 From theCUBE Studios in Palo Alto in Boston, bringing you data-driven insights from theCUBE and ETR. This is Breaking Analysis with Dave Vellante. Tech spending is poised to rebound as the economy reopens in 2021. CIOs and IT buyers, they expect a 4% increase in 2021 spending based on ETR's latest surveys. And we believe that number will actually be higher in the six to 7% range even. The big drivers are continued fine-tuning of an investment in digital strategies, for example, cloud security, AI, data and automation. Application modernization initiatives continue to attract attention and we also expect more support with work from home demand, for instance, laptops, et cetera. And we're even seeing pent-up demand for data center infrastructure. Now the major risks to this scenario, they remain the pace of the reopening of course, no surprise there. However, even if there are speed bumps to the vaccine rollout and achieving herd immunity, we believe tech spending will grow at least two points faster than GDP, which is currently forecast at 4.1%. Hello and welcome to this week's Wikibon Cube Insights powered by ETR. In this Breaking Analysis, we want to update you on our latest macro view of the market and then highlight a few key sectors that we've been watching, namely cloud with a particular drill down on Microsoft and AWS, security, database, and then we'll look at Dell and VMware as a proxy for the data center. Now, here's a look at what IT buyers and CIOs think. This chart shows the latest survey data from ETR and it compares the December results with the year earlier survey. Consistent with our earlier reporting, we see a kind of a swoosh-like recovery with a slower first half and accelerating in the second half. And we think that CIOs are being prudently conservative because if GDP grows at 4% plus, we fully expect tech spending to outperform. Now, let's look at the factors that really drive some of our thinking on that. This is data that we've shown before. It asks buyers if they're initiating any of the following strategies in the coming quarter in the face of the pandemic. And you can see there's no change in work from home, really no change in business travel, but hiring freezes, freezing new deployments, these continue to trend down. New deployments continue to be up. Layoffs are trending down and hiring is also up. So these are all good signs. Now, having said that, one part of our scenario assumes workers return and the current 75% of employees that work from home will moderate by the second half to around 35%. Now, that's double the historical average and that large percentage, that will necessitate continued work from home infrastructure spend, we think, and drive HQ spending as well in the data center. Now, the caveat, of course, is that lots of companies are downsizing corporate headquarters so that could weigh on this dual investment premise that we have. But generally, with the easy compare in these tailwinds, we expect solid growth in this coming year. Now, what sectors are showing growth? Well, the same big four that we've been talking about for 10 months, machine intelligence or AI, ML, RPA and broader automation agendas, these lead the pack along with containers and cloud. These four you can see are above that red dotted line at 40%, that's a 40% net score, which is a measure of spending momentum. The cloud, it's the most impressive because what you see on this chart is spending momentum or net score in the vertical axis and market share or pervasiveness in the data center on the horizontal axis. Now, cloud, it stands out as it has a large market share and it's got spending velocity tied to it. So, I mean, that is really impressive for that sector. Now, what we want to do here is do a quick update on the big three cloud revenue for 2020. And so we're looking back at 2020 and this really updates the chart that we showed last week at our Cube on cloud event. The only difference is Azure. Microsoft reported in this chart shows our IaaS estimates for the big three. We had had Microsoft Azure and Q4 at 6.8 billion that came in at 6.9 billion based on our cloud model. Now, the points we previously made on this chart, they stand out. AWS is the biggest and it's growing more slowly but it throws off more absolute dollars. Azure grew 48% last quarter. We had it slightly lower and so we've adjusted that and that's incredible. And Azure continues to close that gap on AWS and we'll see how AWS and Google do when they report next week. We definitely think based on Microsoft's result that AWS has upside to these numbers, especially given the Q4 push year end and the continued transition to cloud and even Google we think can benefit. Now, what we want to do is take a closer look at Microsoft and AWS and drill down into those two cloud leaders. So take a look at this graphic. It shows ETR's survey data for net score across Microsoft's portfolio and we've selected a couple of key areas. Virtually every sector is in the green and has forward momentum relative to the October survey. Power Automate, which is RPA, Teams is off the chart. Azure itself, we've reported on that is the linchpin of Microsoft's innovation strategy, serverless, AI, analytics, containers. They all have over 60% net scores. Skype