 From London, England, it's theCUBE. Covering Discover 2016 London. Brought to you by Hewlett Packard Enterprise. Now, here's your host, Dave Vellante and Paul Gillis. We're back to wrap Paul Gillin and I. Gonna put a bow on Discover 2016. We're here at the dock lens in London. If you've never been to Excel London, it's a huge facility. Number of conferences are here, train station right there, of course, giant docks and huge moat river, whatever. It's actually technically not the Thames, I don't think it's a tributary, but nonetheless it's a pretty impressive place and somewhat remote from London. Yeah, not a lot of distractions around here, from the conference. A lot of the action at night is in London Center, but let's try to summarize what we've learned this week. Several things happening. So let's go back to HPE's decision or Hewlett Packard's decision to split into two Fortune 50 companies. They've done that and then HPE was perceived to be the growth company. I put growth in quotes because it's slow growth, but it was the growth company, whereas HPE, Inc. was the cash flow company, largely from Inc., pun intended. And so HPE, as that new entity decided, okay, we got to clean up the balance sheet, subsequently it made the acquisition of Aruba and it made another small acquisition of SGI, but it began to delever. It sold off its Chinese operation, now it's a joint venture. It's announced that it's going to spin in EDS into CSC and maintain a large proportion of the ownership, at least HPE sharehold as well. It's announced it's going to sell its large portions of its software group to Micro Focus, an England, UK-based company. And what's left is largely an infrastructure company, a pure play hardware player, Antonio Neary bristled at that and said, no, no, we've got services as well. We asked the question several times to several people here, are you a services company or are you a product company? The answer is mixed. Services guys say, oh yeah, we're services led, product people always say we're product led. The diplomatic answer is, well, we're both. We're a technology company. Interestingly, years and years and years of asking this question of Joe Tucci and Howard Elias who runs services at EMC, the answer was always, always, always, we are a product company. And they sent that message because they wanted to convey to their partners that they are product first, they have services and by the way, a very successful services business as does HPE, but they always positioned it as a product and technology company first. Personally, I see HPE as a product and technology company, not as a services play. I see Accenture and Deloitte and Ernie Young and PWC as what I would consider real and even IBM to a great extent as services companies. I see HPE as a product and technology company. What do you think? I agree with you, but I think part of that may be just our own perception because this is a legacy of HPE is they build great products. You know, they've been doing that for 50 years. Right. They have, first of all, I think it's kind of an academic discussion. I mean, the point is, if they're delivering something that customers want, then who cares how they define themselves? Here's why I don't think it's academic. When Lou Gerstner, and maybe, I don't know, maybe it is academic, but when Lou Gerstner made the decision that we're going to go all in on services, many of us made the contention that that is going to be the death knell of Best of Bede products at IBM and I would argue that it was. Other than the mainframe and the think pad, you couldn't really come up with any products where IBM was a true leader. DB2 lost to Oracle, the storage group lost to EMC. I mean, in many, many, many examples. And so my argument would be if you declare that you are a product company, you know, you will be a leader. Now having said that, that was when the industry was very fractured and structured and competition occurred on the lines of Intel and Cisco and Microsoft and apps, et cetera. And so maybe with the world reintegrating in the cloud services and moving up stack and all that stuff, maybe it's better to position as a service company and maybe it doesn't matter. I mean, it certainly hasn't heard IBM long term. And so perhaps it is academic, but it's to me, it's something to watch. Question, do you have to have Best of Bede products in, you know, for the next decade or it is good enough, good enough? Well, I mean, there was, most of the talk here was about products. We did have some people on the cube talking about services, but when you think of the themes that in my perception dominated the show, it was composable infrastructure, it was IoT, it was Aruba, it was, and then the subcurrent, this whole thing really kicked it off, was the machine, this technology that can really upend this industry in a big way. So what I took away from, frankly, I came into this conference pretty skeptical about HPE, thinking this is a company that's, they're managing their assets, it's a slow growth thing, it's, you know, it is just not much exciting going on there. I heard a lot of interesting