 Live from Las Vegas, it's theCUBE. Covering VMworld 2017, brought to you by VMware and its ecosystem partners. Okay, welcome back everyone live here at VMworld 2017 live CUBE coverage. Third day of three days of wall-to-wall coverage. Two sets here in the broadcast center with theCUBE. I'm John Furrier, Dave Vellante. We're here with Pat Gelsinger, CEO of VMware. Pat, great to see you. Smiling, I know you had a little bug, flu or something going on, but you delivered a great performance on stage. Congratulations. Thank you, Dave, and great to see you. Awesome to be here, Pat, thank you. It is so, thanks, John, and you know what? We have this little inside joke here where, right, Dave stood me up a few times, but he made it here today, so I'm thrilled. I'm back on theCUBE, this is great. I was on the wire, I know, but I'm back, right? He's on the bandwagon, numbers are up, looking good, change of performance, good job, good to see you. Hey, great job as CEO of VMware. Obviously, with Dell Technologies, a lot of things going on last year. You commented here on theCUBE, what a personal struggle it's been for you on the professional and business side last year. Stocks at an all-time high, five years. Financially, VMware's doing great. Everyone's pumping, the message is clear, and you know, you look at the keynotes, a couple things that jump out at us when we look at all these events is, by the wave slide, when you position the wave slide, you can see who's got the waves down, and you're a wave guy. You've seen many waves. Your wave slide was very clean. Cloud, IoT Edge, very clean. VMware's made some decisions, made some bets, changed some bets that kind of weren't happening. Those were a big point in VMware's history under your tutelage. Talk about the bets you made, what's panning out, obviously the clarity with the channel and the ecosystem and the communities there. What were the big bets, Pat, and why is VMware doing so well right now? And I sort of go back, it's been five years now. In fact, VMworld sort of marks my anniversary. It was a stage five years ago when I took over as CEO. And soon after becoming the CEO, I and the leadership team sort of got together and we said, hey, we need the focus, and we laid out our three-part strategy. One was around the private cloud, do the whole SDDC. The second was what we called the hybrid cloud at the time, we needed to figure out a way to enable public and private resources together. And third was the UC. And sort of each one of those, if we just click a bit deeper into it, an SDDC, obviously the NSX move, we had just acquired NYSERA. We had launched the VSAN project. It was just a little seedling R&D project. We brought together VRealize, which was sort of a collection of parts in the management space, but we really solidified that SDDC. And now all legs of it are performing. You sort of say, check, right? We are virtualizing the data center. We're no longer virtualizing compute. The second on the cloud, obviously our first, VCloud Air, the way the market went and so on, we had to do some adjustments there. But now when you think about how we said, build private clouds, embrace public clouds, give consistent operations across any cloud, this is all planning out. The VMware partnership with Amazon, delivering on that, the VMware cloud services, people are excited about that. And in many respects, people say, wow, you got the IBM partnership, the Amazon partnership, you got 4,400 cloud provider partners as well. And what you've done for the cloud service, wow, in some ways maybe you have the most comprehensive strategy to the cloud now. And then in the end user computing space, it was really, we were always sort of this perpetual number two to Citrix. And it was sort of like, are you guys like even trying in that space? And we said, hey, if we're going to be in the space, we have to be in mobility. We did the AirWatch acquisition, and now those pieces that fit together with Workspace One and that's performing. So you look at every piece of what we're doing, you sort of say, hi, you're executing. And then maybe we put a cherry on the top with the security strategy. As we've done with micro-segmentation, a single sign on and now app defense. And those are things that are really, that's the core of what we're doing and all of them are delivering. Well, I was in New York City, shortly after you took this position and you laid out for the financial analysts, sort of your view of the total available market, the segmentation, you did your homework. And a lot of those are coming true. Now, two and a half years in, license revenue was down. It looked to be a little, some bumps in the road today. Let's review the numbers. I mean, license growth, what, 13%? 14%, revenue was 12%. License revenue was 14%. Overall, licensed bookings was 14%. Overall bookings 18%, 22% EPS growth. Those are pretty good numbers. The cash flow of almost $3 billion. 