 Okay, we're back inside theCUBE. This is SiliconANGLE.com, SiliconANGLE.tv's exclusive coverage of EMC World 2012. This is theCUBE, our flagship telecast. We go out to the events and extract the signal from the noise, talk to the smartest people we can find, entrepreneurs, CEOs, analysts, customers, and in some cases, the CFO of the company. And so we're a day three here at EMC World. We're kind of on the back end. I'm John Furrier, the founder of SiliconANGLE.com and I'm here with my co-host. I'm Dave Vellante of Wikibon.org and we're here with David Goulden, who's the executive vice president and CFO, as John said, of EMC. David, welcome to theCUBE. It's a pleasure. Great to have you on. Great to be here. Logan Ford, Troy. You are a unique CFO in the sense that you have a pretty varied background. You run sales for a number of organizations and now you guys are kicking butt and you come on as a CFO. I listen to your conference calls regularly. I thought I have to tell you the last conference call. I thought it was, I think the best I've ever heard. I've been listening to the EMC conference calls for a long time and what made it so good is virtually everything you guys said you were going to do, you're doing. And all the pieces are lining up. And I wanted to start with the triple play. You talk about it a lot. I do. A lot of our audience might not know what it is. I mean, maybe some of the Wall Street guys have been rolling their eyes, but a lot of our audience isn't familiar with the triple play. So I wonder if you could talk about that and your philosophy there. Sure, Dave. Yeah, let's start that. That's a great place to start. It's actually a framework we use to help run the company internally and also to help describe the kind of balance between our objectives externally. And the way we define our triple play is the first thing we want to do is make sure that in any year or period of time we are growing faster, we're gaining market share. Because as the market leader, we want to be demonstrating forward movements and market share gains. The second thing we want to be doing is investing for the future. Because obviously if you're not doing that, the future market share gains won't be there in years to come. And at the same time, producing financial leverage, which means growing our things to share a little faster than our revenue and having our free cash flow higher than our non-gap net income. Now the challenge, and there's a natural tension, is doing all three at once. Because obviously we could throttle down on the investment and that wouldn't help us on long-term market share gains. We could throttle up on the investment too much and that wouldn't give us financial leverage. So it's how you do that balance. And we think as a company that's $20 billion, we ought to be able to do all three of those. We ought to be able to do all three of those on an annual basis and on a sustaining basis over time. So it's actually a very helpful, simple framework and it actually helps us as much internally to explain to the manager and the company how we're running the business as it is a helpful framework to use externally with investors. So it works both ways. Yeah, so the thing that strikes me is the change that we've seen in the portfolio. I mean, when I look back at 2006, 2007, you know, okay, good company, had some great assets, that's a strong customer base, but then all of a sudden, bang, you know, data domain, Icelon, some tuck-in acquisitions, you look at the portfolio now and then unlocking the power of VMware as you guys have done and a lot of work from VMware. And now the portfolio is completely transformed. The number of new products that are driving revenue is amazing. That's a great indicator from a financial standpoint, isn't it? Well, and it really is because we're a technology company. At heart, we're all about having a leading technology. It's innovation. Yes, we want to wrap services around it and help our customers consume our technology, but EMC is about having the best procs to help our customers get to the cloud, handle that big data, handle security and trust. So the fact that we've been able to announce 42 new procs this week on the back of 41 new procs about a year ago in the first quarter last year, it gives us a lot to talk about and I think there's a lot of buzz this week on the back of all that. And it's exciting. I mean, customers like to talk about new things. We like to talk to our investors about the new technology and how all the procs are filling out the portfolio. So we feel as if we're a company that's very much on the move. David, I want to ask you about that trip of play because first of all, I love the framework. It's very simple to manage. I understand at least, probably not simple to manage. But as you guys diversify from storage and infrastructure to business solutions, cloud, big data, you're entering new markets, right? So there's risk involved, right? So there's a risk reward and EMC is known to take bold moves in the marketplace and have good rewards and good management to do that. How do you manage the growth strategy when you have to take those new market risks? How do you guys, does it play in the leverage side? Is it the investment side? How do you measure share? That's a great question because when I talk about those three metrics, I kind of view them all on a consolidated basis. And that's what we've said that when you look at EMC in its entirety and you add all the pieces together, that's what we're going to produce for you. But obviously inside the portfolio, there's moving parts. And like any company, we have a portfolio of proxy services and some are more mature and some are throwing off better financial returns and some are still in the investment mode, and obviously we're making big investments in areas like big data, which is going to have huge returns for us. So this is part balancing the overall portfolio. The good news is we think we're at the size and scale where you add it all together, it can make sense. So to your point, John, there's a lot of complexity beneath the scenes in saying, well, what's the relative return on this and how much can I invest over here? And what we try to tell people is we're going to try and invest at a rate that we can afford within our envelope. And that helps them understand a little bit about the trade-offs and how far we'll push any particular aspect. So when you move into a new market, when does it pop up on the radar