting. We will continue to look for opportunities that are complementary to our strategy that will always be return-based in nature. They'll be thoughtful and disciplined and they'll land clearly and squarely on the strategy page, so they will be in our core across growth and in the future. Areas that we have talked about have been in the areas of 3D print and material, specifically around document workflow solutions, sprinkles of magic but, generally, not broadly consolidation plays for consolidation's sake.

So we did talk -- let me just add, we did talk a little bit about the fact that there could be some very specific markets in some specific countries that could be of interest to us as long as it was kind of in the core areas of emphasis, especially on the Personal Systems side around Commercial.

I would add, Katy, that, obviously, there is a lot changing in the market even since the Security Analyst Meeting, on both the personal systems side with Dell-EMC as well as Xerox and Lexmark that presents particular opportunities. And as they evaluate their strategic options, I think customers are generally fairly confused and worried, and we are the pillar of stability right now. And we are going to take full advantage of that.

Next question is from Maynard Um at Wells Fargo.

On the HP Inc. side, Lenovo talked about getting more aggressive to take advantage of the disruption, both from the split, your split, and Dell's acquisition of EMC, I presume on both PCs and servers. So I'm wondering if you are already seeing that and that's what you're referring to in terms of the competitive environment or if that's something that you're -- you haven't seen and are expecting. Can you just kind of walk through that?

I would say, generally speaking, the PC market continues to be tough and consolidation continues to happen. The big 4 are getting bigger. They're now sort of 62.5% of the total overall market and growing. And I think we've been pretty predictable over the course of the last 2 years, not taking share for shares' sake. We did grow in all 3 regions to 19.7% overall. Commercial share, we grew to 23.7%, and that was our highest ever share position. So we remain very disciplined. We walked away from some sizable Black Friday deals that were not very high calorie or, in fact, negative calorie. So I think we continue to execute as we said we would. We continue to segment the market, drive to where the heat is in the market, drive cost out, make sure our channel inventory and, particularly, aged inventory is well under control. And as we did that, we saw profit margin expansion 0.8 of 1 point sequentially to 3.8%. So we're squarely on strategy here.

And I would say that we didn't see a disruption. Dion went through the details that show that we didn't see the disruption to our business as a result of the split. That was not a factor in how we met customer needs or in the reception that we got from customers.

And I think, Maynard, you asked about servers. I would say the exact same thing; there was no disruption to customers. I have to say this split was executed nearly flawlessly, and it's a credit to the team across the globe. We've been very successful, actually, at taking server share as the IBM server business migrated over to Lenovo. We've actually been very good at taking share and also gaining formerly -- former IBM channel partners, so we've been very aggressive there. And obviously, as I've talked about, as the Dell-EMC merger creates uncertainty in the marketplace, we, obviously, want to be aggressive there talking about the future of the company, the future of our server business and, of course, the future of storage and networking, which we feel like we're in really great shape. As I said, our innovation engine is humming.

Okay. And just for my follow-up, for HP Enterprise, I calculate that roughly nearly 3/4 of your profits next fiscal year will be recurring. Are there any dynamics in the transactional businesses that make the cash flow less recurring? Or can we assume that nearly 3/4 of your free cash flow is also recurring?

I'm sorry. Yes. High level -- at a high level, profitability is recurring so I think you could assume that.

Yes. And I don't think there's anything in the dynamics that are different in 2016 than were different in the Hewlett-Packard Enterprise segments in 2015, except for that TS is getting stronger. So TS is up, Financial Services is an annuity and ES is getting stronger as well. So I would say that, yes, the contracts are getting a bit shorter, but that shouldn't really affect us in 2016.

Next question is from Toni Sacconaghi at Bernstein.

I have one for HP Inc. and one for HP Enterprise, please. On the HP Inc. side, you commented on an incremental currency headwind and you also commented on a fundamentally more challenged Printing business going forward, including supplies which drive the profits, yet, you didn't change your operating EPS guidance for fiscal '16. And I'm wondering why because the commentary, certainly, would have suggested that it should be lower, and what the offsets are.

Thanks, Toni. So we're taking very decisive actions in order to counterbalance some of the headwinds that we're seeing in the Printing business. And Dion talked a little bit about them in his prepared remarks. I mean we're absolutely maniacally focused on the $1 billion in productivity improvements and making sure that those are getting delivered and, frankly, getting delivered a little bit earlier in the year. We are also trying to change kind of how we approach the market and the market looks at us by really doing a better job from a marketing perspective and a sales perspective so that, in fact, we are not competing on price alone. We've got a lot of value in the products that we bring to market and we think that there's an opportunity there. We also think there is an opportunity to improve our supplies market share position, and so we're taking action around, again, marketing and feet on the street, as well as really going after online. And then, finally, Dion mentioned the fact that we are restructuring our nonrevenue-generating cost base, and we will be aggressively taking cost out of kind of the nonrevenue-generating. We believe that with these actions, that will counterbalance some of the incremental headwind that we saw in the printing market. But clearly, there is now more actions that need to take place in order to deliver the outlook that we provided.

