 from the Silicon Valley Media Office in Boston, Massachusetts. It's theCUBE. Now, here are your hosts, Stu Miniman and Dave Vellante. Hi everybody, this is Dave Vellante with Stu Miniman. We're here at the East Coast offices of SiliconANGLE Media. This is theCUBE. We got a special conversation that Stu and I are going to have. Stu has been a big week. He had the EMC acquisition by Dell, actually went through officially and HPE. Did another spin merge. Seems like a popular technique that Meg Whitman and company use. Wait, Dave, I thought we're here to talk about the iPhone 7. Oh, no, CNBC's got that covered. Okay, absolutely. Continuous coverage of iPhone 7. Non-stop Apple all the time, absolutely. Yet another phone for 1200 bucks. But we digress. So yeah, so big week, Stu, and we are entering a new era of enterprise technology. I mean, let's start with the Dell acquisition of EMC. It felt like it took a long time, but actually didn't really feel like it took a long time. If you know what I mean. It was many, many months. It was Columbus Day last year that they announced that huge acquisition. So it's not surprising that it took many, many months, but it happened. It's pretty much on schedule. China delayed things a little bit. We'll talk about that, but what do you think, new era? Yeah, I mean, Dave, I remember when we heard the rumor first, I was actually at Amazon re-invent. So kind of ironic that we were at the Amazon show when we heard it. John Furrier was like, no way. And we were like, well, maybe. And John said, absolutely. He sees where everything's gone now. And less than a year, just as they said, a lot of hurdles they had to go through. I mean, huge financial. I mean, Dave, the industry's looked at this. I know you've dug into it. We've had conversations with Michael Dell and many people. Just a deal of this size has so many pieces. When we did Dell World, I said, the problem is is people are trying to figure out the chess moves and Dell's not showing you their board. So SecureWorks is IPO, things that they're selling off the services piece. There were many major pieces that moved to be able to make that financial stuff go into action. I got a good education on tronching. So how they were doing all the bonds and everything like that. And the geopolitical politics that goes into this. The US need to approve it. European Union need to approve it. And then China was the last one that needed to approve it and the stockholders. So so many pieces to make this historical event happen. And Kudos to that team because it seemed to go, mostly as planned, no major roadblocks. It's not like they had to make any major changes on the deal or no white knight came in and said, oh, we need an extra billion dollars or two to come in there. They moved it along. Well, so to your point, it is a historic deal. And the fascinating thing to me, Stu, is like the brilliance of Michael Tell, he and his partners at Silverlake, they put up only, I'm going to say only, but only $4 billion. Now, Michael's a multi-billionaire. Silverlake obviously has resources, but they had to put up $4 billion of their own cash to get what is now a $74 billion company according to the 8K that Dell filed yesterday. The notes of that $74 billion, by the way, say that's the un-audited figure as of January of 2016, but still, $70 plus billion company, $4 billion in cash for a multi-billionaire. So how'd they do it? Well, they did it with a lot of really interesting, as you say, moving parts, the tracking stock, raising some debt, delevering in the process. Ray Wang had a comment in the post that those guys wrote that he was concerned about, you know, for EMC customers spinning off all these assets. I'm not as concerned. I mean, the core of EMC is intact, but the organization now is interesting. So Michael Dell didn't waste any time. They filed many board actions yesterday with the SEC. They are immediately officially Dell Technologies, Inc. EMC emails have already changed, right? So they're ready for this. But organizationally, it's quite interesting what's going on here with David Goulden in charge of Enterprise. Talk about the organization a bit. Yeah, so David, as you said, they moved really fast on some of these things. I live in Hopkinson. I worked on South Street for 10 years, and there's already Dell EMC signs up. As a friend of mine inside EMC said, well, we had a year to plan this and a long holiday weekend to roll it out. So new signs, new mulch, and David Goulden's in charge. So so many people are like, oh, you know, they're selling off EMC or doing this. It's like, no, you know, that's not Michael's plan. He, at VMworld, when we interviewed him, John Furrier and I interviewed him, he said, first of all, you know, VMware, I'm not selling it. It's crown jewel, absolutely huge part of what we're doing. From a Dell's EMC standpoint, Dell EMC is the corporate brand. That's what they're selling to enterprise users. And not only is it all the assets that EMC had, but the traditional Dell server and networking group. So, you know, Ashley who runs the server group, Tom Burns who runs the networking group, they report to David Goulden. So it's interesting, as we've looked at this, there's parts of it that