HPE’s CEO: Chinese Tech Is No Competition

Hewlett Packard Enterprise CEO Antonio Neri said Chinese tech companies have a long way to go before they become serious threats to U.S. firms—or become global tech leaders.

“The question is, how much innovation is really happening, as opposed to just manufacturing?” Neri said during an interview with Fortune this week. “I think they’ll always be one or two technologies behind.”

The comments came as Neri, now into his second year at the helm of HPE, assessed the competitors arrayed against him. In cloud computing, HPE faces off against Amazon and Google. But Neri considers those companies as primarily data storage providers, in contrast to HPE’s push into more comprehensive “edge computing” services.

The idea behind edge computing is straightforward enough. Currently, many analytics and artificial intelligence technologies, such as voice recognition, work by sending data to centralized server farms for processing. But Neri, who famously rose through the ranks after joining a Hewlett Packard call center in 1995, predicts that an increasing amount of that processing will take place at the “edge,” nearer where the data is collected.

Potential applications include genetic research and financial services, where sensitive data could be less secure if it’s sent to an off-site cloud server. Neri also said that edge computing could help with tasks like manufacturing or autonomous driving, in which speed is paramount.

“Even with 5G deployed,” Neri said, referring to the super-fast cellular networks that are starting to come online, “it will be hard for all of these cars to go to the cloud and decide whether to turn left or right.”

HPE is focused on developing infrastructure that will connect ‘edge’ cases that are reliant on local data processing to the conventional cloud. Last year, Neri put a big bet on edge computing, pledging $4 billion in R&D spending over four years.

That bet has yet to show big returns. In its most recent quarter, HPE’s overall revenue was down 7% year over year. Revenues for Intelligent Edge, the unit focused on secure mobile and wireless networks, dropped 3% on the year.

But many potential edge computing applications appear poised for growth. Neri has predicted that returns on the edge computing investment will start arriving in 2020.

Neri’s aggressive investment in his plan (along with billions of dollars in stock buybacks and dividends) has already bolstered investor sentiment. HPE’s stock price—it closed at $16.41 on Thursday—has been relatively steady over the past two years despite revenue declines.

Neri was also quick to dismiss competition from traditional hardware manufacturers like Dell and Lenovo. Instead, he emphasized that the growing complexity of business technology gave the advantage to companies providing tailored systems bundled with support services.

Then there’s the class of China-based competitors Neri calls “China Inc.,” which he says are “all about pricing, commoditizing everything.” As HPE’s president just before becoming CEO, Neri announced that HPE would exit the “commodity” server business – in part under pressure from cheaper Chinese competition.

Neri expressed admiration for China’s push for technological self-sufficiency. But, he said, “the reality is they need the West to continue to teach them and enable them.”

That contradicts worries by some that Chinese tech and A.I. could challenge Western leadership. Some experts do share Neri’s skepticism that China can take the lead, especially when it comes to China’s efforts in artificial intelligence.

In contrast with Neri’s views about China Inc., HPE’s edge strategy includes focusing on highly specialized and high profit-margin hardware projects. For example, HPE built a custom supercomputer for NASA’s Artemis project to return humans to the moon, then send them on to Mars, and even installed a supercomputer on the International Space Station to process experimental data locally.

Because of delays in sending data, cloud technology is particularly impractical in space, making it what Neri called “the farthest edge you can imagine.”