And on the HPE side, I was wondering if you could comment on a couple of things. It looked like separation costs had been pushed out from fiscal '15 to fiscal '16. I was wondering if you could comment on the magnitude of that push-out as it relates to HPE. And sort of the same question as with HPI, if you have incremental separation costs in fiscal '16 relative to your expectations, why is cash flow not adjusted? And also, if you could just confirm what the expected impact of the closure of the Chinese JV will be on your EPS and revenue for fiscal '16 and whether that's in your guidance or not?

Sure. Okay. Let me start out with the cash flow. So from a separation cost, we had about $300 million of favorability from a free cash flow perspective on the E side in '15. $200 million of that will move over to '16. So if you look at the overall amount of separation costs we were able to -- actually, able to work down the overall amount, so there'll be about a $200 million separation cost increase in '16. If you look at the overall free cash flow and the adjustment to '16, we're still holding to the '16 guide. And basically, our shortfall was driven by a couple of things. If you think about the financing volumes were higher in our Financial Services business, as well as we had some pressure on the VAT receivables that we were unable to collect. That will push over and then give us some favorability in '16, which will offset some of the separation cost pressure. So overall, we're sticking to the guide that we provided at SAM. As far as Tsinghua, we haven't adjusted EPS yet because the deal is not closed. But just to give you some color around that, from the remaining 49% that will stick with us, we're going to account for that with the equity accounting method. So you'll see that earnings and cash flow impact flow through the other income line. And then as far as a guide or framing it up from an EPS perspective, we've said historically that we've earned -- we had about $400 million of op profit in that business in 2014, so I think you could use that as a proxy. And then I'd just take a couple of things into account: One would be the timing of the transaction, so when we close it; and then the second thing I would think about is there will be some stranded costs associated with overhead costs that do not go with the transaction. So similar to dis-synergy costs, we will need to work that out of the system and that will take a little bit of time, so that's the Tsinghua impact.

And I would just say that we expect this transaction to close in Q1. We expect to have all the regulatory approvals by December 31.

Your next question is from Sherri Scribner at Deutsche Bank.

I had a question on the HPE side thinking about the Server business. It's been relatively strong this fiscal year. Can you talk through your expectations? I know you commented you expect it to decelerate somewhat, but do you expect that business to continue to be able to grow in fiscal '16?

Yes, we do. I mean, we are seeing very strong momentum. But that is, in part, driven by the sales to the Tier 1 service providers but also there's very good strength in our core server market with strong options attach that obviously help the margins. And ISS, just the industry standard server portion, has the best ever product line that we've ever had, with Gen9, Cloudline and Apollo, and these are resonating really well with customers and, importantly, are purpose-built for specific workloads. So I think we've talked about how we're taking our Server business to a workload-focused strategy. And as Tim said, ISS grew 5% year-over-year, 13% in local currency, and we expect to gain over 1 point of share in the calendar Q3 of '15. And we -- with a market we think is going to be healthy. And so I think we feel very good about the Server business. And the reason we don't think it'll be quite the revenue year-over-year growth that we saw is that we're starting now to lap very strong compares. But at least, for the foreseeable future, we feel pretty good about servers.

Okay, great. And then a question for Dion in terms of the A3 market. You talked about that a lot at the Security Analyst Day. Does anything that's happening now with the printer market mean that, that entry into that market moves out or are you still on your plans to enter that market in about a year?

No, we're absolutely on the same course and trajectory that we outlined at the Security Analyst Meeting. We think it represents a strong growth opportunity for our shareholders.

And I would just add that we are taking decisive action around the core right now. We are not taking our foot off of the accelerator on the core or on the investments that we're making for the kind of the midterm growth areas around commercial mobility, packaging and copier market or for the future around 3D and Immersive Computing.

Exactly. Look, kind of said another way, we firmly believe in our strategy. And there's lots of disruption and change in the market at the moment and our competitors are pursuing all sorts of options. We will continue to assess how the markets evolve. We'll get ourselves in fighting shape inside the core, but we'll continue to execute against our strategy.

Next question is from Steve Milunovich at UBS.

First, I wanted to ask about the profits in the Server business. Obviously, you're pretty bullish on the growth rate, but what's been happening to the margin in ISS? I assume it's been coming down. So have you had and do you expect to have operating profit growth in that segment going forward? And I just wanted a little clarification on when you say Tier 1 providers, are those sort of the big hyperscalers and are you selling them only Cloudline or are you selling them kind of more fully configured servers as well?

