 From around the globe, it's theCUBE with digital coverage of Red Hat Summit 2020, brought to you by Red Hat. Last year in 2019, IBM made the biggest M&A move of the year with a $34 billion acquisition of Red Hat. It positioned IBM for the next decade after what was a very tumultuous tenure by CEO, Ginni Rametti, who had to shrink in order to grow. Unfortunately, she didn't have enough time to do the grow part. That has now gone toward Arvind Krishna, the new CEO of IBM. This is Dave Vellante, and I'm here with Stu Miniman, and this is our Red Hat keynote analysis. This is our seventh year doing the Red Hat Summit, and we're very excited to be here. This is our first year doing Stu the Red Hat Summit post-IBM acquisition. We've also got IBM Think next week, so what we want to do for you today is review what's going on at the Red Hat Summit. Stu, you've been wall-to-wall with the interviews. We're going to break down the announcements. IBM had just announced its quarter, so we get some glimpse as to what's happening in the business, and then we're going to talk about going forward what the prognosis is for both IBM and Red Hat. Well, and Dave, of course, our audience understands there's a reason why we're sitting farther apart than normal in our studio, and why we're not in San Francisco, where the show is supposed to be this year. Last year, it's in Boston. Red Hat Summit goes coast to coast every year. It's our seventh year doing the show. First year doing it, all digital. Of course, our community is always online, but real focus, we're going to talk about Dave. You listen to the keynote speeches. It's not the, as we said in our preview, it's not the hoopla. We had a preview with poor Cormier ahead of the event. They're not making big announcements. Most of the product pieces were all out front. It's open source anyway. We know when it's coming for the most part. Some big partnership news. Of course, strong customer momentum, but a different tenor and the customers that Red Hat's lined up for me to interview, all talking, you know, essential services like medical, your energy services, your communication services. So, you know, real focus. I think Dave, both IBM and Red Hat, making sure that they are setting the appropriate tone in these challenging times. Yeah, I mean, everybody who we've talked to says, look, if employees and safety comes first, once we get them working from home and we know that they're safe and healthy, we want to get productive. And so you've seen, as we've reported that, that shift to the work from home infrastructure and investments in that. And so now it's all about, how do we get closer to clients? How do we stay close to clients and be there for them? And I actually have, you know, business going forward. You know, the good news for IBM is it's got strong cash flow. It's got a strong balance sheet, despite, you know, the acquisition. I mean, it's just, you know, raised some more, you know, low cost debt, which, you know, gives them some dry powder going forward. So I think IBM is going to be fine. It's just, there's a lot of uncertainty. But let's go back to your takeaways from the Red Hat Summit. You've done, you know, dozens of interviews. You got a good take on the company. What are your top three takeaways, Stu? Yeah, so, first of all, Dave, you know, the focus everybody has is, you know, what does Red Hat do for the cloud story for IBM? OpenShift especially is absolutely a highlight. Over 2,000 customers now from some really large ones. You know, last year I interviewed, you know, Delta. You've got, you know, Ford and Verizon up on stage for the keynote, strong partnership with Microsoft talking about what they're doing. So OpenShift has really strong momentum. If you talk about, you know, where is the leadership in this whole Kubernetes space, Red Hat absolutely needs to be in that discussion. Not only are they, you know, other than Google, the top contributor really there, but from a customer standpoint, the experience, what they've built there. But what I really liked from Red Hat's standpoint is it's not just an infrastructure discussion. It's not, oh, VMs and containers and there's things we wanna talk about, about VMs and containers and even serverless from Red Hat's standpoint. But Red Hat, at its core, what is it? They started out as an operating system company, RHEL, Red Hat Enterprise Linux. What's the tie between the OS and the application? Oh my God, they've got decades of experience. How do you build applications? Everything from how they're modernizing Java with a project called Quarkus, through how they're really helping customers through this digital transformation. I hear a similar message from Red Hat and their customers that I hear from Satya Nadella at Microsoft is we're building lots of applications. We need to modernize what they're doing and Red Hat well positioned across the stack to not only be the platform for it, but to help all of