3 billion is what we're saying, not almost 3 billion, just. I thought it was, okay, and then nice. And then a very capital efficient business model. Yes, yeah. So all things are pointing to great tailwinds for you guys. To what do you attribute that? What are the forces, was it? And how did the clarity around your cloud strategy fit into that? And also the reality of customers that you can't bring your business and reform it to the cloud, that you've got to bring the cloud to your data. I wonder if you could talk about those tailwinds. Sure, and as we go think about all of those pieces, obviously our strategy now is resonating with customers. And a couple of years ago, it was discussions like OpenStack, and hey, everything's going to be in the public cloud. You guys are dead, right? And now people realize, oh, you can't just refactor your applications to the public cloud. That's hard. And when you've moved, you haven't gotten any value from that. VMware gives you now the seamless way to do it. We stitched together that whole strategy and people say, oh, that works. New capabilities are virtual networking. It's like, wow, that really changes how we think about the entire networking space. So one, the strategy is resonating to customers broadly. Also, we've clearly seen that our own execution is just picking up momentum. You know, our sales teams is just a very balanced performance across all the GEOs, every aspect of how we're building our partner relationships, et cetera. You know, and those are things that just take a long time to build, right? It's easy to talk about sales execution. It just takes time to get those capabilities in place and continued great performance by our partner community as well, very visible here. And then the Dell deal is working for us. You know, initially it drove us into the dull drums, you know, $43 a share, right? And now it's delivering real acceleration to our business. We've come through the other side, you know, a real respect of the ecosystem plus the acceleration from Dell. So everything really feels good. Yeah, things are pumping. It's awesome, congratulations. But let's get back to the bets I want to get to, because by the way, NSX I want to get to in a second because that's going to be another power engine. You mentioned it last year, but let's get that in a second. The bets that we see right now at this show, it was a big announcements where obviously Andy Jassy was on stage. You guys shipped a general availability of VMware on AWS, which was part of the announcement we covered in the spring in San Francisco. So you shipped it, which was big because on the heels of VCloud Air, you needed to get that win and you got to win. And then Andy came out and talked to all your customers. Hey Ops guys, we got your back. This is a real deal. That's pretty good for the customers. Then you got Google on here with this kind of Kubernetes inside baseball, long game, strategic intent around containers as a service, making things easier, shows another hand to the customers. You got some headroom. So you got operational support now with the cloud with Amazon, Google participating with Pivotal. Nice bet. Explain why those are two important bets. Yeah, and I'll actually say there's three important bets, but obviously the first one is number one public with a number one private. Boom, they come together, customers go, wow. This is an elegant solution. That's the thing I always say to customers, can you run vSphere, right? We got millions of people who can say yes to that. You can now use VMware and AWS. It's really that simple. You saw it demonstrated as well. And the elegance, the simplicity of that, oh, I can now add nodes to my cluster and I can now move workloads to it. It's just, okay, good. You're now taking advantage of the cloud. And the power of that with literally 60 million workloads running that now have that kind of flexibility. Every CAO now has a massive new capability in his toolbox to set his IES strategy for the future. Game changing. Clearly the Google Pivotal announcement was very much aimed toward that future developer, the container development. I'm one of the cool kids who's doing microservices and scale out, but clearly bringing together the DevOps community with the infrastructure and operations, nobody's effectively bridging that gap today. And that's exactly where we're stepping into the middle with PKS, bringing all of the VMware stack up and bringing the developer friendly environment down. Very powerful and have Google here with us was a big affirmation of that strategy. And the other one I'd say is the IBM partnership. This is the big of the big, right? In the center of their install base, the customers who are on them today, plus there also. We had them there for the services. You might see them again in an event in the near future in a more prominent way as well. And that's also working for us. And then the other 4,399 cloud partners. So all of those taken together, very comprehensive. And then of course you lay the icing on the cake, which is the VMware cloud services. Can you help us understand the sort of architectural evolution and the implications of cloud? Obviously VMware did a great job of dealing with the performance issues related to the abstraction layer and servers, okay, the compute piece, check storage with flash, used to be the problem, now it's less and less the bottleneck and people talk about, okay, the network is now the next bottleneck. And as you think about multicloud and binding those clouds, if you will, can you talk about architecturally how you're evolving, how VMware is evolving and what the architectural challenges are and sort of lay out what that looks like in the future? Yeah, and clearly, you know, I