 Live from New York City, it's theCUBE. Covering Lenovo Transform 2017. Brought to you by Lenovo. Welcome back to theCUBE's coverage of the Lenovo Transform event. I'm your host, Rebecca Knight, along with my co-host, Stu Miniman, who is a senior analyst at Wikibon. We are joined by Kirk Scalgan. He is the executive vice president and president of Lenovo Data Group. Welcome back to theCUBE, Kirk, you're a veteran. Yeah, we're doing this on a monthly basis. That's great. So you're fresh off the keynote. The theme of this conference is transform. Lenovo has undergone a massive transformation over in recent years. What is your focus and where do you see sort of the biggest points of change in the company? Yeah, well, I think we're sort of celebrating today this transformation to the next phase of our growth. If you think about us as a company, we've kind of acquired the X86 business, server business from IBM a few years ago, we are also building off more than a decade of our China heritage for the think server business. So that's combining the two together, kind of driving to our next phase of growth. The whole purpose of today is really transforming the customer experience and starting with the customer first. We're incredibly proud that we just got ranked number one in customer satisfaction again, but we're not kind of stopping there. We're going to use this announcement today to kind of catapult us ahead. Customer service has always been a strength of Lenovo and as you said, you're going to continue to drive toward that. You said in the keynote that you're incentivizing employees around customer service. Can you talk a little bit about how you plan on maintaining the edge? Yeah, so this year, every Lenovo employee is getting incentivized on customer experience. So we're making them take kind of a personal goal of how they can better improve the customer, regardless of whether you're an engineer or you're in phone support or these kind of things. So it really starts at the grassroots level. It gets everybody thinking customer first, which is great. And again, we're excited because we're in 21 of the 22 categories, number one in X86 servers, but we're constantly learning and wanting to improve and that's where we're starting. Kirk, YY in his keynote talked about just the pace of change. Said that if we forget about 18 years ago, 18 months ago, we probably couldn't predict how fast things are going. How does that drive your strategy, how you work with customers and drive the product line? Yeah, so I think customers are asking for simplicity. It's getting so complex and the rate of change is so much. So when we did this design of both our server storage and networking, we're kind of future-proofing it. So we actually are dramatically reducing the number of products, but building them to be more flexible so you can qualify less solutions but have them live longer in your data center. And that's been a key attribute as we look at kind of future-proofing. Also as we move to software-defined, that's going to be a key element as well because people aren't looking to change out the hardware as much as they are the software part. So everything from our configuration managers to our system hardware management and with X Clarity, the whole design experience, we're changing to simplify the experience for the customer because the change is just almost getting to a point that's too much for people to handle from a technology transformation perspective. You're celebrating 25 years of the X86 server that you're offering. So explain to us the new branding. You've got two new brands that you announced today, kind of thinking behind that and walk us through what they are. Sure, so today we're announcing ThinkSystem and Think Agile. So on the server side, we had both the ThinkServer brand from Lenovo and then the SystemX brand from IBM. We're building those two together. The engineers were kind of given the charter years ago to say, how do you stay number one in reliability, number one in customer satisfaction? And then we have a legacy of now of over 150 world record benchmarks. So it's a brand that's highly flexible, premium, and it's going to span now not only our server products, but server storage and networking. One of the surprises I had joining Lenovo is just we have hundreds of engineers in networking that the old IBM had acquired from companies like Blade Network Technologies. And now things like hyper-converged storage, once you've solved the storage compute integration, networking becomes the next bottleneck. And so the products we're announcing today on Think Agile, which is our software-defined products, are helping solve not only the hyper-converged storage problems, but also some of the challenges that that brings to networking and moving traffic from a traditional North-South architecture to East-West. So simply put, ThinkSystem for network storage and server and Think Agile for software-defined. On the Think Agile, the two partners that I saw highlighted up on screen were Nutanix, which you've had in OEM for a while, and the Microsoft Azure with Azure Stack, we know is coming this year. Both of those companies have a lot of partners. Why is Lenovo positioned to be a strong contender with both of those partners? Well, I think when we talk to CIOs, what we're hearing pretty constantly is that Lenovo's lack of legacy. You know, we don't have a huge legacy router business or a huge legacy sand business and all the associated costs and services. So we