the pieces to help me modernize my applications, build new ones, modernize some of the existing ones. So OpenShift, a big piece of it. Automation has been a critical thing for a while. We did the Cube last year at Ansible Fest for the first time. From Red Hat took that acquisition and has helped accelerate that community in growth and they're really pulling all of the pieces together. So it's what you hear from Stephanie Sherris who ironically enough came over from IBM to run that business inside of Red Hat. Well, now she's running it inside Red Hat and there's places that this product proliferates into the IBM portfolio. Next week when we were at IBM, I think I'm sure we'll hear a lot about IBM Cloud Packs and look at what's underneath IBM Cloud Packs. There's OpenShift, there's RHEL, all those pieces. So I know one of the things we want to talk about Dave is what does that dynamic of Red Hat and IBM mean? So OpenShift, Automation, the full integration both of the Red Hat portfolio and how it ties in with IBM would be my top three. Well, Red Hat is now IBM. I mean, it's clearly part of the company. It's the company strategy going forward. The CEO, Arvin Krishna is the architect of the Red Hat acquisition. And so, you know, it's all in on Red Hat. Dave, I mean, just the nuance there of course is the thing you hear over and over from the Red Hatters is Red Hat remains Red Hat. That cultural shift is something I'd love to discuss because, you know, Jim Whitehurst, now he's no longer a Red Hat employee. He's an IBM employee. So you've got Red Hat employees, IBM employees, they are keeping that, you know, separation wall, but obviously there's flowing in technology, some people in technology. It's not even close to what VMware is. VMware is a separate public company, has separate reporting, Red Hat doesn't. I mean, yes, I hear you. You know, you got the Red Hat culture and that's good, but it's a far cry from a separate entity with full transparency on the financials and so I hear you, but I'm not fully buying it. Let's get into it. Let's take a look at the quarter because that I think will give us an indication as to how much we actually can understand about Red Hat and again, my belief is it's really about IBM and Red Hat together. I think that is their opportunity. So Alex, if you wouldn't mind pulling up the first slide, these are highlights from IBM's Q1 and you know, we won't spend much time on the IBM side of the business although we want to bring some of that in but the key here is you see Red Hat at 20% revenue growth. So still solid revenue growth, you know, maybe a little less robust than it was, you know, sequentially last quarter but still very, very strong and that really is IBM's opportunity here, 2200 clients using Red Hat and IBM container platforms. The key here is when Ginny Rometti announced this acquisition along with Arvind Krishna and Jim Whitehares, she said this is going to be cash flow, free cash flow are creative in year one. They've already achieved that. They said it's going to be EPS accretive by year two. They are well on their way to achieving that. Why? We talked about this, Stu. It's because IBM has a huge services organization that it can plug OpenShift right into and begin to modernize applications that are out there. I think they cited on the call that they had 100 ongoing projects that is driving immediate revenue and allows IBM from a financial standpoint to get an immediate return. So the numbers are pretty solid. Yeah, absolutely, Dave. And talking about there is a little bit of the blurring of line between the companies. One of the product pieces that came out at the show is IBM has had for a couple of years thing called, you know, MCM, multi-cloud management. There was announced that there were actually some of the personnel and some of the products from IBM have come into Red Hat. Of course, Red Hat doing what they always do, they're making it open source and it's advanced cluster management. Really, from my viewpoint, this is an answer to what we've seen in the Kubernetes community for the last year. There is not one Kubernetes distribution to rule them all. I'm going to use what my platforms have and therefore, how do I manage across my various cloud environments? So Red Hat, for years, is OpenShift lives everywhere. It sits on top of VMware virtualization environment. It sits on top of AWS, Azure and Google or it just lives in your Linux farms. But ACM now is how do I manage my Kubernetes environments? Of course, super optimized to work with OpenShift and the roadmap as to how it can manage with Azure Kubernetes and some of the other environments. So, you now have some former IBMers that are there and as you said, Dave, some good acceleration in the growth from the Red Hat numbers. We'd seen like right around the time that the acquisition happened, Red Hat had a little bit of a down quarter. So, you know, absolutely the services and the scale that