is the only dog and Microsoft is doing a fabulous job of transitioning its customers to Teams away from Skype. There are still people using Skype. Yes, I know, it's crazy. Now, let's take a look at the AWS portfolio drill down. There's a similar story here for Amazon and virtually all sectors are well into the 50% net scores or above. Yeah, it's lower than Microsoft, but still AWS very, very large. So across the board strength for the company and it's impressive for a $45 billion cloud company. Only Chime is lagging behind AWS and maybe AWS needs a Teams-like version to migrate folks off of Chime. Although you do see it's an uptick there relative to last survey, but still not burning the house down. Now, let's take a look at security. It's a sector that we've highlighted for several quarters and it's really undergoing massive change. This, of course, was accelerated by the work from home trend and this chart ranks the CIO and CISO priorities for security and here you see identity access management stands out. So this bodes well for the likes of Okta and SailPoint. Of course, end point security also ranks highly and that's good news for a company like CrowdStrike or Fourscout Carbon Black, which was acquired by VMware and you can see network security is right there as well. I mean, it's all kind of network security but Cisco, Palo Alto, Fortinet are some of the names that we've followed closely there and Cloud Security, Microsoft, Amazon and Zscaler also stands out. Now, what we want to do now is drill in a little bit and take a look at the vendor map for security. So this chart shows one of our favorite views. It's getting net score or spending momentum on the vertical axis and market share on the horizontal. Okta, note in the upper right of that little chart there, that table. Okta remains the highest net score of all the players that we're showing here. SailPoint and CrowdStrike definitely looming large. Microsoft continues to be impressive because if it's both presence, you can see that dot in the upper right there and its momentum and for context we've included some of the legacy names like RSA and McAfee and Symantec. You can see them in the red and as is IBM and then the rest of the pack they're solidly in the green. We've said this before, security remains a priority. It's a very strong market. CIOs and CISOs have to spend on it. They're accelerating that spending and it's a fragmented space with lots of legitimate players and it's undergoing a major change and with the solar winds hack it's on everyone's radar even more than we've seen with earlier high profile breaches. We have some other data that we'll share in the future on that front but in the interest of time we'll press on here. Now one of the other sectors that's undergoing significant changes, database. And so if you take a look at the latest survey data so we're showing that same XY view the first thing that we call your attention to is Snowflake and we've been reporting on this company for years now and sharing ETR data for well over a year. The company continues to impress us with spending momentum in this last survey it increased from 75% last quarter to 83% in the latest survey. This is unbelievable because having now done this for quite some time, many, many quarters these numbers are historically not sustainable and very rarely do you see that kind of increase from the mid 70s up into the 80s. So now AWS is the other big call out here. This is a company that has become a database powerhouse and they've done that from a standing start and they become a leader in the market. Google's momentum is also impressive especially with its technical chops it gets very, very high marks for things like BigQuery and so you can see it's got momentum it does not have the presence in the market to the right that for instance AWS and Microsoft have and that brings me to Microsoft is also notable because it's so large and look at the momentum it's got very, very strong spending momentum as well. So look this database market it's seeing dramatically different strategies. Take Amazon for example it's all about the right tool for the right job they get a lot of different data stores with specialized databases for different use cases Aurora for transaction processing Redshift for analytics you want a key value store, hey some DynamoDB graph database, you got a little Neptune document database they've got that you got time series database a very, very granular portfolio. You got Oracle on the other end of the spectrum it along with several others are converging capabilities and that's a big trend that we're seeing across the board into sometimes we call it a mono database sort of sort of one database fits all. Now Microsoft's world kind of largely revolves around SQL and Azure SQL but it does offer other options but the big difference between Microsoft and AWS AWS's approach is really to maximize the granularity and the technical flexibility with fine-grained access to primitives and APIs that's their philosophy was Microsoft with Synapse for example they're willing to build that abstraction layer as a means of simplifying the experiences you know AWS they've been reluctant to do this their approach favors optionality and their philosophy is as the