says, wait, who's acquiring who? The whole enterprise brand, which is, you know, a big piece of this is David Goulden. David's been running the EMC II, you know, part of the business under Jotucci for the last few years. He was kind of the, you know, heavily involved in the whole Federation piece. You know, you've known Dave Goulden for a while. He's been doing a great job with it. And now he has, you know, a big piece of Dell technologies. Marius Haas gets the commercial side of things. Jeremy Burton's the CMO over the whole Dell technologies. And most of the senior leadership people are still in place. And, you know, of course there's already rumors of, you know, what was it, another two or 3000 people are gonna be laid off out of a 140,000 people all together. So there's some things moving around and changing, but you know, they all have the Dell email addresses I hear. They can all communicate internally via Skype. And, you know, there isn't a lot of uncertainty internally as to who's running what and where things are going. Well, everything enterprise, my understanding is Dell branded Dell EMC. Billy Scannell will be repping Dell client technologies. Everything consumer and client is gonna be branded Dell. And that's sort of the split. And then there's a whole bunch of stuff, you know, in between the Federation pieces, you know, RSA and Pivotal. They still sort of exist as divisions. Pivotal obviously, you know, gonna be spun off at some point presumably anyway to do an IPO and we'll talk about that perhaps in a bit. I want to come back to the deal. I want to talk briefly about, well, let's talk about competition first of all, because you can't talk about Dell EMC without talking about HPE. More news this week. HPE did a spin merge of its software asset basically to a company called Micro Focus, which is a Golden Gate capital rollup of a bunch of different software companies. HPE shareholders will hold 50.1% of the company, but HPE will not own that. So it's sort of one of those interesting, probably highly tax efficient deals. But HPE is getting $2.5 billion in cash and then a 50.1% shareholder is a 50.1% ownership in this entity. Just sort of rough math, so the Rhythm of Tech, HPE probably paid about $20 billion for all those software assets, comprising autonomy and Vertica and Mercury Interactive and ArcSight and et cetera, et cetera. $20 billion down to $2.5 billion in cash, not a good return. HPE software business has not been growing. You know, I've been saying for years they've got to get their act together in software. Looks like they just gave up. So question I have for you, Stu, is HPE now focused on infrastructure? Is that not withstanding Amazon? Is that the main arms dealer competitor to Dell EMC, Dell Technologies? Yeah, I think absolutely it is, Dave. I mean, Meg Whitman was on the financial shows this morning talking about how she believes that they HPE are more agile and focused and have a better solution stack than Dell and Dell EMC do together. Michael Dell and the whole EMC, Dell EMC team, of course, have their sights set on crushing HPE, as they've said. They think they've got the best solution. So we've been watching, I mean, how many decades now Dell and HPE going after each other with server as the core and the foundational layer for everything that goes on top of it? So it's going to be interesting to watch it. Dave, just a quick question for you because, you know, we've been getting this education, you know, we've got the tracking stock on the VMware piece. This is the second spin merge that HPE's done. They had the CSC services. Why did they do this as a spin merge? What is that? Why does that make sense? I think they do it because it's a tax neutral move and they maintain ownership in these entities that they spin into. So as a result, they get the benefit of long-term growth or whatever value can be created there and they don't get taxed on it. And they get the further benefit of taking these non-core assets and getting rid of them. I mean, you know, HPE, this is the dismantling of a Silicon Valley icon. I mean, and it started when Carly Fiorino wanted to buy PWC and she wasn't able to get that deal. IBM ultimately ended up buying PWC. It was a transformative move for IBM at a much, much lower price than Carly was willing to pay, but Carly wanted to go, do a big acquisition. She ended up with Compaq. Now Compaq was okay, but it was very controversial. Members of the board, from the Packard or Hewlett family, I can't remember now, were fighting it tooth and nail. And that set in motion a whole new series of mega acquisitions including EDS, which Herd orchestrated, which was pretty, not a great acquisition, it was a boat anchor acquisition for HPE, Herd thought that they could replace all these IBM mainframes with HP servers and when that ended up happening, his IBM sucked up back all the business that was up for renewal, so that didn't work. So now you're seeing Meg having to come in and clean up that mess and talk about autonomy, I won't even go there, but Meg's just getting rid of all these assets that weren't performing and the way they're doing it is to get some cash, helps clean up the balance sheet and do these spin mergers, which gives them