see our competitors sometimes up pushing one more generation of legacy technology. And so we feel like we're getting pulled in to kind of leap ahead, not being encumbered by the past. And then I always say, little things don't mean a lot, little things mean everything. So it's the thousands of Lenovo engineers that are tuning this for both of those solutions, especially with Nutanix, we've got integrated networking now in the stack. So we're not just solving the storage problem, but we're addressing that network solution as well. There's a reason why we have 150 world record benchmarks is that fine-tuning with our partners to get the last few bits of performance out of the systems. I wonder if you could talk a little bit more about this lack of legacy, as well as the cost efficiencies you referenced in the keynote in terms of having everything in China and you described going left to make the servers and going right to make the PCs. Can you talk a little bit about how that helps Lenovo improve its offerings? Yeah, so I think we have the benefits of being kind of an autonomous data center group and making our own decisions, but we're taking advantage of the manufacturing capability of Lenovo. So if you look at the devices side, Lenovo's building about four devices a second. And on the server side, we build a little bit over a hundred servers an hour. But if you go into, for example, we have factories in Seville, Hungary, Monterey, Mexico, North Carolina, in even Shenzhen. If you go into our Shenzhen factory, the parts warehouse is common on the first floor. It comes up through the second floor and actually goes left for notebooks, right for servers. So all that vendor managed inventory, we're taking advantage of that scale of four devices a second and we get that advantage, unlike some of our competitors. What that really means to our customers is we can compete with the best commodity costs and the best manufacturing costs in the industry. I mean, some of our third party analysts are saying we have manufacturing rates that could be almost half of our competition because some of the scale that we have. Kirk, one of the things that caught my attention in the keynote was talking about using the intelligence and inside your supply chain through the whole kind of life cycle of the products. Can you give us a little bit of insight as to how you're using it internally and what customers see from that? Yeah, so we just hired our Chief Technology Officer, it was Dr. Ray Yong, who's ex-Microsoft, he's one of the world leaders in artificial intelligence. And our CIO and us in the data center group, we've all been collaborating to bring artificial intelligence deeper into everything we do, but even from our supply chain to our order delivery, which is why I think our customer satisfaction rates are so high because we can predict the supply chain, the right amount of inventory, and then shipping it all the way through and predicting the dock date to our customers incredibly well. But one of the key learnings we had, I think over the last couple of years of acquiring the IBM X86 server business, it took us almost two years to get off the IT systems, right? We had over 40 different databases that we had to integrate in, and now that as of January one, they've all become part of Lenovo, pulling those big data analytics together and using artificial intelligence, we can now track the aged population of all of the installed base of over about two and a half million servers that we have out there, who's coming up for warranty replacements, who's coming up for hardware replacements, and that's almost that predictive analytics that customers are really valuing. In terms of Lenovo and its aspirations for the future, in terms of becoming the world's biggest supercomputing company, you are the fastest growing, but let's talk about impact, and this is something that YY talked about in his keynote and really making sure that Lenovo is working not just helping companies sell more widgets, but also with scientific breakthroughs, curing diseases, predicting the effect of climate change. How big a part is that of your job? Yeah, well, I think it's something that's incredibly motivating to Lenovo employees, right? Beyond financial return to shareholders is every day I get internal texts or WeChat's from Lenovo employees that are feeling really proud to be part of a company that's off trying to do something good for humanity as well. I mean, on the PC side, I think we're selling Chromebooks and bridging the digital divide between kids in Africa and kids in the major metropolitan areas of the world, but on the data center side, things like we did with the Barcelona supercomputer where we now have the fastest next generation Intel computer on the planet. It is one of the breakthroughs, predicting weather and climate change, predicting and tracking the next tsunami to evacuate coastlines faster, trying to find cures to some of the most terrible diseases on earth, so it's a huge part of I think the culture of trying to do good for the world, not just make a financial return, so. Kirk, I want to go back to think Agile for a second because you dropped a hint that we couldn't let pass. Said that it's likely that we should expect M&A from Lenovo here, now I don't expect you to tell us who you're looking at, but what do you look for? What type of company to look for? What would fit well into the Lenovo portfolio? Well, it's funny because we're Lenovo, so we're not Huawei or Cisco or