IBM can bring should help to bring new logos. Of course, right now, Dave, with the current global situation, it's a little bit tough to be going after new business. Yeah, and we'll talk about that a little bit, but I want to come back to sort of when I was pressing you before on the true independence of Red Hat. By the way, I don't think that's necessarily a wrong thing. I'll give you an example. Look at Dell right now. Why is Dell relevant in cloud? Why? VMware. If Dell goes to market and says we're relevant in cloud because of VMware, well, then why am I talking to you? Why don't I talk to VMware? And so, my point is that in some regards, having that integration is a real advantage. Now, you were at EMC in the time when they were sort of flip-flopping back and forth between integrated and not and separate and not. It's obviously worked out for them, but it's not necessarily clear cut. And I would say in the case of IBM, I think it's the right move. Why is that? Arvin Christen talked about three enduring platforms that IBM has developed. One is mainframe, that's going to stay. The second was middleware and the third is services. And he's saying that hybrid cloud is now the fourth enduring platform that they want to build. Well, how are they going to build that? What are they going to build that on? They're going to build that on an open shift. There are other challenges to sort of retool their entire middleware portfolio around open shift, not unlike what Oracle did with Fusion when it bought Sun. Part of the reason it bought Sun was for Java. So these are key levers, not necessarily in and of themselves, huge revenue drivers, but they lead to awesome revenue opportunities. So that's why I actually think it's the right move that what IBM's doing. Keep the red hat sort of brand and culture, but integrate as fast as possible to get cash flow accretive. We've achieved that and get EPS accretive. That to me makes a lot of sense. Yeah, Dave, I've heard you talk often. If you're not a leader in a position, or hear John Chambers from Cisco when he was running it, if I'm not number one or number two, why am I in it? How many places did IBM have a leadership position? Red Hat's a really interesting company because they have a leadership position in Linux, obviously they have a leadership position now in Kubernetes. Red Hat culturally, of course, isn't one to jump up and down and talk about how they're number one in all of these spaces because it's about open source, it's about community. And that does require a little bit of a cultural shift as IBM works with them, but interesting times. And yeah, Red Hat is quietly an important piece of the ecosystem. Let me bring in some ETR data. Alex, if you pull up that second slide. And I've shown this before in breaking analysis. And what this slide shows in the vertical axis is shows net score. Net score is a measure of spending momentum, spending velocity. The horizontal axis is called market share. It's really not market share. It's really a measure of pervasiveness. The mentions in the data set. We're talking about 899 responses here out of over 1200 in the April survey. And this is the multi-cloud landscape. So what I did here, Stu, I pulled on containers, container platforms, container management and cloud. And we positioned the companies on this sort of X, Y axis. And you can see here, you obviously have in the upper right, you got Azure and AWS. Why did I include AWS in the multi-cloud landscape? You've answered that question before, but. Yeah, because Dave, even though Amazon might not allow you to even use the word multi-cloud, you can't have a discussion, a multi-cloud, without having Amazon in that discussion. And they've shifted on hybrid. Expect them to adjust their positioning on multi-cloud in the future. Now coming back to this data, you see Kubernetes is on there. Kubernetes I know is not a company, but ETR actually tracks Kubernetes. You can see how hot it is in terms of its net score and spending momentum. Yeah, I mean, Dave, the obvious thing to look at there is you see how strong Kubernetes is. If IBM plus Red Hat can keep that leadership in Kubernetes, they should do much better in that space than they would have on, with just their products alone. And that's really the lead of this chart. They're really cuts to the chase deal. You see Red Hat OpenShift has really strong spending momentum, although I will say, if you back up to say April, July, October, 18, 19, it actually was a little higher, so it's been pushed down. Remember, this is the April survey that was ran from mid-March to mid-April. So we're talking right in the middle of the pandemic. So everybody's down. But nonetheless, you can see the opportunity is for IBM and Red Hat to kind of meet in the middle. Leverage IBM's massive install base and its services presence and its market presence, its pervasiveness, aka market share in this rubric, and then use Red Hat's momentum and