Sure. From a profit perspective, we'd expect margins to be relatively stable actually. There's a lot of work going on in supply chain on the productivity front, so we have various initiatives going on there that will help offset some of the pricing pressures that we're seeing. As well as if you look at Gen9, as Gen9 becomes a bigger piece of the overall portfolio, those margins are also more attractive than what we had with the Gen8.

And as regard to Tier 1, these are the big hyperscalers as you described and they're continuing to grow, and we don't really sell them much other than Cloudline. Now we sell storage often and some networking. But for the server portion, it's mostly Cloudline. And then you immediately drop down into what we call Tier 2, Tier 3, Tier 4 and they buy a much broader mix than just Cloudline. And the other thing, Steve, that I know you know is that, if you look at Enterprise Group in total, obviously, the Storage business, which is doing very well with 3PAR and All-Flash, plus the Networking business is higher margin than the Server business, so the blended average. As we said at the Security Analyst Meeting, EG needs to be the growth engine of the company over the next couple of years with modestly expanding margins, and the margins will expand with the mix shift. And obviously, of course, with the attach rate that is higher on 3PAR and All-Flash.

That's great. And it's good to see you getting some credit for 3PAR flash. We've certainly heard the same thing that it's a terrific product. How about on the solutions side? I think -- obviously, legacy vendors are under attack from a lot of different directions, but you do have a bit of an ace in terms of the completeness of the product line and I've always had some concern that HP is a bit of a piece parts company, but it seems like you have been emphasizing solutions, trying to coordinate the groups more. Are you seeing evidence that customers are beginning to react to that and that's going to put you in a good competitive position?

So we feel really good about our ability to continue the transformation to a solutions-selling company. First of all because we now have a great server, storage, networking, converged offering. But as we move to these 4 transformation areas that we talked about at the Security Analyst Meeting, this is dead-on with customers. I mean, these 4 transformation areas is exactly what virtually every customer is looking for. How do I transform my IT environment to a hybrid environment? How do I secure my digital enterprise? How do I enable analytics, a big data analytics environment? And how do I drive workplace productivity? And we are aligning software services and hardware or infrastructure to that. And this is particularly powerful for software because software now has some of the anchor IP in each of these areas and it's also helping us decide what parts of software we want to be in and what parts we don't. And we talked about LiveVault and TippingPoint. This 4 transformation area gives us a very good portfolio criteria by which to manage that software business. So I think the transformation areas are absolutely right on for customers, and we feel like we've got a pretty good portfolio. And where we have gaps, our first choice will be to do organic innovation; second choice will be around partnering with our Ventures arm; and then finally, would be M&A along the lines of a 3PAR, 3Com, Aruba kind of acquisition.

Your next question is from Kulbinder Garcha at Credit Suisse.

A question for Dion first. On the supplies business, what I think I've heard is the market's a little bit worse, the pricing environment's tough and inventory levels may be high. I guess, can you speak about the visibility you have on each of those items beginning to improve? And then kind of linked to that is that I think, once upon a time, not so long ago, you were saying that the supplies business would stabilize by the middle of this year. Then it was by the end of '16, now it's by the end of '17. So this 4-box model which manages business which is supposed to give this predictability, it doesn't seem that predictable I guess. So my question is how much faith do you have in that continued model about that supplies business eventually turning?

Thanks, Kulbinder. I guess, I'll start and then I'll throw it to Dion to add any additional comments. We have found that our 4-box model is, in fact, very good. And as we have collected more big data, and every week we collect new data, we update basically the model. What we saw in Q4 were basically 2 things that really impacted the model and impacted when the ink supplies would stabilize and push it out to basically late '17. The first thing was we did see incremental competitiveness in key segments, particularly in SMB ink and, therefore, we placed less units. And as a result of that, that's going to have a knock-on effect around ink supplies. Secondly, what we saw was, through aggressive pricing, we actually took a -- we took a product that should've been sold into 1 end-user, an end-user that, in fact, prints a lot, and we now are getting -- selling that product into home users which just don't print enough. And so we need to change that. And that's part of better managing the marketing, better managing basically the price points. And that has a knock-on effect because those were units that we had expected would be very high usage. So we have a lot of confidence in the model, but you have to work the model all the time and it's across those 4 dimensions that we've talked about, the installed base, usage, aftermarket share and then also making sure that we're careful about what we do from a supplies pricing perspective.

