 Live from New York City, it's theCUBE. Covering Lenovo Transform 2.0, brought to you by Lenovo. Welcome back to theCUBE's live coverage of Lenovo Transform here in New York City. I'm your host, Rebecca Knight, along with my co-host, Stu Miniman. We're joined by Rod Lappin. He is the senior vice president and marketing at here at Lenovo, and Roger Cox, the research vice president at Gartner. Thank you so much, gentlemen, for coming on theCUBE. Thanks for having us. Yeah, I'm excited. So the big news of the day, NetApp, Lenovo, two global powerhouses joining forces. I want to hear Rod, the Lenovo spiel, and then I want to hear your analysis of the deal and what you make of it. So why don't you go ahead? Yes, so obviously we're really, really excited, Rebecca. It's a great day for us. I think it's something that we've been really planning with NetApp for obviously a long time, and to actually finally have it come to fruition is really exciting for all of us, right? So as you would have known, probably our storage offering in market has been quite small up until now. We are addressing about 15% of the market. With this new deal with NetApp, we sort of bring the TAM, the target market, we can go after it to about 92%. We've been quite good at storage. We've been growing 2X the market average in flash over 100% year on year, but we haven't really had the full product range that we've needed to really address our customer's needs. And so now having this and having this deal now with NetApp means we can go after our customers and really bring value to them in the way that we have wanted and definitely the way our customers are asking us to. So that's my question. Was it customer driven? Was it them saying we just need you to be able to do more or what? Yeah, I think if you look at our core business last quarter, Gartner, obviously, Rancous is the fastest growing server business globally. We grew 68% year on year on our revenue last quarter. And so with the momentum we've got now as a business, we're seeing our customers want us to do more. We're number one in customer satisfaction, number one in reliability. And so they see value in us generally, but we had sort of what I would classify as a sub-segment of the storage market that we want to address. And of course, our customers are saying to us, hey, we want you to do more for us because we like the way you perform. So it's been good for us. We're excited. So Roger, you know a thing or two about the storage industry and NetApp specifically. So give us the customer viewpoint. You talked to a lot of them. Well, first of all, I would say this is one of the better kept secrets because it never leaked out. So we really haven't been getting customer calls on this event yet, but I'm sure we will starting today beginning a lot of what does it mean? Well, yeah, I mean, they brought a few analysts down to RTP in July. And I remember, Roger, you said, what do I do when the customers call them? They're like, customers are going to call them. We're going to keep them under wraps. And they did a good job of it. But anyway, what it means, I think, to Lenovo is it really elevates Lenovo's standing as a provider of IT technology for the data center. So they now have not only a very competitive server offering, which Roger talked about quite a bit, they have what many believe to be one of the best storage offerings in the business. And now they can go compete head to head against Dell EMC as well as with HPE, which would be the two larger competitors that they have to deal with. So it's going to be very good in terms of providing an alternative to clients for data center technology that involves storage. Good thing. We like competition. Absolutely. And we want to be part of it, right? And I think up until now, we probably haven't been able to. So when you look at how we're going to market, my field sales team has been planning with the NetApp field sales team. We've been basically coordinating how we go to market. Where do we attack together? Where do we have conflict? Where do we not? So we actually go in and really focus in on those core competitors that Roger just described, which is where we want to go. In the keynote this morning, it said from a channel standpoint, and there's not a lot of overlap, which on the one hand, I'm saying, well, it sounds like we'll need a lot of training then, but how do you hit the ground running fast? Yeah, so we are already ready to go. We start shipping tomorrow. So that's the good thing about this announcement is like Roger said, we've kept it under wraps, but we are ready to manufacture and go. So I think it's a really exciting spot for us. From a go to market perspective in the channel, NetApp has traditionally been very much about engaging end users, fulfilling through the channel, but engaging end users. Well, Lenovo's got a much stronger forte around mid-market and SMB, and we've got a much stronger forte in emerging markets. So if you actually can start to split geographically the world up a little bit, and then you can start to split how we go to market a little bit, you can actually find there's some really big parts of the market that we don't conflict at all that we can go after. But you see, from my point of view, the bigger challenge they have is to go to market. Now they can say there's not much overlap, but you know, there's always overlap, and there's going to be certain accounts where Lenovo already has a position, and maybe NetApp has a position too, and who's going to do what in their time. So the biggest challenge that Lenovo has here is also a challenge for NetApp, is how they manage together to go to market motion, as well as the service and support, because Lenovo is going to have level one, level two support responsibility, they're going to get all that revenue for support. We'll see how that works out over time. I want to ask you what your advice would be to Lenovo leadership in terms of, you know, this deal enables it to go after bigger players and to take over more of the market. But when it's now going head to head with LEMC, what do you think it should focus on? I think it should focus more on marketing. The products speak for themselves. The competency of these products are well known. And besides this, it gives Lenovo the opportunity to become more cloud friendly too, because they also have access to all of the software out of NetApp's cloud data services organization. So my main advice would be to rock, because he's responsible for this. Just put more wood behind the arrow, get a wide way to put up more money to accentuate the marketing of the product. Create more enthusiasm about the fact that you're now up at another level