always like to say, and the data has gravity. So, you know, compute is now getting pretty easy to move around, right? The data has gravity, it's pretty heavy to move around. You know, we can use age old computer science tricks like caching, you know, but ultimately, you know, these, you know, petabytes of data starts to get to be very heavy. And then obviously the network is how you connect those things together. So we can apply more, we have more and more flexibility to move the compute to the data wherever it is in the future. So clearly, you know, as we're thinking about multicloud and hybrid cloud, it's to make it easier and easier, you know, for people to say, this is where I'm going to put my data for the following reasons. You know, the following reasons may be, hey, I want it to be cheap, available globally in the cloud, so I'm going to pick a cloud provider, you know, a Google, Amazon, IBM, you know, doesn't matter. Or I'm going to put it in this environment because I have to have, you know, this network of people working on it. Or for governance reasons, or privacy or others, I need to put it here. And now we can make it very easy to bring compute to that or even, you know, as we think even further out of time, not just computer containers, but also functions and serverless as well. And obviously solving network bottlenecks underneath that, you know, make the network easier and easier. And with NSX, obviously, as we keep expanding that platform of capabilities, you know, we have to make all of the network functions easily consumable, right, at that software layer now. So you're going to see more and more of routing functions and load balancer functions, obviously, with micro segmentation firewall functions moving into that layer, more intelligence, because we're going to be able to say, wow, if I move that piece of workload relying on this data, oh, that's a pretty bad move. You know, you have to start having a much more affinity-based allocation of where things move as well. So that ends up being intelligence in the management plane as well, combining with that agility that we're building in the networking layer. And, you know, a lot of cases that you think even further out of time, you know, it's going to be, what's all this edge computing? Because now you're going to have all these devices creating extraordinary amounts of computing capacity at the edge. So that's where some of the technologies, like SD-WAN, start to become relevant to play as well. And NSX becomes this way that we can reach even further, right, and closer, and other factors, particularly as we start thinking about edge and IoT use cases, where it won't be about data gravity, it'll be about latency issues of delivered value to the robot or, you know, to the car to swerve or whatever it might be. It's interesting that the data and software in the world, data-eating software, as we say in theCUBE, you have, you guys as an infrastructure provider, looking like a SaaS company. So more and more, software and data are driving everything. So the question is, is this going to be a VMware inside the cloud campaign coming? I mean, it will see some patterns here, Pat. You know, what? You know, I may be able to reuse some of that intel inside marketing programs. Yeah. That is Robin. But you know, Rob is like that all the way up there. But this is what we're seeing. Yeah, Robin doesn't let me in the marketing department. Just a little bit. Pat, we have a few ideas we need to test. Okay, good. Now, Lee. Okay. Yeah. You know, I commented on this last spring, which, oh, VMware capitulated in these cloud deals. But here's what's interesting. As the cloud starts to emerge in these specialty clouds, I call them, I don't call them tier two, but a second level of clouds. The native guys, not cloud native, but like Amazon, Google, Microsoft, will always have that native cloud position. But now a new set of functionalities emerging called cloud service providers on steroids or next generation cloud service providers, they're going to need a supplier, right? VMware is perfectly aligned now to come in to power that. So you can argue that VMware now never capitulated. They have 5,000 plus customers. They're not going anywhere yet, or there's more opportunity. So talk about this new dynamic, the power of the customer base, and how it fits in this new cloud dynamic where new clouds will emerge on top of these native clouds. Yeah. And, you know, a couple of just like little data points to help that and then talk about it more broadly. You know, clearly, I mean, your customers, I had a big burly federal customer I was meeting with, and I was a little bit afraid to say no to the guy. I know those words. And I said, you know, I tried to re-platform to the native cloud services and I couldn't get it done, right? It was hard, it was heavy. So, you know, the idea of VMware cloud being able to now take him to the cloud in the seamless way, wow, that was powerful to him. You know, another little data point, when we had the first rumors of our AWS partnership came out, one of the first phone calls I got was from another cloud provider and says, I want to be your first partner for that. And I'm like, don't you compete with Amazon? Right? And, you know, I mean, I was really sort of taken back. And he says, no, no, no. He says, you know, we