technology coming out of this company. Now whether they are able to turn that into a coherent vision that the customers understand that the market responds to, of course we won't know, but the feedback we had here today on the cube talking to the bloggers, talking to the analysts, very positive, they got it, they came away with a clear message about what HPE is doing on the technology front. Yeah, I think, again, back to my products versus services, I think HPE has to be a best-of-breed products company because when you go all in on infrastructure, you better be investing in that and be able to defend that we have the best Widget X product and we can beat Dell because of this and we can beat Lenovo because of that. Give me an example, I mean, I'm sorry we didn't get the edge line until the very end but edge line, that's a really cool idea. The idea of these small intelligent endpoint devices that have sensors, they have controls built in, sensors built in, that's, I've never seen anything quite like it. And so, you know, it's funny, we were talking to Peter Burris the other day and he's like, look, the problem with this industry is everybody looks at things through a product prism. That's what we'll understand. We can seize it for us to make comparisons. I think it's feeling as we should be focused more on the business impact. Well, I wouldn't disagree with that. That's kind of how people think, you know, they put things next to each other and try to do comparisons. And so, again, my point being, to me, HPE is lining up against Dell as a major competitor to be an arms dealer to the cloud and the cloud, however you want to define the cloud, public cloud, private cloud, they're not going to sell a ton of stuff to Amazon and Google and Facebook and maybe Microsoft, but generally speaking. It could be private cloud, I think it was clear. It could be private cloud. It's how private cloud is. It's how GFV said as much, right? He said, well, the public cloud guys are just going to buy a white box. Well, right. And the zillion, right, clouds. Now, HPE and Dell both compete with the ODMs. ODMs are now up to 25% of the, I think the units. So it's becoming a sizable component. But I guess my argument would be, I know Dell EMC, they're a product focused company and they're going to go hard at their customers with we got the best product because we look at all the features we have. They don't have this, we have that. And so I think HPE rightly, when we talk to their product people, is saying, hey, we are different because we have fluid infrastructure. We have this capability. We're developing technologies out of the machine, et cetera, et cetera. So I think it's an important part of the marketing message. It's a much cleaner. I completely agree, by the way. I mean, when you look at who is successful in the computer industry, it's the companies with products. And that's what companies sell, products. Don't make, you don't get rich selling solutions. And even what we're seeing from AWS, okay, their services, but their products, right? We got Kinesis for streaming. We got S3 for objecting, et cetera, et cetera. Yeah, and so, but we're seeing a much cleaner, a much more streamlined Hewlett Packard enterprise. The decision to basically, well, long ago, get out of the public cloud, okay? To me, that was a fateful decision in that it decided the future fate of HP as what I call an arms dealer for the cloud. They don't have a public cloud play other than to partner. So smart, let's make money partnering with Azure in particular. I mean, I see that as obviously their premier partner. Yeah, we could do Amazon, we could do Google, if that's what the customer wants. No one wants to partner with Amazon. Amazon is, like I say, but to me, again, it's a one-way street into the cloud. The Azure strategy, I think is a good one. And I think it's a winning one. And I think it will pressure Amazon. I think that is the Achilles heel, really, of Amazon. And I think there's sensitivity there. So I like that strategy. Moving the software business to micro-focus, despite the fact that they're going to be a partner and they're still going to have a large ownership. I don't think they're going to be reporting that income on the HPE income statement. I don't believe so. I don't believe so because, yeah, because HPE itself doesn't own. HPE shareholders own 51%, but not HPE itself. So as a result, it's not going to have a positive, it's not going to be a tailwind for margins and operating profit. As a result of all this, HPE becomes a lower margin player. Like Dell and EMC, once you bring those two together and you cut those costs, which Dell is clearly doing. As a result, you've got a business model that has to make money. I think, you know, EG last quarter was maybe 11% operating profit. If they focus more on profit than growth, they didn't grow, they have to balance profit and growth. The point is, and we've talked about this, AWS had 31, 32% operating profit last quarter. It's fluctuated between 25 and 32 over the last year or so. This is the company that supposedly is the race to zero company. And