Yes, absolutely. The only other things that I would add to that is that we just believe that this is the new normal and we have a lot of faith in our 4-box model; it is an incredibly predictable model. But there are dynamics in the market, competitive dynamics in the market that just our working assumptions need to change around it. It's exactly how it is going to be. And as a result of that, we need to go to the gym, we need to get fit, we need to deal with currency, the way that it's exposing itself in the market and the ramifications it's having on the marketplace and do the 3 things that we talked about, drive those productivity improvements, not fight on price alone, balance marketing and sales and materially go after nonrevenue-generating expenses. When we do that, we can turn marginal MPV units that have slipped into negative back into positive territory and that will then reinform the 4-box model.

And maybe just one very quick question for Meg. Meg, as you've separated now into HP Enterprise, what are your thoughts on industry consolidation and the role that HP Enterprise perhaps plays in that?

Yes. So listen, obviously, I think one of the things that validates the decision to separate is these markets are changing enormously. I mean Dion talked about a couple of his competitors looking at strategic opportunities. We also, obviously, see the Dell-EMC transaction. What I would tell you is we feel really good about our strategy relative to what we see Dell and EMC doing. I mean, they could not be in more stark contrast. They're getting bigger, leveraging up and doubling down mostly on legacy technology, while our strategy is to get smaller. I've just spent the last 4 years deleveraging the balance sheet and leaning into new technology like converged infrastructure, new server architectures, 3PAR with All-Flash, Aruba, et cetera. So we feel really good about our strategy and our portfolio of assets. And I'll underscore what I said before, these 4 transformation areas is the way we're going to pivot this company to solutions-selling. ES already solution-sells. EG and software are moving rapidly towards that solution of driving business outcomes as opposed to just selling speeds and feeds. And it's a cultural change for this company, but actually I will tell you it's underway and I'm feeling pretty good about it.

Thank you, Kulbinder. Operator, we'll take a final question, please.

The last question is from Jim Suva at Citi.

Congratulations on your separation. I have 1 question for Meg and 1 question for Dion and/or Cathie. Meg, I believe you've mentioned some of the ES contracts may be getting shorter. Did I hear that correctly? And what does that mean to the profitability as such, the ability to invest in such? It seems like it may compress some of that a little bit, but maybe I'm wrong on that. And then the second -- or the other question for Dion and/or Cathie would be, I think you'd mentioned that you said the PC channel had some elevated inventory. And I believe we heard about this when you were going through the separation and you wanted to have your systems make sure that they converted over, but that was several months ago. So are you referring to excess inventory in the channel from HP or others or both? Or how should we think about that comment? Because I would have thought by now that, that PC inventory or anything due to your separation in the IT conversion cycles would have already right sided themself.

Yes, let me answer the ES question. So the ES business is changing, and you will recall in the old days, in particularly the ITO part of the business, you would lose money in the first 2 years of the contract, then you'd break even for about 3 years and then you'd make money in the final 4 years. But the only problem with that is then, about year 8, the customer would renegotiate, and you'd miss out on the whole profit of the whole thing. And so really, the markets moved to shorter, more strategic relationships in ITO. As opposed to just labor arbitrage, now there is how do we transform your infrastructure to be more nimble, more agile and lower cost? And we've talked about a number of our customers for whom we're not just taking their mess for less. In the old days, that's probably what we would have done. Now we are saying, "We will help transform your IT environment to be part of this new world order that's going to allow it to be lower-cost, more modern and allow you to be more agile." And those contracts are -- tend to be shorter and we're actually okay with that because we also are very clear now that we're not going to lose money in contracts in years 1 and 2, and these things have to be profitable from the beginning. And that's been a change in the industry and, frankly, a change that we're putting a lot of discipline in. We're very, very focused on only taking deals that are good business for us. And like Dion said in his business, share for share's sake is not interesting to us here. We want to do good, profitable deals with customers that we can drive a good outcome for. And you're seeing that. I mean we said at our analyst meeting, we now have the highest Net Promoter Score in the business, in the Services business. And that, ultimately, and we can see it, is going to translate I think into higher new logos and higher TCV.

Okay. And to your question on channel inventories, I'll step back. Going into quarter 4, what I said was industry inventory levels were high and our inventory levels were also high. As we exit Q4, I would say that industry inventory levels are still elevated but somewhat lower than they were as the market has begun to digest the Windows 8 inventory. But our inventory position is now back within the ranges and in good shape with regards to the age profile of that inventory.

Good. All right. Well, thank you, thank you very much to everyone for being on a slightly extended call today because we wanted to make sure we covered the company and then also Hewlett-Packard Enterprise and HP Inc. So thank you very much. And next quarter, we'll be reporting as 2 separate companies. So again, thanks for your support and thanks for a little extended time today.

Thank you.

Ladies and gentlemen, this concludes our call for today. Thank you.