 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 Gillins. Welcome back to HP Discover 2016, everybody from the banks of the River Thames. We're here at London Excel, Excel London. I'm here with Paul Gillin, my co-host. This is day two of HPE Discover, coming live to theCUBE, the worldwide leader in live tech coverage. Paul, yesterday we heard a lot about Composable. We had Meg Whitman on stage. What they do here is the keynotes are actually in the afternoon at two o'clock local time. And so they take a big two-hour break in the afternoon for keynotes. Normally at these events, they inject you with the Kool-Aid first thing in the morning. Well, here, they give people time to get up and cruise in. Very European. Very European. And so as a result, they go, tend to go later into the evening. So the shelf floor closes sometime after six o'clock. And then the nightlife begins. Last night was the event. Normally it was a big storage party in the first night. Last night they combined it for the data center infrastructure group. But it's a lot of business going on here. People are doing dinners in the evenings and customer dinners and the like. There's an analyst event here. Of course it's running simultaneous to AWS re-invent which has, I understand, about 130 analysts there and a lot of press, I think 30,000 people showed up for that show. It's probably 10,000 people. I'm sure a more invigorated crowd there as well with all the growth that's going on at AWS. Growth, diversity, you know, it's in Vegas. At one point Amazon had said they're not going to make that show bigger than 10,000 people, but it's exploded. And then, so the juxtapose, that sort of high growth business with the low growth cash flow, $50 billion BMF, which is HPE, a lot smaller than it used to be. And I think the next discover, let's see, will the microphocus deal probably won't close until August. So it's really about a year from now. We're going to see a really different HPE. And of course, don't rule out some other big moves with the balance sheet cleaned up. You know, HPE could make some additional acquisitions. They certainly got the cash and they've got the, and it would behoove them to do something more dramatic, something to inject some more energy. One thing I took away from our interviews yesterday was a very tame button-down crowd. The people we had on theCUBE, for the most part, were generous toward their competitors. They were courteous, gentlemanly, if you will. And I really was hoping to see more energy, more competitiveness. They had opportunities to take on Dell, to take on IBM. Wouldn't even mention their competitors by name. And that's something that maybe we'd like to see HPE inject a little bit more competitive energy into the HPE experience. At least that's what I took away from yesterday. We got that a little bit from a cloud glass. I was challenging him on some of the composable stuff. And he sort of laid out, and I thought he did a decent job of it, laid out sort of why they're different, why the fluid pools of infrastructure being able to call on whether storage or compute or networking at will was different than, say, juxtapose relative to Nutanix, which they said was sort of chunks of infrastructure that you couldn't scale independently. And that was sort of interesting. A concept that is still taking shape, I sense. They haven't really defined what composable is about in a way that they can articulate to the market. It's an interesting idea. It's certainly something that, given their partner ecosystem, should play well to customers who already have a hybrid or an environment with a lot of different players. But IBM has been working on Cognitive for a couple years now, and I think it's finally got a message kind of crystallized around that. HPE is doing this with composable, but they're still earlier on in the process. And the other thing we heard from Alistair Winner, who sort of challenged my assertion that HPE was really a products company, he said, no, we're actually a services company. So I'm not sure, did they leave with services? Did they leave with products? I still see HPE as of technology and products company first, and then services sort of wrapped around that, although he suggested that there's a new emerging set of services that are non-product related that they're leading with. And so that's an interesting dynamic. Well, the market doesn't get excited about services. The market gets excited about products. And so I can understand them wanting to lead with a products orientation, because otherwise, you know, your Accenture, and which is buttoned down, very profitable company, but not one that inspires a lot of enthusiasm among their customer base. So I can see why they're doing that, but clearly services, the profit engine of HPE right now. Yes, and I agree with you. I think, you know, it's interesting. Actually, again, we're talking about Reinvent, which is a services company, but they're packaging products as services. And I think they deliver their messaging, largely comparing themselves to products. We have this database, or we have this storage, and it's better because, and it's fast. And you know, a lot of speed and feed sort of angles, but packaged as services. And you know, questions, will that change over time? Will it shift more toward business outcomes, which frankly are less interesting to cover, and it's harder to compare companies on the basis of, you know, business outcome from company A versus business outcome from company B. But I think the difference with AWS is that they are creating new markets. I mean, they are enabling new kinds of companies to grow and flourish, and it's a whole new model that, yes, they're a services company, but not in any conventional definition of a services company. It's an entirely new type of service. And so that generates a lot of excitement, but Cloud will mature over time. They will have to figure out what message, how they position themselves when they are, a big, slow-growing company, which they will be at some point. Well, the other interesting thing that we keep bringing up Amazon, and we do so because it's essentially the new reference model for how organizations are competing, how the vendor community is competing. I mean, you see that with HP, with their capacity on demand. Yeah, that's a direct response to the public Cloud. Absolutely. And so, and you're right, I think the big innovation of AWS is its business model, you know, in