it's got, you know, EMC just for reference before it went private, operating profits in the mid-teens. Maybe as high as 17%. So you're talking double the operating profit to the company that is supposedly bombing the market. Now, everybody points out, and I wanted to bring this up, we talked about it to the bloggers, the cost of private cloud is oftentimes cheaper than public cloud, the price, let's say, the TCO. But let's not confuse cost or price with cost. My argument has consistently been the low cost supplier is going to win. And usually does in this business. And Amazon, in my view, is the low cost supplier. I don't see how companies like Dell and EMC and Hewlett Packard Enterprise and maybe even Lenovo for that matter, then China Inc. can compete on a cost basis with AWS because when you add in all the services and the deployment factors, Amazon to me is more efficient at volume. We'll see. We'll see if they can take out the cost. They aren't trying. I mean, Google is the only one who is trying to compete on cost with Amazon. The other guys are all in flanking strategy. Well, no, I think Microsoft, from a cost standpoint, Azure Cloud is true hyperscale. And look at this three true hyperscale companies in the United States. You can maybe put Alibaba in there. Maybe there's a company, maybe there's a company in Japan as well, but really it's those big three that have the volume. So my point is you either have to have to be a public cloud player. So I'm not saying it was a mistake for HPE to get out of the public cloud because you either have to have massive volume or you have to have upstack differentiation like Oracle has or like the SaaS players have. The SaaS players can very effectively compete against the Amazon. And HPE getting out of the public cloud business may have been the happiest accident the company ever had. I mean, they certainly didn't set out to do that, but having made their decision to abandon it, they have hatched this whole partnership strategy, which is very interesting if they can pull it off. If they really can partner on an equal basis, with all of these different companies and they really can create all these win-wins, a lot of companies who don't want to do business with systems vendors like Oracle or even IBM because they're afraid they're going to end up being lunch. Well, and I will come back to that in the strategy of choice and I think that's a winning strategy. It's just a lower margin strategy. I failed to mention IBM is another example of a company who's betting on analytics and Watson and their cloud play is really their software. So again, you've got to have that kind of differentiation. If you're HPE, if you're Dell EMC, you got to have low cost, you got to be able to replicate the public cloud wherever's possible. You got to, the tagline of make hybrid IT simple, it's a good North Star. And hybrid IT ain't simple today. First of all, most organizations aren't doing the way we would define hybrid IT seamless application and data movement between on-prem and public cloud. That's non-trivial. And the partnership with Microsoft, which is a long standing over 20 year partnership with Microsoft may turn out really to be their whole card there. I mean, those companies know each other intrinsically. They trust each other. And Microsoft has vested interest in making private clouds successful. So does HPE. Yeah, and Microsoft obviously has a large estate there, but even the gentleman from Microsoft, I think admitted this is early days for us. I mean, the functionality of, we talked about same-same. Oracle claims same-same, it's all there today. It's all working perfectly. That's what Oracle's always done. We know that's not true. But the strategy to me of Microsoft and Oracle is quite similar with the exception. There are a lot of differences. There are a lot of similarities in terms of, we want the same on-prem versus public cloud sort of stack. The big difference is Microsoft is doing it with partners. Oracle is going to building its own proprietary stack. So this comes back to HPE. The new HPE must have a really robust partnering strategy. That's why it's putting so much emphasis on that. And it can get leveraged from partners, but it's got to get volume. And IoT is where it gets that volume. So that is kind of the... It's a big question mark. Yeah, and certainly they're not the only company that's betting a lot on IoT. Cisco has big investments in IoT as well. As I said earlier, the edge line is a very interesting dimension of that that I haven't seen elsewhere. And no one really knows how big that market is going to be. We hear about the economic disruption will be massive, but how much money is going to be in it for system vendors? Yeah, so again, big picture strategy, HPE's board has decided, we're going to go it focused on infrastructure. I don't know if there's a big move that it can make, maybe. Who would you buy? Well, the rumor was that we're going to mind the TANIX. That's too late. GE, I mean, well... Emerging with GE would be really interesting. Well, maybe, but GE's trying to become a software company, right? I'm