ownership in these new entities. They still own a part of the CSE entity, they own a big chunk obviously of this microfocus entity, so they're very, very tax efficient. Now you're left with an infrastructure company since they've gotten rid of non-core assets, security, non-core, which surprised me, I mean I'm not surprised because they had to get rid of security to get the price that they wanted, the 8.8 billion in value, but it's only 2.5 billion of cash only. So now that we're left with a pure play infrastructure company, I've been saying for years, we've been talking about on theCUBE, and I and John Furrier, HP's got a shrink in order to grow. Well it's shrunk, question is, can it now grow and how? Yeah, that's a great question Dave. I mean we've looked at, and we were talking at VMworld, Pack Elcenger laid out how public cloud is just eating a big part of the market. His numbers were reached kind of the majority in five years, I think we can all argue as to what percentage in what year, but you know, reasonable people understand that public cloud is growing and that is a threat. If you say Dell and HPE at its core, if they're selling less servers, that's a challenge to their overall business, that it's core, that's what they need to do, and the addressable market that they have going forward seems to be shrinking over time, so how do you keep growing if your core business is shrinking? So there's been a 10 year, we talk about this a lot, a 10 year slow motion collapse and infrastructure hardware and software pricing. And it's due to open source software and cloud, so we've seen the difficulties that companies are having, even these open source companies look at Cloudera, look at Hortonworks and others of really driving new market growth, now Cloudera is private and they've got a big chunk of cash from Intel so it's hard to tell exactly what's going on there, but they're not setting the world on fire to the point that we thought they would from let's say five years ago, and Hortonworks is a public company, we see the financials there, so the open source software business has always been very hard, Red Hat's really the only exception to the rule of it's wide by the cow and the milk is free. But so when you look at the effects of that with Amazon and open source software in particular on the infrastructure business, something had to give. So we're now entering this new era of enterprise tech where you've got Amazon as the low cost, high margin provider and you've got Dell with EMC now and HP as the arms dealers to the cloud without a public cloud, ownership of a public cloud strategy other than I guess Virtustream and vCloud Air Redux 3, we'll talk about that in a second. So you've got this clash of a former Titan in HPE with a slimmed down former Titan, you've got the new Titan now, Dell Technologies, and then you've got Amazon kicking ass as we know. How do we see you guys at Wikibon, us at Wikibon, how do we see this shaking out over the next five to 10 years? So it's an interesting challenge Dave because well I believe if I look at the Dell EMC and that whole Dell Technologies, they've got pretty clear how they're gonna sell the hyperscale guys, partnership with Microsoft really important, how they interact with Amazon is kind of shaping out. VMware had an announcement with IBM and what they're doing with SoftLayer, don't put them quite in the same category as Amazon and Microsoft, but trying to figure out that whole second tier of service providers and IBM of course has some large cloud revenue, but you've got the hyperscales, you've got your traditional data center and what that balance and that shift over the next couple of years is gonna be really interesting to watch. So I'm comfortable with the strategy that Dell Technologies has, as a matter of fact Lenovo has a very similar strategy to kind of come up, they've got strong presence in Asia and don't have as much of a legacy to try to hold on to, so they can cut costs on the one hand and push into some new markets. HPE, I don't feel that they've kind of cut, they've started to cut down but they don't have as clear of a strategy as to how they go to adopt in the new hyperscale space, how they defend their existing environments and manage that transition. Another wild card is China. Nobody's talking about the effects of China. Huawei in particular, Lenovo as well and it's no coincidence in my view that China slowed this deal down when we talk to executives about it, they say, hey, we got the deal done on time, okay, I get that. That's not the angle in my view anyway. China wants to be self-sufficient, it's gonna have by the end of the decade, it's got its own microprocessors, it's got its own Linux operating system, it claims, I don't know, some large number of the world's top 10 supercomputers. So China wants to be self-sufficient as a technology powerhouse. So my view is that China was demanding concessions of Dell and they probably got them, I'm sure they got them, we don't know what they are. But likely they were designed to slow Dell technologies down. And so we don't hear much about China. There are two wild ways, we've got restrictions in terms of selling to the US government, for example, which is a huge component