market changes that will give them the ability to move faster Microsoft's philosophy favors really abstracting that complexity now that adds overhead but it does simplify so these are two very interesting counter-poise strategies that we're watching and we think there's room for both which is not necessarily one better than the other it's just different philosophies and different approaches. Now Snowflake for its part is building a data cloud on top of AWS Google and Azure so it's another example of adding value by abstracting away the underlying infrastructure complexity and it obviously seems to be working well albeit at a much smaller scale at this point. Now let's talk a little bit about some of the on-prem players the legacy players and we'll use Dell and VMware as proxies for these markets. So what we're showing here in this chart is Dell's net scores across select parts of its portfolio and it's a pretty nice picture for Dell I mean everything but desktop is showing forward momentum relative to previous surveys. Laptops continue to benefit from the remote worker trend in fact PCs actually grew this year if you saw our spot on Intel last week PCs had peaked, PC volume had peaked in 2011 and it actually bumped up this year but it's not really, we don't think sustainable but nonetheless it's been a godsend during the pandemic as data center infrastructure has been softer. Dell's cloud is up and that really comprises a bunch of infrastructure along with some services so that's showing some strength both look at storage and server momentum they seem to be picking up and this is really important because these two sectors have been lagging for Dell but this data supports our pent up demand premise for on-prem infrastructure and we'll see if the ETR survey which is forward looking translates into revenue growth for Dell and others like HPE. Now what about Dell's favorite new toy over at VMware? Let's take a look at that picture for VMware it's pretty solid. VMware cloud on AWS we've been reporting on that for several quarters now it's shown up in the ETR survey and it is well it's somewhat moderating it's coming down from very high spending momentum so it's still we think very positive. NSX momentum is coming back in the survey I'm not sure what happened there but it's been strong. VMware's on-prem cloud with VCF VMware cloud foundation that's strong. Tenzo was a bit surprising because containers are very hot overall but so that's something we're watching seems to be moderating maybe the market says okay great VMware you're embracing containers but Tenzo is maybe not the we'll see we'll see how that all plays out I think it's a right strategy for VMware to embrace that container strategy everybody said remember everybody said containers are going to kill VMware well VMware rightly they've embraced cloud with VMware cloud on AWS they're embracing containers so we're seeing much more forward thinking strategies and management philosophies carbon black that benefits from the security tailwind and then the core infrastructure looks good vSAN vSphere and VDI so the big thing that we're watching for VMware is of course who's going to be the next CEO is it going to be Zane Rowe who's now the acting CEO and of course there's been the CFO for years who's going to get that job it will be Sanjay Poonan the choice I think is going to say much about the direction of VMware going forward in our view succeeding Pat Gelsinger is like following Peyton Manning at QB but this summer we expect Dell to spin out VMware or do some other kind of restructuring and restructure both VMware and Dell's balance sheet it wants to get both companies back to investment grade and it wants to set a new era in motion or it's going to set a new era in motion now that financial transaction maybe it does call for a CFO in favor of such a move and can orchestrate such a move but certainly Sanjay Poonan he's been a loyal soldier and he's performed very well in his executive roles not just at VMware but previous roles SAP and others so in my opinion there's no doubt he's ready and he's earned it and of course with no offense to Zane Rowe by the way he's an outstanding executive too but the big questions for Dell and VMware's what will the future of these two companies look like they've dominated VMware especially has dominated the data center for a decade plus they're responding to cloud and some of these new trends they've made tons of acquisitions and Gelsinger has orchestrated TM expansion they're still going to get through paying down the debt so they can really double down on an innovation agenda from an R&D perspective that's been somewhat hamstrung and to their credit they've done a great job of navigating through Dell's tendency to take VMware cash and restructure its business to go public and now to restructure both companies to do the pivotal acquisition et cetera et cetera et cetera and clean up its corporate structure so it's been a drag on VMware's ability to use its free cash flow for R&D and again it's been very impressive what it's been able to accomplish there on the Dell side of the house its R&D largely has gone to kind of new products follow on products an evolutionary kind of approach and it would be nice to see Dell be able