not sure GE wants to be in the low margin infrastructure business. The, I want to come back to one thing. The cloud piece, you know, and seeing Staccato and OpenStack Distro go to SUSE, again, a cost-cutting move, the last remnants of HPE cloud, HPE's cloud group was folded in. I was always, and Vertica is now going, I was always hopeful that when HPE bought Vertica, it was going to do an IBM-like analytics play on their cloud. And I think that could have been a winning strategy. I was excited about HPE trying to get its software act together. It never could find that formula. And I think that, you know, they just got worn down and internally said, you know what? We got to get rid of that business and we got to focus. So, in effect, I think it's the right call because slogging it out was not working. I think it is the right call. I mean, they were not going to win that battle. And so many computer companies have gone down the drain fighting a battle that they couldn't possibly win. And give it credit to HPE. They have gotten rid, they've gotten out of businesses, profitable businesses, where they were never going to be number one. And it's tough to do that, but it requires discipline. Well, they could have run it as one big portfolio company and leverage their supply chain. And that, again, quite uninteresting. And I give HPE's board credit because they're saying, okay, let's go for it as an infrastructure company and let's go after the third pillar of IoT and let's try to grow this thing. The other key move is Hewlett Packard Labs being integrated into the enterprise group. That is a clear move. We heard it from Antonio Neary to really try to get more productivity out of HP Labs to drive product through the pipeline into the marketplace. We haven't seen enough of that. Store wants is sort of their example and their deduplication and their other examples, but not enough. Not enough productivity out of your R&D. I mean, as a result, acquisitions are much better use of cash than R&D. Well, I think the question around the machine I have is, they've obviously got some great technology here. Is this going to become a breakout? Is this going to break them out of the pack? Or is this going to become like IBM Power? Is it going to become this sort of not very big, not very big revenue base ecosystem, but it's not really moving the market very much. And that's going to be up to their execution. Yeah, well, I think the strategy of trickling out bits and pieces of technology into their portfolio, parts of their portfolio that they control is the right thing to do. And frankly, it's the only thing to do. A big bang of a machine with a price on it has just never made much sense to us. We saw some coverage this week speculating that this was a disappointment, that the announcement of the machine was disappointment. I just don't see it that way. I agree. There was a proof of the concept, and this is technology you'll be rolling out for years. No, I looked at it as, this is a pragmatic way to get something to the market. Okay, it's not. What a stake in the ground. Yeah, and it's not going to overnight change anything, but it could give HP some sustainable competitive advantages in the server business, which they've dominated for years. So server storage, the storage business, we'll see. Well, it's interesting that they've now reorganized under the server head, a former server head in Alain Andreoli. We'll see what that means for the storage divisions. Can they kill, still continue to get more out of three par? On the networking side, to me, it's an Aruba play. Gives them a significantly better story against Cisco than 3Com gave them, which was, hey, we got a nice second source to Cisco. Now they've got the whole wireless first approach, which I think is quite solid. And of course, again, IoT. We talked a lot to a number of folks talking about IoT. Big unknown, big potential growth area. I think it's about it. Missing anything? What more can you say? So the new HPE focused on infrastructure, smaller company, we'll see in the financials, we still expect good cash flow, maybe not quite as good as these other assets were profitable. But I think if Meg Whitman has proven anything, it's that she is a good financial manager. Right, I agree. She's a tight ship. Okay, we're here, it's warming up in London. It's at 46 degrees outside, and that's a wrap, Paul. It's a pleasure working with you. Thanks very much for hanging with us, and thanks very much for the crew here. Really appreciate all the awesome attention, great production here. Thanks to HPE for having us at this great venue. Kristen Nicole and company and the live bloggers, Bert, appreciate all your help. We're going to pick it up. If you go to SiliconANGLE TV, we got Reinvent, going live, John Furrier and Stu Miniman and Jeff Frick and all the crew out there are going to be covering Reinvent today. Go to SiliconANGLE.com, you'll see all the videos and the news of the day from this event and other events. Go to Wikibon.com for all the research. Thanks for watching everybody. We're out from HPE Discover London 2016. This is theCUBE.