of the business but everybody's eyeing China, because it's such a huge market, what's your take on that? Yeah, I mean Dave, in my network, the work that China has done on say the latest processors has my network buzzing. So specifically the US government told Intel don't ship the next generation of chips there because we're worried about both competitive and secrecy and everything like that. And China said fine, we'll create our own microprocessors. The fastest supercomputer in the world right now is made with China chips. And I think it's like four out of the top 10 or 20 are Chinese made devices there. So we know China and the ODMs in Taiwan have been taking chunks out of the server market, seeing some of these options with the chips there. Huawei from a networking standpoint, the joke I had is that John Chamberson's last couple of years, he had two things he was trying to do. Number one is that he was doing with the US government. Number one is he was trying to be able to repatriate all of his foreign money. And number two, he was trying to keep China out of the US and our partner's markets. And they did a better job on keeping China out than they did at repatriating the money. But China is definitely a threat to the networking business. And it only makes sense that storage is kind of the third leg of that stool for infrastructure, that China has a huge internal market and they try to capture that. And as well as they want to supply the rest of the world. So Huawei is a huge player. There's a number of other players and the government definitely has interest in controlling that market and keeping out what would be the largest player in the space, which is Dell plus EMC. Strong local demand and strong local competition are two ingredients to global powerhouses. And so China is obviously one to watch and a wildcard. Amazon, I think people are beginning to understand, even though there's more to come. We maybe talk about that some, but China is sort of interesting. I want to come back to HPE. What does HPE need to do now? Does HPE need to make another acquisition? Does it need to buy a Nutanix and acquire them? Or does it need to do some tuck-ins on like an E-Guaz or a Datrium, one of these sort of new wave hyperscale types of companies? What does HPE need to do? Or does it just need to keep going along and investing in Helion? Yeah, so what wave is HPE going to ride? So virtualization, the server division did real well. Driving VMware, they were great OEM. They did a lot there. The storage division's done pretty well, especially with the three power acquisition. But is containers the next wave? Is IoT a big wave? We see Hitachi data systems, big focus on IoT with what they're doing there. Huge impact on infrastructure, and that could be player. I know you've talked with HPE plenty about that. Analytics was one that seemed to make a lot of sense, but now maybe that's non-core as to how they push that. So obviously they have to have, I think the line was HPE's not getting out of software, they're just getting out of the non-core piece. Oh, please, I've never seen that line. It gave up in software. It definitely worried me a little bit because I need that security, analytics, IoT. You got to be at least a couple of those right now. Otherwise, what's going to drive your infrastructure going forward because of the big waves that are driving all the connectivity, all the storage, all the devices? I mean, as I'm saying, HPE gave up on software because we're talking about a software business that is non-recurring engineering costs that you drive marginal economics versus one that's tied to somebody's infrastructure. And if you're saying, okay, well, our software's going to run on standard commodity servers, but we're going to be able to get the kind of margins that we have historically out of our infrastructure software, our SDN and our SDDC, that's going to be a big challenge. That's why the Dell EMC deal to me was inevitable. Amazon's operating profit is in the mid-20s. EMC's, this is non-gap, EMC's lucky if it's in the high teens. So they're more profitable and ostensibly less expensive. So this trend is not going to go away. Amazon's not just going to disappear. They're going to keep, in my view, keep getting stronger and stronger and stronger. Yes, hybrid, I get that, data locality, I get that, but these are winner takes all markets, generally speaking. Does that change? I mean, is it, obviously, big market. There's room for everybody. These guys aren't going to just roll over and say, okay, Amazon, take me to the cleaners, but Amazon is cleaning up. And Azure is in a good position. Google, we can debate. They're trying to get back in the game with Diane Greene at the helm. It's kind of interesting there, but the volumes and the efficiency that those three companies are driving, Google, Amazon, and Microsoft, compared to what the enterprise guys can do, it's scary. So as a result, you've got to have lower costs, hence the cost restructuring, the delevering going on at Dell, and then again, you've got China. So how's it all shakeouts do? Does HPE in particular have to make a big move? So, what they don't have that Dell Technologies has is the rest of that, what used to be the