in terms of being an IT provider to the data center. It's a well kept secret as you started out by saying. Yeah, that's right. So we've got a business case that we've put together, it's now starting with today, obviously, which involves us getting out and starting to get the ground or hit the ground running with a lot of media. There's a lot of social media noise today on it, obviously. Thanks very much to people like yourselves, which is great. And I think we're going to see a lot more marketing based initiatives that run both through the channel as well as to the end users across our, what I'd classify as our tier one countries to start with. To Roger's point though, when we look at the go to market, we basically categorizing all of accounts into four boxes. Those accounts where NetApp's very strong and Lenovo's very strong, which means Lenovo's strong from a server perspective. NetApp's very strong from a storage perspective. F&P would be one of those. That's right. That's a very good example, right? And in that environment, we're going to collaborate and ensure we're communicating with each other and ultimately not fight each other. Like we're going to recognize that we want to continue to protect our server business. They're protecting their storage business. We don't want to touch that. In a place where Lenovo, for example, may be weak and NetApp may be very strong. So they've got a very good storage relationship. We want them to bring our servers into that space because obviously if they don't bring us in, then one of our key competitors that is also competitive in NetApp is going to have a foot in the door there somewhere. So we're going to drive a little bit of a different strategy in that environment. Then we've got obviously the third environment where Lenovo is very strong from a server perspective and NetApp's nowhere in that environment. It's free fields for Lenovo to go after that with our new storage array. And then obviously where we're both neither engaging those customers. It's an acquisition for both. We're going to play and ultimately go after them. There's some really great things that we've been able to put together with this relationship like, for example, company neutrality. So the NetApp teams, when we go into that third and fourth box that I was just talking about, the NetApp sales force is going to be paid the same whether it goes on a Lenovo hardware or it goes on the NetApp hardware. So we've got some pizzas that just sort of ensure that we don't have conflicts and we're all aligned to ultimately grow and compete with Dell EMC and HPE. So Roger, there have been some interesting server and storage partnerships. I think back a decade ago, Dell and EMC did billions of dollars together, eventually broke up and then what do you know, it went back together. I think five years ago, NetApp had pretty strong server partnership there. The storage market has changed a lot in the five to 10 years. Tell Ronnie's a little bit how NetApp's different, how the storage market's different and how customers should be thinking about an arrangement like this. Well, the storage market's different because there's more alternatives, four stories. There's the cloud, AWS, Azure, even Google Cloud. You get over in Asia, Alibaba, over in Asia and so forth. So that's had a very large impact on premise and storage. The other one is hyper-convert. So Lenovo is very much in the hyper-converts business. They have relationships with the tonics, they have got them with VMware, they have them with Pivot 3 and some others. And so all of these things come together to create a different alternative to the classical three-tier infrastructure, server networking and storage. So, but all those things are going to exist and the enterprise storage market, while it may be a declining market from a revenue perspective, has a long tail. It's going to be like mainframes. They'll be here forever, like tape, here forever. It's like me, I'll be here forever. I'll be here forever. All right, but, and so what, right now we're seeing a little bit of a bubble. So we are getting a bubble in terms of, this is a good time by the way for Lenovo to have this partnership because there is more likelihood of increased spending for IT. Good economy in the States, good economy over in Europe, good economy around the world for that matter. I think it's going to last for another couple of years, 2018, 2019, maybe in the 20th before it starts paling off again. So the way people are talking to me now, it's kind of like a flush. Hey, with all this money, we're going to go spend it, refresh everything, get more over into Flash. I think they will sell a lot of Flash, even with the Venture-Level product, what they call the DE. I think they'll sell a lot of Flash there. And of course up in the DM series, which is the equivalent of MedApp's A200, A300, which are a product, they'll sell a lot of Flash there too. I would say, as Roger just mentioned, the market, the traditional storage market is reducing, but Flash is obviously growing. And MedApp last quarter was the number one Flash company in the world, or Flash array company in the world, 27.6% market share. Yeah, we're going to check that out. That comes to another source, we're going to check it out. It comes to another source, yeah, sorry. I'm sorry. But they hit number one last quarter, according to an unknown source. But I think that's really encouraging, right? And that part of the market, Flash is about 30 to 40% of the overall storage market right now, and easily the fastest growing. So this product range really drives an all Flash array type solution that we can actually take advantage of. So, Rob, just want to get your perspective on China too. So that's a big piece of this announcement. Maybe you can talk a little bit about that. I think Roger's got some comments on it. Well, let's go let me get in there. I think this is a good deal for NetApp. This is the reason why I think maybe the channel conflict won't be as bad as it was for the Dell AMC guys back. This is the way for NetApp. NetApp wants to go more and more towards the cloud. You look at their whole strategy, it's going more and more towards the cloud with all of the cloud data services and software that they're developing. And so they're putting more and more emphasis on that. At the same time, the relationship they have with Nova gives them an opportunity to get really a creative revenue that otherwise would not get allows them maybe to reduce the burden that they would have in their manufacturing and the expenses and stuff like that. But the big benefit is China. The JV in China is going to give NetApp an entry into China that you otherwise