kind of meet in the middle. And that's the kind of point that we have here with IBM's opportunity. And that really is why IBM is a leader and at least a favorite, in my view, in multi-cloud. Well, Dave, if you'd looked two years ago and you said what was the competitive landscape? Red Hat was an early leader in the Kubernetes multi-cloud discussion. Today, if you ask everybody, well, who's doing great in Kubernetes? You have to talk about all the different options that Amazon has. Amazon still has their own container management with ACS. Of course, AKS is doing strong and well. And Amazon, whatever they do, we know they're gonna be competitive. Microsoft's there. But it's not all about competition in this space, Dave, because we see Red Hat partnering across these environments. They do have a partnership with AWS. They do have a partnership with Microsoft up on stage there. So where it was really interesting, Dave, one of the things I was coming into this show looking is, what is Red Hat's answer to what VMware is really starting to do in this space? So vSphere 7 rolled out, and that is the GA of Project Pacific. So taking virtualization in containers and putting them together, Red Hat, of course, has had virtualization for a long time with KVM. They have a different answer of how they're doing open shift virtualization. And rather than saying, here's my virtual environment, and I can also do Kubernetes on it, they're saying containers are the future and where you want to go, and we can bring your VMs into containers, really shift them the way you have, really kind of a lift and shift, but then modernize them. Customers, you want to meet customers where they are, you want to help them move forward. Virtualization in general has been a, you don't want to touch your applications, you want to just let it ride forever, but the real driver for companies today is, I've got to build new apps. I need to modernize my environment, and Red Hat is positioning, and I like what I'm hearing from them, I like what I'm hearing from Red Hat's customers on how they're helping take both the physical, the virtual, the containers, and the cloud and bring them all into this modern era. Yeah, and IBM made an early bet on Kubernetes and obviously around Red Hat. You could see actually, on that earlier slide we showed you, IBM, we didn't really talk about it, they said they had 23% growth in cloud, which is a $22 billion business for IBM. You're smiling, look good for IBM, they're going to redefine cloud, let AWS kick and scream, they're going to say, hey, here's how we define cloud. We include our on-prem, we include our portions of our consulting business. I mean, I honestly have no idea what's in the $22 billion and how, if they're growing $22 billion to 23%, wow, that's pretty awesome. I'm not sure, I think they're kind of mixing apples and oranges there, but it makes for a good slide. Yeah, we would say, wait, shouldn't that be $4 billion you added, you only added $2 or $3 billion? Numbers can tell a story, but you can also manipulate that. The point is, I've always said this, near-term, to get return on this deal, it's about plugging OpenShift into services and modernizing applications. Long-term, it's about maintaining IBM and Red Hat's relevance in the hybrid cloud world, which is, I don't know how big it is, it's probably a trillion dollar opportunity. That really is critical from a strategy standpoint. Stu, I want to ask you about the announcements. What about any announcements that you saw coming from Red Hat are relevant? What do we need to know there? Yeah, so one of the bigger ones we already talked about, that multi-cloud manager, what Red Hat has, the Advanced Cluster Management, or ACM, absolutely is an area we should look. VMware, Tanzu, Azure Arc, Google Anthos, and now ACM from Red Hat in partnership with IBM is an area, still really early. Dave, I talked to some of the executives in the space and say, are we going to learn from the mistakes of multi-vendor management? Dave, you think about the CA and BMC, exactly, of the past, will we have learned from those, is this the right way to do it? It is early, but Red Hat obviously has a position here and they're doing it. Did hear plenty about how Red Hat is plugging into all the IBM environments, Dave, Z, power, the cloud solutions, and of course, IBM solutions across the board. To my point of getting a little bluewashed, but hey, it's got to happen. I think that's a smart move. Right, we talked about really modernizing the applications in the environments. I talked a bit about the virtualization piece. The other one, if you say, okay, how do I pull the virtualization forward? What about the future? So OpenShift Serverless is the other one. It's really a tech preview at this point. It's built off of the Knative project, which is part of the CNCF, which is basically how do I still have containers and Kubernetes underneath? Can that plug into Serverless