Federation, Dave. So Dell Technologies, it's got VMware, it's got Pivotal, it's got a few paths as to where it's going in the future. And I don't see that in HPE, so. But maybe that's a good thing, VMware's legacy. You've been saying that, you guys talked about that. Yeah, VMware might be the new legacy, but it still has, it's still dominant in its market share there. It does not have the applications, but it still pulls you up the stack a little bit beyond just the infrastructure, which is still, if the hypervisor's commoditized, isn't everything underneath it even more commoditized? It's got obviously a big customer base, but didn't VMware capitulate when it basically said, okay, we're going to do this, what John Furrier calls inter-clouding? I know you don't like that term, but basically we're going to be the manager of the clouds, as opposed to we're going to dominate the cloud market. They tried to dominate the cloud market, they failed. They've tried now a couple of times. We haven't talked much about IBM. Actually, let's park that for a second. We've got to know how much time. But so is that inter-clouding, when I'm calling the inter-clouding strategy, going to allow companies to maintain their relevance? Yeah, and- Or are they traffic cops? And HPE has gone that. There's management that they can do there. They tie into, especially, HPE's going to say, we're as good as a partner with Microsoft as Dell is. They're both big importance there and they're going to tie into the big public clouds. I've seen HPE go through even more churn on their cloud than we have kind of the VMware and the EMC standpoint. EMC kind of understands where they sit on the infrastructure. They've still been growing, kind of they're converged and pushing hard into the hyper-converged marketplace. HPE has developed a bunch internally. Might they make an acquisition? There's been plenty of rumors. You mentioned Nutanix, a year ago there was a rumor they were going to buy SimpliVity, but they didn't pull the trigger on it. There's a number of things. Dave, we could be sitting here today saying that HPE finally finished the acquisition of EMC if Meg had pulled the trigger two years ago, like we had done that. It was a small turn, yeah. Okay, other things that we're seeing, we just put out a server-sand report, basically saying the traditional block and file, sand and NAS business is peaked and is going to decline over the next 10 years. I mean, when it first came out, we got some blowback on that. I think there are a lot of people who now kind of agree with that. You're seeing the spending pattern. So this third year we've done this research, Dave, and every year it's, I'm not sure I don't like some of your charts and they dig into the data and they're like, oh, this looks good. Maybe a year or two out looks okay, but forget it, three years from now you guys are way too aggressive. Well, it's the third year that everybody mostly agrees with what we put out this year. So we think we've been pretty active, accurate on the trend as to where it's going. And you got IoT, pushing at the edge, pun intended, you've got virtual reality now, and you got companies like NVIDIA calling into question the ability of traditional microprocessors to keep up. Certainly the big data, while there aren't a ton of vendors making money, a lot of practitioners are doing really well in big data. So that's a huge, huge trend. The mobile wave has hit. So you have all these disruptions wither the traditional enterprise business. I mean, we've got a whole new era here where you've got Amazon and Microsoft, you know, dominating Microsoft, leveraging its estate, Amazon with the new disruptive business model. And now you've got basically HPE and Dell duking it out for arms dealer leadership. Is there growth potential there? So I mean, Dave, how many years have we been saying that, you know, users that want to get control of what they're doing need to get out of that undifferentiated heavy lifting and be able to add more value back to the business. It's been many years of saying that and we're starting to see significant shifts into how IT does things. And that means they're not managing that infrastructure as much. They purchase it, it is more shrink-wrapped, it is more automated, and they're not worried as much about some of the bits and bytes inside. Of course, you still need to have your domain expertise. You need to make sure you understand how your applications work in your environment and where you have competitive differentiation. And we still see people, you know, striving hard to, you know, hold on to anything that they've got that differentiates them, even if they're using things like Amazon. But, you know, it does make a shift as to, you know, where that conversation's happening, where the budget flows, and you know, the relationships that they're having with, you know, tends to be a smaller number of technology partners. We haven't talked about Oracle and IBM, and we don't have enough time, but those guys, to me, anyways, do are largely software companies. They're, you know, IBM with its analytics push, and it's cognitive push, Oracle, obviously, database, and it's SaaS business. That's what's driving their business, not