 Live from Las Vegas, it's theCUBE covering HPE Discover 2017 brought to you by Hewlett Packard Enterprise. Hello everyone, welcome to theCUBE special presentation of HPE Hewlett Packard Enterprise Discover 2017. I'm John Furrier, my co-host Dave Vellante for three days of wall-to-wall coverage. It's our intro segment of our three days of Hewlett Packard Enterprises transformation and coverage. This is our seventh year covering HPE Discover, formerly HPE Discover, after the split. A lot of commentary. Dave, we have seen HPE over the years transform. We've been watching this, a bit of a front-row seat to HPE. Now HPE really getting hammered in the stock market, their last earnings again, didn't meet the expectations. But this is not a quick turnaround. I mean, this is a marketplace that's shifting. HPE's had their plan now for multiple years. We're going to cover it for three days. But interesting, the world is turning. You had tweeted this morning on a Twitter storm you put together at dvellante, twitter.com, that's dvellante, everyone should check it out. But it really highlights it. True private cloud or private cloud, cloud has impacted everything. HPE's kind of shifted their cloud strategy. It's becoming clear what they're doing, but private cloud, true private cloud is legit. It's a 250 plus billion dollar market opportunity. As you guys have put it out on Wikibon, hybrid cloud is very relevant. And on the horizon is multi-cloud. The ability for customers to use multiple clouds. And on top of that, we have machine learning, AI, internet of things. So marketplace is shifting significantly. HPE has been transforming significantly over the past five plus years. Your thoughts this year at HPE Discover and marketplace conditions, and are they poised for success? Well, John, we're in the fifth year now of the turnaround that Meg Whitman initiated. And I think it's the light at the end of the tunnel year. We've said many times in theCUBE that HPE has to shrink to grow. Well, it's certainly shrunk. They're about a 50 billion dollar company with a 26 billion dollar market cap. And there's a way to eke out some growth. If you separate all, call it Remain Co. Like the remaining company. Take out the software, take out EDS. Take out actually tier one customer who's not buying as many services as possible or as they had previously. And the company grew about 1%. So what you're seeing, John, is some quarters HPE grows a little bit. Some companies it shrinks a little bit. But essentially it's facing what most legacy hardware companies are facing. Legacy hardware is down. Everybody's scrambling to what we call true private cloud which is essentially hybrid IT, trying to mimic the public cloud. And then HPE adds in a dose of IoT at the edge. And then really importantly services. Services have never been more important for this company. And that is what I called earlier Remain Co. The remaining HP. Once it jettisons the software business this fall, that's what will be left. Basically a 50 billion dollar company with about 55,000 employees. I was looking at some IoT stories just last night and a Business Insider article came up as our image and it had listed the companies by average age. And you had obviously Facebook average age like 28. HP was at the highest end at 39. And I want to bring up this notion of changing market because HP has always been customer focused. So the question is if they are truly customer focused as is Amazon for instance. We talked to Andy Jassy, talks about that all the time. And the context of where you've been and where you're going. Historical legacy, declining market, say servers for instance. And where you're going, it brings up an interesting point. And notable is recently Amazon Web Services hired Gosling, the founder of Java, which had a big conversation on the internet around age. And a lot of the winners are older systems guys. So what's interesting is, I actually look at that Business Insider article and saying actually age is a wisdom point now because right now HP's got to solve customer problems. In addition to transforming themselves, they're looking at a customer base that's changing their requirements. So having experience is actually a good thing as pointed out by some of the big leaders right now in hyperscale are old systems guys. This is an opportunity for HP and I think that's where I want to get your thoughts on. Are they customer focused in your mind? And if they are going to continue to be, what should their customer focus be? Well, let's talk about what customers are doing. So first and foremost, customers are de-investing in non-differentiating hardware maintenance and provisioning. So they're shifting IT labor from provisioning LUNs and servers into digital transformation initiatives. So that's sort of one piece. The other piece is there is as they shifting those resources in places up the value stack. So it's applications, it's as you say digital transformation services, it's new IoT activity. So they're only investing from an HP standpoint, HP's an infrastructure company. They're only investing in infrastructure that looks like public cloud and can focus on hybrid. So are they customer focused? Yes. And what are they doing there? So they're investing in M&A, they're doing some M&A tuck-ins. They're focused on delivering platforms with an API that are essentially programmable infrastructure. And very importantly, they're in a low margin business now. It's sort of low 30% gross margin business. So they have to get volume. How do they get volume? How do they reach those customers? Partners. So you are seeing a new partner emphasis. You know, are they customer focused? Yes, but they're really right now partner focused to reach those customers and increase