would not be able to get because of the laws that the People's Republic of China have. It's a big deal. Yeah, I think we're really excited about China. Obviously that's one of the cornerstones of the deal. So it's an independent organization that's going to be set up. Lenovo will have 51% ownership. NetApp will have 49, seven board members, four of them will be Lenovo, three of them will be from NetApp. And ultimately, we are going to have that organization just purely specializing on the Lenovo product that is designed by NetApp originally. And it's going to be doing joint IP. We'll have joint developers in there. We'll be able to leverage my existing sales force in China. That's our traditional sales force to go and drive for everything from a tier one city all the way down to a tier six, tier seven city in PRC. But that joint venture itself will just be a specialist organization specifically on storage. It's really exciting. The thing about the JV, it's very, very important. Whatever is developed by the JV has to stay in China. That software cannot be taken outside of China because of all the geopolitical issues that you have around the world. Big point. Yeah, and a challenge, and a challenge. It's a challenge that both NetApp and Lenovo have to manage with respect to each other. Yeah, I'm not, just to the record, I'm not totally sure. If we develop something in the joint venture, I'm not totally sure that we have to keep that in China. I think we should not actually check. I'm not saying legally you have to. I'm saying emotionally you should. Emotionally we should. There might be some government concerns on some of that. I think it's always going to depend on the government. And we don't want to get into a geopolitical conversation. But I think Europe, for example, I think will be a lot more liberally open to that. Speak a little bit about the cultures coming together. NetApp, you've been working on this deal together. Yes. Yeah, sometimes that can be the strength or the challenge. Yeah, I think company cultures are always challenging, right? And when you get to companies, especially that are right now, as we've heard this morning in some of the sessions, turning the corner, they're both growing. They're both doing very well at the moment. So there's always a level of confidence, shall we say, in both those situations, that you've just got to break down. And I think what we've done very successfully this time is YY and George and Kirk and George and Henry Ricard and myself and Brad Anderson you saw today who's actually up on stage with us today as well, working with us as the executive sponsor on their side. We're like lining up all of our executives globally. All of the field team for Henry Ricard's team and my field team globally have all been interlocking with each other. Their account planning, their territory planning. We're really trying to break down any of the walls that we may have from a cultural perspective and really drive a much more open conversation so we don't get caught out early in the deal. There's an escalation process in the deal. So it goes to a geo level and it ends up with Henry and myself to actually manage worldwide if something was to get really out of control. But, you know, at the moment, day one, don't see any issues, seems to be going, okay, touch wood. So- They both, Brad and Kirk said that they're complementary companies. Is that your perspective too? Would you agree with that? Well, I think they have complementary purposes. Yeah. The interesting thing here is this thing's coming together when both companies are on the uptick. It's not because, you know, go back three years ago, look at where that app was three years ago versus where they are today. So it's coming together when both companies, and matter of fact, go back to look at Lenovo two years ago as well. Absolutely. So it's been an uptick that's happened here over the last two or three years. So this thing's coming together when both companies are doing quite well in that respect. Yeah. By the way, I wanted to mention, Gardner will be publishing a report in September on this transaction from NetApp's point of view. And we'll be publishing a report in November on this transaction from Lenovo point of view. Great. So one of the things people like Roger and I have to do is we look at how we would say whether something's successful or not. So I want to get your point in first two and then we look at 6, 12, 18 months from now whether this is successful. And the thing I have to say is, Kirk and Brad said, well, our goal is to be number three in China. And I said, isn't that a low bar? Aren't you practically on date with one between your two joint companies going to be there? I mean, yeah. Yeah, I can't count on my boss, to be honest with you. But I think you've got the sales team. I know you can actually do that. I would love to. I think at the moment, let's just talk about the joint venture for a second. I think the point is at the moment we are only 15% addressable market with our existing range. And so at the moment we're saying, hey, we can address 15% of the market, that puts us way outside of the number 10 slot in PRC. So to say we want to be number three is quite ambitious especially because we want to try and do it in the next couple of years, right? So I actually feel like he's being pretty aggressive from a growth perspective there. So I think that's quite balanced. Outside of that, I really want to measure us on profitable growth. We really want to diversify our share of wallet and our customer base. You know, we've got a great customer base now from a server perspective. We need to really expand that to ensure that we're taking advantage of the customer feedback we've had. So I think that's, I think it's a pretty good spot. So at the other day, the success or non-success of this program is in rod teams. On the one hand. I love the pressure you're putting me into here. That's a good role, Rod. And then Laura on the service and support side. So you'll look, people will support this program if you get good quality services support. So you have to keep that up for this program, right? Great. Absolutely. And at the moment, the services model is level one and level two is run by Lenovo internally. And then level three escalation runs into the NetApp program. So we believe we've got a model that works quite well. Yeah, I agree too. A good note to end on. Thanks so much for coming up. No, I still. Thank you very much. Well, thanks for having me. I appreciate it very much. Thank you. It's my inaugural time here. First of many. I'm Rebecca Knight for Stu Miniman. We will have more from the Cube Lenovo transform just in a little bit.