to really double down on the innovation agenda especially with the looming edge opportunity look R&D is the lifeblood of a tech company and there's so many opportunities across the clouds and at the edge we've talked this a lot I haven't talked much about or any about IBM we wrote a piece last year on IBM's innovation agenda really hinges on its R&D it seems to be continuing to favor dividends and stock buybacks that makes it difficult for the company to really invest in its future and grow its promise grow growth Ginny Rometti promise growth that never really happened Arvind Krishna is now promising growth hopefully it doesn't fall into the same pattern of missed promises and my concern there is that R&D you can't just flick a switch and pour money and get a fast return it takes years to get that we talked about Intel last week so similar things going on but I digress look these guys are going to require in my view VMware, Dell, I'll put HPE in there they're going to require organic investment to get back to growth so we're watching these factors very, very closely okay, got to wrap up here so we're seeing IT spending growth coming in as high as potentially 7% this year and it's going to be powered by the same old culprits cloud, AI, automation we'll be doing an RPA update soon here application modernization and a new work paradigm that we think will force increased investments in digital initiatives the doubling of the expectation of work from home is significant and so we see this hybrid world not just hybrid cloud but hybrid work from home and on-prem you know this new digital world and it's going to require investment in both cloud and on-prem and we think that's going to lift both boats but cloud clearly the big winner we're not by any means suggesting that the growth rates are going to somehow converge they're not cloud will continue to outpace on-prem by several hundred basis points throughout the decade we think NAWS and Microsoft are in the top division of that cloud bracket security markets are really shifting and we continue to like the momentum of companies and identity and end point and cloud security especially the pure plays like CrowdStrike and Okta and SailPoint and Zscaler and others that we've mentioned over the past several quarters but CISOs tell us they want to work with the big guys too because they trust them especially Palo Alto networks Cisco obviously in the mix their security business continues to outperform the balance of Cisco's portfolio and these companies they have resources to withstand market shifts and we'll do a deeper drill down into security soon and update you on other trends and other companies in that space now database world it continues to heat up I used to say on theCUBE all the time that decade and a half ago database was boring and now database is anything but and thank you to cloud databases and especially Snowflake it's data cloud vision it's simplicity we're seeing lots of different ways though to skin a cat and while there's disruption we believe Oracle's position is solid because it owns mission critical that's its stronghold and we really haven't seen those workloads migrate into the cloud and frankly I think it's going to be hard to rest those away from Oracle now AWS and Microsoft they continue to be the easy choice for a lot of their customers Microsoft migrating its software estate AWS continues to innovate we've got a lot of database choices the right tool for the right job so there's lots of innovation going on in databases beyond these names as well and we'll continue to update you on these markets shortly now lastly it's quite notable how well how well some of the legacy names have navigated through COVID you know sure they're not rocketing like many of the work from home stocks but they've been able to thus far survive and in the example of Dell and VMware the portfolio diversity has been a blessing the bottom line is the first half of 2021 seems to be shaping up as we expected momentum for the strongest digital plays low interest rates helping large established companies hang in there with strong balance sheets and large customer bases and what'll be really interesting to see is what happens coming out of the pandemic will the rich get richer? Yeah well we think so but we see the legacy players adjusting their business models embracing change in the market and steadily moving forward and we see at least a dozen new players hitting the radar that could become leaders in the coming decade and as always we'll be highlighting many of those in our future episodes okay that's it for now listen these episodes remember they're all available as podcasts all you got to do is search for breaking analysis podcasts and you'll get them so please listen like them if you like them share them really I always appreciate that I publish weekly on wikibon.com and siliconangle.com and really would appreciate your comments and always do in my LinkedIn posts or you can always DM me at dvolante or email me at david.volante at siliconangle.com tell me what you think is happening out there don't forget to check out ETR plus for all the survey action this is Dave Vellante thanks for watching the cube insights powered by ETR stay safe everyone we'll see you next time