to be measured in terms of share? When you guys can actually look at either a leadership position or there's actually known players in that category, or when do you say, okay, this is more of an investment, it's a new market, we're buying some startups or we're investing in some startups. When does the share clock or dashboard kick in? You know, first of all, we don't do something unless it's going to become a sizable business for us, right? So we have the size now if we get into a market and we talk about our bigger markets need to be at least billion-dollar businesses when they grow up and individual product lines need to be multi-hundred million-dollar businesses or else they just don't add enough for the return we're going to have to put into it. So to answer the question, market shares is an interesting phenomena. There are certain markets that are very well-defined and we can plot our relative market share and we can plot it trending and others like the big data analytics space, you know, the market is still very emerging. I'd say within two or three years of us getting into a market, you can get to the stage where you really know how you're doing from a share point of view and at that point in time you should start getting some level plans to return as well. And all your peers and top executives at the EMC always talk, we always ask the question organic investment and then M&A, everyone loves that question, what's your M&A? And you guys have been very healthy with your M&A. Good acquisitions, integrating them fast and with efficiency. Right, we've got a real cool competency of us. How does that continue to go? As the market's frothy with the innovation bubble as some say on the West Coast, there's a lot of venture capital deals going, EMC is a venture arm. We have you on how to balance that market and what's the vision for the investment strategy on the startup and the M&A side. Well, the good news is because of the financial strength we have, we can do both, right? We can spend over $2 billion a year on R&D through our core organic activity and we can spend an average of close to that per year on acquisitions. Obviously, the acquisitions is more lumpy based upon any particular company or any particular year where the R&D is spent, or whatever happens in the marketplace around it. Get them early. You like green plum. Well, and then there's always a timing. Do you get them early or do you let them develop a little bit more? And that's also a risk-reason we want to place them. No, no, we did that organically. We have our solution there. And then, of course, everything becomes a make-by-decision, right? So I don't think we bought a single company apart from when we got into a brand new market space. For example, when we went into security the first time with RSA, we didn't have anything that was an internal development activity at that level. But most of the things we're doing, for example, in the storage space, if we're buying an Extreme I.O. or an ISLON or a DD, each of those was kind of a make-by-decision. It was a time-to-market acceleration decision and there was some activity inside the company. We decided to accelerate by adding something inorganically into our portfolio. But I think the most important thing about our M&A strategy, and I actually did this math recently, most of our growth is actually really organic growth. And what I mean by that is we typically do not buy companies with much revenue. Let me give you some data points. I actually pulled this data point this morning. So if you go back to 2002, we were roughly a $5 billion company. 2011, we were roughly a $20 billion company, so $15 billion plus or minus of growth. I look at the big acquisitions, the ones that people think about. It'll remain. It'll remain a documentum, data domain, ISLON VM, where I add all those together and the acquired revenue that we bought through these acquisitions was significantly less than $2 billion. So out of that 15, two, cow was bought and then of course we've grown that, too. It's part of overall of the 15. So I think that makes my point that most of our revenue, we're buying an asset. That's your leverage mind, so. Correct. We're buying an asset that we can actually develop and leverage through our distribution channel and in almost all those cases, even though they're hyper growth companies, They grow faster inside of EMC than they grew before we acquired them, even though we're growing them up in some cases to multi-billion dollar businesses like the M-Wave. We've heard that by the way on theCUBE from all the companies you've acquired. So my premise was that R&D right now and the time we're in, and you've seen the industry's waves, Joe talks about the waves, and you've got these big oligopolistic companies with a lot of cash, you guys are a free cash flow machine, I've put forth the premise that actually acquisitions right now at the right price are better investments than R&D, but what you just said is, maybe blows away my premise. I hope it doesn't blow away your point. Hopefully it just gives you a slightly different perspective on it. But it really is the combination of both, and I think that's the ability to have the financial power to do both and to have a model. I mean, we really have done a great job of acquiring acquisitions. I still think that when you look at the track record across all industries, the track record of successful acquisitions is less than 50%. So less than half, and in some cases it may well be less now, but let's be conservative and say less than 50%. Our banning average is way, way, way more than that. Obviously out of the course of the 30 or 40 we've built, there's been a couple that may not have met our expectation, but we're banning a 90 plus on that ratio. And then you've got HR leverage too. You have the operating leverage, because you're not buying revenue, you're buying an investment, but also we've also talked to a lot of the entrepreneurs that you've acquired, and they're really happy with it on the people side. So, I mean, you have the top guys go Frank left at a certain time when data domain, but the core team was there. Well, but even to your point about the winners and losers, even when you get an asset like Legato, which struggled for a while, and now you look at your BRS division, and you look at the software component of that. A big piece of that. It's from Legato. You've figured that out. David, I have to ask you, and I asked Joe Tucci this last year at the