realize that we can't compete with them. We have to add value with them. And yeah, we have our specialized cloud services that we offer. You know, we're reselling Amazon cloud already and your service combined with what we're already doing. It was one of our VCAN partners now, our VMware cloud provider partners was adding this service that you're doing. Can we resell that as well? How can we be the lead partner for that as well? So very much that partner community for us is very much, you know, some of them will be, quote, specialized clouds, but many of them will be, you know, I'm the point of the customer relationship now. You know, I have all of these workloads, many of them built on VMware. I have these other service offerings, you know, because I want to own and take care of that customer for life. Relationships there. They own it. They own it. Absolutely. And you know, if you're racked space, you're going to call that fanatical service. If you're IBM, you're going to call that vertical industry competence and you know, so on. You know, and those relationships now are the center and now they're saying that this is other compute capabilities or service capabilities. I'm the one who are going to deliver. And in many cases, those are going to be specialized clouds as well. You know, to me, I find it stunning that many of my traditional enterprise customers, they're becoming service providers. You know, and essentially their customers or their internal departments are essentially becoming their tenants in a multi-tenant cloud way. Well, this changes the nature of the relationship the customer has with their vendor. Indeed. Because now it's not a procurement, it's a relationship piece. The clouds working together is changing the work relationship. Absolutely. Can you elaborate on some of those dynamics? Because you're going to have Amazon, you guys have been successful so far in working that relationship for both parties. Yeah. And you know, clearly as we look to the future here as well. You know, I mean, it's very, you know, we have to, we're learning how to partner with all of them and present a value proposition. And ultimately, you know, as I describe it, if you do what the customer wants, almost always you're going to do okay. Right? You know, oh, is that competitively better or worse and what happens here and so on like that? You know, keep your eye on the customer, do things that add value to the customer and things will work out okay in the long term. So Pat, four years ago on theCUBE, we asked you, is security a do-over? And you were pretty unequivocal about that. You said, yes. Absolutely. And then Monday on stage, you said, as an industry, we've failed you. Now, it's not for the lack of trying, it's not for the lack of funding. What is it and why is it changing and how will it change? Yeah. And I think, you know, if you think about that section of my keynote on Monday, you know, I tried to lay out, you know, I'll say a pretty declarative view of what we think is a fundamental restructuring of the industry where, you know, we need to melt many of the security functions into the infrastructure, not make it that you turn them on. It's like, it's hard to turn them off, right? You know, and right, unless you do something, you can't not be multi-factor and single sign on. You know, your data is going to be encrypted, right? Unless you like figure out that you really, really need it turned off, right? You're going to be micro-segmented unless you, you know, specifically, you know, force it, not to, you know, it's like to make all those things so standardized and so integrated, right? Because right now the problem is you got these almost 2,000 vendors, so many point solutions, and you, Mr. CIO, in a mobile cloud world where you own and control almost nothing, you got 2,000 things to stitch together, you got to test them, manage them, break sure they're updated and manage them. It's hopeless, right? And then you got attackers who basically are finding and weaseling their way around all the edge use cases for any of those individual products. It's a very broken view of delivering a security model for our customers. So we laid it out, the three things, secure the infrastructure, we're going to do a whole lot of that, melt these core functions, integrate an ecosystem, prove those use cases, contextual management to integration, you know, packet flows, all that kind of stuff. We have to do that with our core partners, right, for it, and then enable consistent cyber hygiene. Five things, we said lease privilege, data encryption, multi-factor authentication, one slip of the mind, software patching and updating, and micro segmentation. You're studying up for all that. Look at you, a CEO, good to see you. Any response to this other one? Response was the other big piece of the strategy. You know, for this, we really think that, and if you look at all the major breaches, we think 80 plus percent of them would be eliminated or the attack surface so dramatically reduced if you just did cyber hygiene well. And like I said on stage, it's like a sports team. You know, you don't need to practice the complex plays very often. Almost all your practice time is on the basics. Right, you do this really, really well on a consistent basis. You know, you don't have many problems. Had final question, I know