or do Serverless get rid of everything? So IBM, Oracle, Red Hat, and others really have been pushing hard on this Knative solution. It has matured a lot. There's an ecosystem growing as to how it can connect to Azure, how it can connect to AWS. So definitely something from that app dev piece to watch. And Dave, that's where I had some really good discussions with customers as well as the Red Hat execs and their partners. That boundary between the infrastructure team and the app dev team, they're helping to pull them together. And some of the tooling actually helps. Ansible's a great example of that in the past, but others in the portfolio. And lastly, if you wanna talk a huge opportunity for Red Hat, IBM, and it to jump all for everyone is edge computing. So Red Hat, I've talked to them for years about what they were doing in the open stack community with network function virtualization or NFV. Verizon was up on stage. I've got an interview for Red Hat Summit with Vodafone Idea, which has 300 million subscribers in India. And the Red Hat portfolio really helping a lot of the customers there. So it's the telco edge is where we see a strong push there. It's definitely something we've been watching from the big cloud players and those partnerships, Dave. So last year, Satya Nadella was up on the main stage with Red Hat. This year, Scott Guthrie, there he's at every Microsoft show and he's at the Red Hat show. So it is still ironic for those of us that have watched this industry and you say, okay, where are some of the important partnerships for Red Hat? It's Microsoft. I mean, we all remember when open source was the evil enemy for Microsoft. And of course, Satya Nadella has changed things a lot. It's interesting to watch. I'm sure we'll talk more at Think Dave. Arvin Krishna, the culture he will bring in with the support of Jim Whitehurst comes over from IBM compared to what Satya has successfully done at Microsoft. Well, let's talk about that. Let's talk about, let's bring it home with the sort of near-term, mid-term. And really, I want to talk about the long-term strategic aspects of IBM and Red Hat's future. So near-term, IBM is suspended guidance, like everybody. Okay, they don't have great visibility. Some things to watch. By the way, a lot of people are saying, oh, just kind of draw a red line through this quarter. You just generally ignore it. I disagree. Look at cash flow, look at balance sheets, look at what companies are doing and how they're positioning. That's very important right now. It'll give us some clues. And so there's a couple of things that we're watching with IBM. One is their software business crashed in March. And software deals usually come in, big deals come in at the end of the quarter. People were too distracted, they stopped spending. So that's a concern. Jim Kavanaugh on the call talked about how they're really paying attention to those services contracts to see how they're going. Are they continuing? What's the average price of those? So that's something that you got to watch near-term. Okay, fine. Again, as I said, I think IBM will get through this. What really I want to talk about, Stu, is the prospects going forward. I'm really excited about the choice that IBM made, the board putting Arvind Krishna in charge and the move that he made in terms of promoting Jim Whitehurst to IBM. So let's talk about that for a minute. Arvind is a technical visionary and it's high time that IBM got back to it being a technology company first. Because that's what IBM is. And I mean, Lou Gerstner arguably saved the company. They pivoted to services. Sam Palmosano continued that when Ginny came in. She had a services heritage. She did the PWC deal. And IBM really became a services company first, in my view. Arvind is saying explicitly, we want to lead with technology. And I think that's the right move. Of course, IBM is going to deliver outcomes. That's what IBM's heritage has been for the last 20 years. But they are a technology company and having a technology visionary at the lead is very important. Why? Because IBM essentially is the leader prior to Red Hat in one thing. Mainframes. IBM used to lead in database. They used to lead in storage. They used to lead in semiconductors on and on and on servers. Now they lead in mainframes and now switch to look at Red Hat. Red Hat's a leader. They got the best product out there. So I want you to talk about how you see that shift to more of a sort of technical and product focus, preserving the outcome, obviously. But your thoughts on the move, the culture, putting Jim as the president, I love it. I think it was absolutely brilliant. Yeah, Dave, absolutely. I know we were excited because personally we know both of those leaders, they are strong leaders. They are strong technically. Dave, when I think about all the companies we look at, I challenge anybody to find a more consistent and reliable pair of companies than IBM and Red Hat. For