EMC, right? Big names, what I would say, in traditional networking and storage, so all of these startups out there that are, essentially competing with those large legacy companies are coming to us saying, hey, we want either access to China, given our strong China presence, but also global scale, because once they get to a couple hundred million dollars in revenue, they have a real tough time scaling, and as I said, we're participating now in over 160 countries, 50 call centers, that's pretty big investment, even for some of the fastest growing software defined companies in the world to set up, so I think we want to build our own internal intellectual property, but we're also going to look at joint ventures and M&As in the areas of software defined networking, software defined storage, because our customers, again, see us with that lack of legacy and are really pushing us to go even faster, which is great. So those are the businesses you're interested in, but what are the kind of cultures you're looking for, particularly because culture is such an important part of Lenovo? Yeah, I think one of the reasons I moved from Intel to Lenovo is they're just fierceless innovators, right, and we became number one in PC through innovation, not just cost cutting, and I see that on the data center side as well, all of those little things that matter, so I think we want to have people who have the highest of aspirations, right, when we go into something we want to be number one in it, people who are fearless, that aren't afraid of companies that might be three or four times our size, but that want to make a global impact, so a lot of these customers, they've already made their, maybe their financial returns in a previous startup, and now they're looking at how they can go, change the world, and the scale that Lenovo brings, I think it's something that's pretty exciting to them. Kirk, on the Intel point, I think this is the fourth show that we've done the QBAT this year where Intel's been up on stage arm in arm with a partner in the cloud space and the server space talking about that next generation chip set. What's going to set Lenovo apart with this next wave, and what are your customers excited about for this next spin of the Intel chip set? Yeah, so I think we're seeing 59% performance improvement on things like SAP HANA, we're number one in the world in installations, we're seeing better total cost of ownership reductions, so particularly in hyper scale and HPC, I mean we see a step function transition over almost immediately on the new Intel chips. And we're looking at all architectures of course as well, but I think with Intel we've put in the largest Omnipath solutions on the planet, with Barcelona Supercomputer, we're working not just on the processors, but on their SSDs, on their accelerator, to see on PHY technology, on the fabrics, so we have a really tight innovation relationship with them, so we're selling probably more content per box, and so therefore we're obviously able to fine tune the entire portfolio together with them, but I think customers are excited about us continuing this world record performance that we've had, the TCO reductions of getting to lower power, most of these supercomputers are still constrained by power, so we have more than 25 patents now in water cooling technology to try to be greener for the earth, so I think those are some of the things that we're seeing from Intel. Those are the selling points. Yeah, I mean, higher performance. We have a very tight, close relationship, so there's not a lot of finger pointing. If we get into an issue, as all companies do, we can solve it very, very quickly, and I think, again, being number one in customer satisfaction from a third party is our testament to that. Kirk. Kirk, this last question I had on that, the hyper scale market, could just give us the update as kind of Lenovo's position there, heard a lot about the HPC market, we know kind of the traditional enterprise market, but hyper scale I think is one of the areas you differentiate yourself. Yeah, I mean, we obviously sell the Baidu Alibaba 10 cent as part of China, we're one of their largest suppliers and partners, and we're now expanding through this new segment focus into the west coast of the United States, so we don't necessarily go out and say the names of those customers, but there are multiple hyper scale customers in the top 10, many of which are based in the US, that we are already now shipping into significantly more units this year than last year, and it's a function of really getting cost optimized. Again, we're taking advantage of PC economics and bringing them to hyper scale compute, so we're not afraid of low margin, high volume business, because that's what we're doing in the PC space every day. So we're going to continue to expand not just in the top tier ones, but also move into the tier two, tier three kind of customer base as well, so we're expanding that sales force, looking at it end to end, only burdening it with what it needs to be burdened with, relative to the cost structure, so that we can compete with the best, most cost effective companies in the world, and still make a little bit of money for Lenovo shareholders, so. Kirk, thanks so much for joining us, it's been a pleasure having you on the show. Yeah, the excitement around here is great, so we appreciate you guys coming and appreciate the time. Great, I'm Rebecca Knight for Stu Miniman, we'll be back with more of Lenovo Transform after this.