the handlers are yelling at us across the way. You got to go. Final question. Okay, let's hang out for a while. Hey, CEO, you can do whatever you want, it's the CEO. You got a good stock price right now, you can do whatever you want now. We all know what the cloud looks like today, Amazon and the configuration, and the customers can get that and they see a path, they understand hybrid, they understand the cloud, they see the picture, they see the trajectory. My question for you is what is the expectation of the customer and the experience of the cloud in 2022 because now you can shoot the arrow forward. What is your vision for that expectation of the customer and the experience that they're going to have? Yeah, and let me suggest maybe three different dimensions for that, one might surprise you a little bit. But one is, if we do our job over the next couple of years, you're simply going to be able to say, and Michael likes to say this, cloud is a model, it's not a place. And we're going to be able to say, hey, we're going to make a set of services ubiquitously available, they might be on premise for business needs, they might be in the cloud across multiple clouds, you're going to be able to say, I have an IaaS environment that's globally available and infinitely scalable. You should say, and it just works. Sounds good, yeah. And has security built into it, I'm able to connect to it at all of these places, I'm able to stretch it to the edge. You know, it's just phenomenal in that way. Second piece as you think about that cloud is, now that we've really sort of addressed that, now you're going to, in many cases, your cloud is really going to be based on the services that it uniquely offers over and above that capability. And you might say, oh, you know, I'm really excited about that new machine learning breakthrough that Google did. And you're going to say, oh, most of my workloads, I have this flexibility VMware has given that to me, but that's exciting because I'm, you know, let me see how I can use that for my business advantage. Oh, you know, Watson came out with it, let me take advantage of that. You know, and boy, you know, that service list stuff that, you know, and lamb this, that's pretty cool. I'm excited about that. And you're going to be able to start saying, you know, against this fabric of flexibility, global availability, scalability, right? You know, I'm going to be able to take advantage of those. Other services are clearly going to be ensuring that I'm secure, that I'm meeting my regulatory requirements and, you know, the governance capabilities that I have associated with this. So, you know, that's really what the differentiator is going to be five years from now. You know, it's going to be the services over and above those capabilities. You know, but the other thing that we foresee happening is that, you know, 5G starts getting built out at the end of this decade. 5G will be potentially the largest capital buildout of the remainder of our careers. You know, I'm not going anywhere anytime soon. You know, we're healthy, you know, so like that, you know, but over the next 20 years, this is the big kahuna, right? You know, building a 5G networks, probably 10X the number of antennas are going to get installed, you know, 100X the bandwidth, new spectrum allocations, and 100X the new devices that are going to get connected to it as well. And how the 5G networks can interconnect with that cloud to deliver services, because all of a sudden I may have a whole, you know, I may have a VR, AR use case that needs 1000X the bandwidth, and then all of a sudden I may be trying to reach to, you know, 1000X the number of edge devices, and we're going to have these enormous interconnected cloud services. You know, and as we think about that, and that's why we sort of, you know, added that telco piece to the vision of, you know, VMware that we presented on Monday of this week. And that's why for us, you know, as we're starting to reach into the NFV space, the Vodafone announcement that we did this week, and you know, some of the edge and IoT things that we're doing, we're quite excited that that starts opening up, you know, and again, it's not going to happen in the next year or two at significance, but five years from now, this is a big deal for us as an industry. That's a big wave, get out of front of that wave. If you're not out in front of that wave, you're driftwood, someone once said on the queue, oh, that was you. Oh, that was you. Final question is only going to take 20 minutes to answer, but I noticed there's a soft side of Pat Gelsinger this year, hugs on stage. Oh my gosh. We get hugs now on the queue. Before we finish here, I'm going to give you both a hug. Right, you got a hug for consistency. You know, he gets a, you know, he was a, Yeah, absolutely. Give him the code. Forgive it, Joseph. The prodigal has returned, I love you. Pat Gelsinger, CEO, he's got a spring to a step. He's got some smiles, stocks up on the right, financials looking great, products looking great, customers are happy, great roadmap, big waves coming, Pat, thanks for sharing your insight. And commentary. It was a pleasure to be in the queue. Thank you guys. And thank you for your support over the years. You've been great guests. Very good. Thanks for having more live coverage after this short break.