Mega Launch, so the concept of core value, you guys obviously own 80% of VMware, you buy shares back to maintain that ownership. And so the core value, what's left over keeps declining as a percentage. And that's actually in certain years, it's declined as an absolute. And so I wrote a piece a year ago, why EMC is undervalued, it's a great way to own the core asset of the company. Do you look at that? Do you care? I know you're going to say, well, you probably agree that it's undervalued, but you can't really control it, but you've got to scratch your head sometimes and say we're trading 80 cents on the revenue dollar for that core business. And yet we're gaining share, the whole triple play thing. You look at NetApp, you guys are clearly eating into that base. Talk about that a little bit. I mean, absolutely, I do care and I do do the calculation and I look at the sum of the parts, but it's a little bit theoretical because you can only, as an investor, you can buy one or two things. You can buy a share in VMware, or you can buy a share in EMC that also owns 8% of VMware. So you can buy growth and earnings per share here or you can buy growth and earnings per share here. You can't go buy a share of EMC X VMware by design. So I think that what happens is people, yeah it's a little, it's interesting but it's academic because you can't go and do that third calculation. So what I think people do is they look at the earnings growth and the revenue growth, the EPS growth of the VMware shares, and they look at the earnings and revenue and EPS growth of the consolidated shares and they look at them a little bit separately, even though one's embedded in the other. When you look at our consolidated multiple, it certainly moved up a fair amount over the last couple of years. And I agree with you, there's a complete value there to be realized and the more we keep on winning share in the market, I think that'll be more obvious. It's going to get unlocked, people. It's much more obvious. But I think people look at those two separately because you can't do that third calculation, you can't buy that third asset and say I want to separately buy a share of EMC X VMware. David, my last question before I know we're getting the hook here, but I wanted to ask you a question about the hypothetical. Dave and I love to talk about hypotheticals and kind of look at scenarios of the future without compromising you guys are a public company. But one of the things that we've been talking about on theCUBE this morning is looking at EMC's potential future scenarios as a company, given the success of VMware and the integration there and VCE and other possible acquisitions, you guys could be the GE of tech in the sense that as you guys start to move in, you have multiple portfolios of different products and solutions, et cetera. Academically looking at that kind of scenario, is that something that you think about as a future scenario for EMC? Because you guys are becoming so strong operating wise and the investment and how do you view that scenario? It's kind of a wild card scenario, but we're talking about it. It's an interesting wild card, but I think you have to start from the customer's view because whatever you do in the case of corporate structure has to make sense from the customer's point of view first because they're actually the ones who are paying our salaries and well indirectly. Because we're all sitting here on the back of the EMC customers. So you can look at different corporate configurations, but what customers want is they want solutions and they want it to hang together and they want it to look and feel as if it comes from one company. So when you listen to that, you can get excited about corporate structures and maybe you can divisionalize and do more things, but the customer, they want partners to work with to take them to the cloud to handle big data and they want all the pieces to work together seamlessly. They don't want to conglomerate relationship. They don't want to conglomerate. Yeah, I would agree. So I know we're getting the hook enough, but I got to ask you, because we're at this EMC world, all this transformation. I got to get my question in, Michael. So Sanjay reports to you, right? He does. So you're a unique CFO in that you used to run sales. I said that at the top of the hour, but should the CIO report into the CFO, that's an ongoing question. Now in your case, you embrace the whole driving sales and I think you've been very innovative there, but what advice would you give? There's no one answer, but what advice would you give to organizations trying to sort that out? It always depends. It depends on the company, depends upon the individuals. If the CIO and the CFO don't see eye to eye, and I think a lot of CFOs are actually a little bit afraid of their CIO, then that's a problem. Now in our case, so I have a good business background, Sanjay's got a good business background. We are trying to be our own best customer. So EMC is consuming our own technology and trying to become a showcase, so it's in our mutual interest. One thing I have found that's really helped in terms of the way that cloud works and the way cloud is changing things. This could help CIOs and CFOs work more closely together. Before the cloud, in most companies, IT is a financial black box. So everything is kind of rigid and there's a flat tax or there's no tax charged back to the business. The benefit of cloud computing is you can actually now dial up and dial down service levels. So we now actually now charge 95% of our IT budget back to the businesses, but they get some decision in terms of how much that budget is, in terms of what service levels, what level of response time they're looking for from the applications, et cetera. So it's actually cloud is enabling a whole different level of financial discussion between the CIO and the business, and that actually brings the CFO back into the equation because it's a conversation the CFO is much more comfortable with. And you guys are making some big bets in IT. Project Propel, we've heard a lot about that. July 5th, I believe. Knockingwood, I'm sure you're watching that very closely and we got your man doing jumping jacks here. David, thanks very much for the interview. Nice to meet you guys. Nice to meet you. Nice to meet you too. We'll be right back. He's got business. Thank you for taking the time in the queue. This is SiliconANGLE.com, SiliconANGLE.tv. We'll be right back at this break.