their scale and coverage. That is a critical difference between the new HP, not that they always didn't have partners, but now partners are critical to their success. One of the things that's the theme here is simplifying hybrid IT. And I think from a customer standpoint, simplifying that is going to be critical at the same time, creating new services opportunities. So I want to get your thoughts on the top story, at least from my perspective here at the show at HP Discover. And that is, is it better to be big or small? And HP has a strategy of a collection of small, nimble, agile business units. Dell EMC, for instance, has a strategy of being big and using leverage with supply chain and whatnot. Two different strategies, we pointed that out on the web. Certainly we've heard a lot of different approaches. Your thoughts on HP strategy vis-a-vis bigger is better or smaller and nimble is better? Well, HP's not small. You know Packard Enterprise is still big. I mean, it's a company that's twice the size or more than EMC was at its peak. So it's still a very, very large company. The difference is, John, I think they're focused. So they really are focused on hardware and infrastructure to support this digital transformation, whatever you want to call it. The big question I have, John, is, now that HP is getting rid of its software business, its outsourcing and EDS business, what is HP going to do with regard to software and services? So they've reinvented the whole services organization. The big question mark for me is software. Will they get into this what you call inter-clouding business? Software to manage multiple clouds. It's a wide open space, everybody's going after it. And I haven't heard much from HP there. So what is their software strategy? Now the other thing I'll add is the good thing about being smaller is that it's going to generate cash for them. So they're going to get cash out of the spin merge with CSC, they're going to get cash out of the spin merge with Micro Focus. And you've already seen HP become more acquisitive with the SimpliVity acquisition, certainly with Nimble recently, previously the Aruba acquisition, and some other tuck-ins. That's critical in order for HP to reposition and continue to grow. Yeah, I mean my take on HP right now is they've got to be more assertive. Their voice in the marketplace at an industry level has to be very assertive and relevant. I think that's something they've got to put the stake in the ground and hammer that home. I think they've got the peace parts. And I think the spin merge is not a, they're getting out of that business. They're just decoupling from the monolithic entity that was HPE and creating kind of cohesive entities. Now I think there's a strategy in my opinion that looks really strong there in the sense that, hey at the end of the day it's going to be a services game. If you look at the IoT edge, to me that's the tell sign of the marketplace. As the value shifts from IT, so simplifying IT, having true private cloud, having some hybrid pathways for IT. Maybe declining market from a service perspective, but simplifying that and operationalizing that and shifting the value to the edge with services is a huge opportunity for HP. I think this is something that not a lot of people on Wall Street are kind of grocking at this point, but the value shift from IT centralized IT to a distributed kind of network effect is a really interesting play. And I think this is a bet, I think HP's making from my standpoint. And that's where the intelligent edge piece comes in. If they could nail that and layer on the services and bring real value paths for customers with outcomes that are not pie in the sky. So they throw some AI in there, machine learning, it's all relevant, getting into open source, taking that labs, machine and memster technology, bringing that out in appropriate timing with the services in place. I think that's a good strategy for HP. Well you mentioned Wall Street. Look, Wall Street is very tactically focused on the quarter and the margin decline. DRAM price is doubled in January. So a company like HPE is going to get hurt by that. So that's headwinds for these guys, there's currency headwinds, the stock of price will go up and down. But the point I want to make, John, is there's a new competitive reality. CIOs have woken up to open source and cloud. And as a result, we've emerged into a new competitive dynamic where HPE is competing with Dell, it's competing with China and it's competing with AWS. And it's one, two differentiable advantages are services. Clearly, HP's doubling down on services. I'll actually add a third. The second is partnerships. And the third big one, which is Greenfield, is an ecosystem around IoT and what they call the intelligent edge. Well Dave, great commentary. Again, my feeling is customer focus at an industry level, having the right product mix that's relevant for the solutions customers want. And also their partners. Leveraging that partner network really going to be two pivot points for me that I see that as great leverage for HP. At the end of the day, everyone talks about declining market of servers and storage. I actually don't see that. There's more compute available now, more storage available. The key is can that shift to true private cloud, which again is a $250 billion market. Hardly declining and hybrid cloud is certainly growing. So declining and growing, I mean, they're all different perspectives and I think HP's messaging here coming into the show. We're going to look at that and understand and impact and unpack that analysis. So I'm John Furrier, Dave Vellante, day one of coverage of three days of wall-to-wall coverage at HPE Discover 2017. More live coverage after the short break.