years it was Red Hat being an open source company and the way their business model said it, it's not the ebb and flow of product releases. We know what the product's going to be. The roadmaps are all online and they're going to consistently grow. What we've seen Red Hat go from kind of traditional software models to the subscription model and there are some of the product things we didn't get into too much as to things that they have built into Red Hat Enterprise Linux and expanding really their cloud and SaaS offerings to enhance those environments. And that's where IBM is pushing too. So, there's been some retooling for the modern era. They are well positioned to help customers through that digital transformation. And as you said, Dave, you and I, we both read The Open Organization by Jim Whitehurst. He came in to Red Hat, really gave some strong leadership. The culture is strong. They have maintained really strong morale. When I talked to people inside, was there concern inside when IBM was making the acquisition? Of course there was. We've all seen some acquisitions that haven't gone great when IBM has blue washed them. They're trying to make really strong that Red Hat stays Red Hat. To your point, Dave, we've already seen some IBM people go in and some of the leadership now is on the IBM side. So, can they improve the product, include those customer outcomes and can Red Hat's culture actually help move IBM forward? Company with over 100 years and over 200,000 employees, you'd normally look and say, can a 12,000 person company change that? Well, with a new CEO, with his wingman, being Whitehurst, driving that, there's a possibility. So, it's an interesting one to watch. Absolutely, current situations are challenging. Red Hat's growth is really about adding new logos and that will be challenged in the short term. Yeah, Dave, I love you. Shouldn't people let people off the hook for Q2? Maybe they need to go like our kids. This semester is a pass-fail rather than a letter grade. Yeah, great, good point. Yeah, and I guess my point is that there's information and you got to squint through it. And I think that, look at to me, this is like, Arvin's timing couldn't be better. Not that he orchestrated it, but I mean, when Genitech took over, IBM was over 100 billion. I said many times that IBM's got a shrink to grow. She just ran out of time for the grow part. That's now on Arvin. And I think, so he's got the COVID mulligan, first of all. The stock's been pressured down. So, his tenure, he's got a great opportunity to do with IBM in a way what Satya Nadella did is doing at Microsoft. You think about it, they're both deep technologists. Arvin, hardcore computer scientist, Indian Institute of Technology, Indian Institute of Technology, different school than Satya went to, but still steeped in a technical understanding, a technical visionary who can really drive product greatness in AI with Watson. We've talked a lot about hybrid cloud. Quantum is something that IBM's really investing heavily in. And that's a super exciting area. Things like blockchain, some of these new areas that I think IBM can lead and it's all running on the cloud. Look, IBM generally has been pretty good with acquisitions. Yes, they fumbled a few, but I've always made the point they are in the cloud game. IBM and Oracle, yeah, they're behind from a market share standpoint, but they're in the game and they have their software estate and their PAS estate to insulate them from the race to the bottom. So, I really like their prospects and I like the organizational structure that they've put in place. And by the way, it's not just Arvin and Jim, you mentioned Paul Cormier. Rob Thomas has been elevated to senior VP, really important in the data analytics space. So, a lot of good things going on there. Yeah, and Dave, one of the questions you've been asking and we've been all talking to leaders in the industry, what changes permanently after this current situation? Automation, more adoption of cloud, the importance of developers, there's even more of a spotlight on those environments and Red Hat has strong positioning in that space. And a lot of experience that they help their customers. And being open source, very transparent, both IBM and Red Hat are doing a lot to try to help the community. They've got contests going online to help get open source and hackers and people working on things and strong leadership to help lead through these stormy weathers. So, Stu's going to be really interesting decade and theCUBE will be here to cover it. Hopefully events will come back until they do, we'll be socially responsible and socially distant. But Stu, thanks for helping us break down the Red Hat and sort of tipping our toe into IBM more coverage and IBM Think next week. This is Dave Vellante for Stu Miniman. You're watching theCUBE and our continuous coverage of the Red Hat Summit. Keep it right there. We'll be back after this short break.