essence. And so, you know, again, will we see, thinking about this way, look at the stack that Amazon is building. I mean, they're into semiconductors, they're into storage, they're into compute, they're into database, they're into middleware, and, you know, hundreds and hundreds of other services, compare that to the HP approach, which is to partner now for the stack, you know? And that's what I really came away with, as someone who is not as intimately involved with HP as you have been, and some of the other Wikibon analysts have been, this was all about partnering. And what HP is doing is making a liability into an asset, right? They were late to the Cloud, to the public Cloud. They abandoned the public Cloud, and they got some criticism for that, but they have turned that liability into an asset by divesting themselves of anything that wasn't core to the infrastructure business and partnering like crazy. It seems like, I mean, it's a strategy, it's a very interesting strategy, if they can pull it off, if they can be the best company to partner with, they can build an ecosystem that really can't be matched. Well, and again, we'd love to make comparisons, so you've essentially got HPE lining up against Dell, we'll see what happens with Lenovo, they'd need some time to sort of bake that strategy. But essentially, those companies are comfortable with lower margin businesses, reselling other people's technologies largely. It used to be Intel and Microsoft, and now it's this broader ecosystem, not withstanding EMC obviously owns a lot of its own IP, so Dell now owns that. But for instance, Dell EMC resells Nutanix. That's a key part of its portfolio, and they're doing hundreds of millions of dollars of business there, and Dell is comfortable with that. Dell's a company that when they were public had 19% gross margins. EMC's got close to 60% gross margins before it went private. You blend those together and you're talking about 30% gross margin, maybe 33% gross margin. Similar to where HPE is, it's an operating profit model that's much, much lower. We're talking the low teens. Amazon Web Services operating profit in their most recent quarter was around 33%. These are non-gap numbers, so think about the difference there. I mean, you're talking double the operating profit, and this is both infrastructure companies. So the big question I'm getting to is, will Amazon go up the stack further? You're seeing it eat away into database, and you watch what Microsoft did over the years, and it kept going up and up and up the stack. You're seeing companies basically run their applications on AWS, notwithstanding there are many, many companies, like, for instance, ServiceNow, who own their own cloud, but many companies are choosing to run their applications inside of AWS. Will AWS go and sort of eat away at that part of the ecosystem? Why shouldn't they? I mean, if you're AWS right now, you're king of the hill, and as Microsoft did in the 90s, when it was king of the hill, it initiated a land grab. And Microsoft got into every market it could, because it could afford to fail, and it wouldn't impact the bottom line significantly. So Amazon is, they move fast, they do a lot. But what did they do at every reinvent? It's shock and awe. Just the sheer number of new products and services they announced at the show is always phenomenal. Well, the why shouldn't they is because it's basically would be screwing your ecosystem, but their mantra is, well, we focus on the customers. So sort of coming back to HPE, what does HPE do? Does HPE make a big move between now and a year from now at, you know, when we're here, let's say next year at London Discover, will there be a big move? Will HPE go out and try to make a big move? Yeah, I'm not sure what's out there. I mean, there were rumors about them acquiring Nutanix. There was other rumors about them acquiring SimpliVity. I don't think that would be game-changing. You know, it's a move like Citrix might be game-changing, but that's sort of a shift back to the cloud-bast. Can you imagine what would be a game-changer at this point? I mean, maybe a merger with Cisco? I don't know. These are, it's hard to think of an acquisition that would really change the rules right now. There aren't that many affordable companies out there that are transformative. So a couple of choices then is to continue to do tuck-ins, which they absolutely will do and must do and can do now because the balance sheet is substantially cleaned up, you know, and, or rather, make some kind of big move, like you said. You know, well, I think it was real that they were talking to EMC. I think there was no question about that. So is there another move like that? You mentioned Cisco. There perhaps are, I mean, throwing Citrix into the hat. I don't see those as necessarily game-changing either. Hard to think of Citrix as a game-changer. And too much overlap with Cisco. Absolutely, yeah. And so that doesn't make a lot of sense to me. And so as a result, one could say, all right, well, certainly in the near term anyway, what HP will do is continue to do some tuck-ins. The interesting thing to me is going to be HP's software strategy. HP definitely said, okay, look, the software portfolio that we've collected over the last decade is not working, you know, or we can't figure out how to make it work, so let's just sell it off, get some cash in there, keep our foot in the water in terms of having some ownership, but there's a lot of software companies out there. Will they start over is what you're saying. Yes, and will they start tucking in some of those software companies to make their infrastructure run better, to enable the hybrid cloud to be more simple. You know, that I think is very viable approach. Not necessarily earth-shattering, but I think it's a viable approach and one that's steady as she goes, keep throwing off cash, and serve the customers through the channel. It's an excellent point, Dave. I mean, they have to be careful, as you said, of not polluting their partner ecosystem, not competing with their partners, but there's certainly going to be areas of the software business where they do not have a robust partner ecosystem, and those would be natural areas for them to acquire into. Okay, we're wrapping up the opening. We've got a wall-to-wall coverage here all day long. We'll be going until 6 p.m. local time, so keep it right there. This is the Cube. This is HPE Discover 2016, live from London. We're right back.