infrastructure. Infrastructure is, you know, something that they're doing to try to, you know, drive down cost in IBM's case, or I keep the mainframe, it's very profitable. But, you know, IBM's, you know, future is in software and artificial intelligence, or what they call cognitive, Oracle's future is in SaaS. Those are different businesses than what Dell and HPE, what's left of HPE now are in. So that's sort of outside this little core infrastructure discussion that we're having. I'll give you a final thoughts, Stu. Say it's been a big week, although no huge surprises, these were both expected in the case of Dell EMC, and a poorly kept secret in the case of HPE. It's been known for, you know, months now that they're going to be doing this. Yup, the death of the headphone jack, oh wait, we're still not talking about Apple, sorry. But I was having a conversation online and we're talking about, I mean, Dave, you remember the four horsemen of the internet era? It was, you know, Sun, Oracle, Cisco, and EMC. And, you know, Sun's gone, EMC is now Dell EMC, the two's gone, their names after Michael Dell's up on all the buildings on their business cards, and they've got Dell email addresses. And, you know, the four horsemen of the internet era, it's, you know, Apple, Facebook, Google, and Amazon. Facebook, Apple, Google, and Netflix, right? A practitioner changing, you know, business, and maybe throw Uber and Airbnb in there. Amazon's there, so. And Amazon as well, yes. Oh, I said Apple, yeah, right. No, but it thought it top of land Amazon, so. Fang, Facebook, Apple, Google, and Netflix, and yeah, throw in Amazon, maybe it's Fang, okay. So, all right, Stu, I mean, you know, there's been some good pieces, Neil Press wrote a great piece on the short history of EMC. Yeah, Dave, come on, you've known EMC since they were getting beyond mainframe and going to storage. You know, what does this mean to you of kind of? Well, you know, a lot of people are nostalgically looking back at EMC. I say it, EMC's gone. I mean, digital equipment is gone. Digital equipment was bigger in its day than EMC. Sun was pretty big in its day. Those companies are gone, they're not relevant anymore, nobody's talking about them. This is Dell technologies. EMC, as we know it, is gone. The Federation failed. It was a great try. You know, I have great respect for EMC and have a historical perspective as well, but to me it's all about looking forward. And this is a new era. And the days of the storage model that EMC invented, both started the mainframe and then moved into so-called open systems and drove 60% plus gross margins and tons of cash flow for years and years and years are done. It's interesting to look back, but frankly I'm more interested in looking forward and talking about how customers should be placing their bets. And customers are placing their bets and they're hedging those bets. And you know, in some respects too, I think it's somewhat easier when the industry is consolidated like this. I think Amazon's a pretty safe bet for the right use cases, even though a lot of people in the enterprise want to scare you. I think that Dell Technologies is a pretty safe bet. I think HPE is a very customer focused company. And if you're an HPE customer, you're going to be okay. You know, sticking with those guys. And obviously Microsoft and Cisco and some of the other big members of the cartel. Now where it gets tricky is okay, what about Google? What about these other clouds that are emerging? Where should I use those? So complexity is still there. And then what about innovation? You know, where's that come from? And still coming from the valley, maybe that's why people are ignoring China. But what EMC means to me is another East Coast mini-computer company. I mean, essentially, that's what they were. They were the progeny of East Coast mini-computer companies failed to survive. And as an East Coast person, that's too bad. Maybe IoT will change that. But Silicon Valley remains the center of innovation in our industry. And that's why I'm happy that we have a bi-coastal company. All right, Stu, again, I'll give you a last word. All right, so yeah, I mean, Dave, we've been saying for years that storage is looking more and more like servers. Well, you know, the biggest storage company is now working for a server company. So, you know, it might be the death of the EMC federation, but you know, I know the people on Tau Street are going to say, long live Dell technologies and Dell EMC. Yeah, that's what they should say. So, and we're excited to have theCUBE bringing you all these trends. We cover the enterprise tech theCUBE is the worldwide leader in enterprise tech coverage and live tech coverage as well. So really appreciate your feedback and your participation as a community. Thanks for watching everybody. Stu and I will be back at Edge, IBM Edge. And we're at- Dell EMC World? And we'll be at Dell EMC World. And Amazon Reinvent. And Reinvent and numerous shows this fall. So look forward theCUBE, check out the at theCUBE handle, go to siliconangle.tv for all the upcoming shows. Go to siliconangle.com for all the news and of course wikibon.com for all the research. Thanks for watching everybody. We'll see you next time.