 From London, England, it's theCUBE. Covering Discover 2016 London. Brought to you by Hewlett Packard Enterprise. Now, here's your hosts, Dave Vellante and Paul Gillin. Hi everybody, welcome to HPE Discover London 2016. This is Dave Vellante. This is theCUBE, the worldwide leader in live tech coverage. I'm here with Paul Gillin, my co-host up. Paul, right last summer we were together doing the HPE Big Data Conference and here we are at HPE Discover. You were just asking me how many discovers we've done. We're getting close to 10 now because we do one in June in Las Vegas, the US version and of course the European version. This I believe is our fourth European Discover. We did one in Frankfurt, two in Barcelona. This is I think our second or maybe even third in London now. But the bottom line here is we're seeing HPE in transition. It's Meg Whitman, it's about fifth year into a transformative initiative that she undertook when she took the company on and she said it was going to take about five years. We've seen the company split in two. That was the big theme last year in London. And of course this summer we heard HPE or the spring continuing to shore up the balance sheet, doing spin merges with things like CSE. We heard a recent announcement of a spin merge with the software division which we speculated about in Boston. So we now see an HPE that I've been saying for a number of years, HPE has to or HPE and now HPE has to shrink to grow. The company eaked out about a 2% growth annually even though it's fourth quarter, it's not a growth quarter but we're here with a leaner, meaner HPE. Certainly it's a leaner HPE. They've focused down, they've gotten rid of the divisions that were not strategic, the consulting division, the software group, the software group is sort of trying to do a backwater here on the show floor. Very focused on hardware being, as you've said Dave, the arms supplier to the cloud. And this morning, a new announcement from HPE, the machine, the long talked about revolutionary next generation architecture. They're showing prototypes, they're talking about delivering components of it in 2018 to 2019. This could be the transformative architecture for HPE, could vault them to the front of the industry again and I think they needed something big to kick off this show and certainly they're going to have people talking. They have a working prototype, they're demonstrating on the floor, we'll be able to get over there later today and see exactly what is working about it. But a company that's very focused on its hardware business. It's servers, it's storage, it's a Rubin Networks acquisition, a strong story to tell in the internet of things. And really we're seeing HPE very focused now on where it is going forward. It's a matter of execution. Paul, the messages we're going to be hearing this week, obviously you hear a lot about digital transformation. It's HPE strategy to essentially be the infrastructure that powers digital transformations. So we're talking about compute, networking and storage. By the way, HPE's recently reorganized, we'll talk about that a little bit. And also sort of the newer initiative, which is what HPE calls the intelligent edge, the internet of things. HPE is actually in a pretty good position to do this with its ability to distribute compute. Its ecosystem that it's developing. So what's happened is because now they've spun merge the old EDS business into CSC and now they're spinning in the software business to micro-focus, it opens up a whole new set of partnering opportunities for HPE. So companies like Accenture and Ernie Young and I guess E&Y and how they call themselves, certainly PWC, KPMG, et cetera, and others who used to somewhat compete head on with EDS, now that is shed. So they can open up the partnership ecosystem to folks like that, SIs like that. As well, you're going to hear a lot of focus on some new emerging cloud technologies like Docker and Mesosphere and others that HPE is bringing in to its fold. And of course it's got to extend its ecosystem to achieve this intelligent edge. So we're going to hear a lot about that this week. From a financial perspective, the good news is these spin mergers have allowed HPE to clean up its balance sheet. It's now got about $13 billion of cash on the balance sheet which exceeds its long-term debt which is the first time in a long time that that's occurred. So now it's in a position where it has to to do strategic acquisitions. You mentioned Aruba which seems to be working out very well. Aruba to me, Paul, is critical because you want to instrument the windmill. Everybody talks about instrumenting the internet of things but before you instrument it you have to have connectivity. And that's really what Aruba brings with its wireless capability. Well the question about the internet of things is where do you process the data? And I think the consensus is emerging that transmitting all that data over the network back to the cloud, back to the data center is not really practical when you get into large scale. HPE's strategy is you put the intelligence at the edge of the network. You do a lot of the analytics and the basic edge processing goes on at the edge and then you send back to the network to the data center only what matters. I think that's very much in line with the strategy that is developing across the network as David Fleurer said in a recent Wikibon research alert that the edge really is how the internet of things is going to develop. It's the only intelligent way to build large scale networks and Aruba is a critical component of that because it is a first class wireless network. They have all of the support, all the major protocols and they have a chance with Aruba I think to develop an architecture that others will adopt, their partners will adopt as a mature way to process data in large scale internet of things environments. The other thing we'll hear a lot about is hybrid IT. As you know Paul HPE several years ago announced that it was intending to get into the public cloud to compete directly with AWS. It backed off of that very quickly after it announced that and said you know what this is not our strategy. As you pointed out they really are an arms dealer to the cloud and so what you're going to hear a lot about is how to enable hybrid IT, hybrid cloud, HPE's reorganized as I mentioned earlier where they folded what was the separate cloud division into an organization under Antonio Neary. So HPE is sort of consolidating a lot of its bespoke activities around Antonio Neary's organization. So the compute, the networking and the storage are now under him as well as the cloud group and the services division which Antonio used to run which by the way the services division had a killer quarter and I don't know if that's because of the new focus or it's just sort of cycles but it really is starting to power some of what's going on at HPE. HPE is doing some very large integration projects. You know they've recently done the American Airlines, US Airways, they've done I think three major integration projects involving airline mergers which you don't get projects that are much bigger than that. So clearly they're establishing a center of excellence with their services business and as you said it grew very strongly in the fourth quarter. So I like to look at organizations because they sort of give you an indication of what the company is thinking and so as I say they've consolidated a lot of the product functions under Antonio Neary, those three that I mentioned compute, storage and networking and they've done that under two individuals that will be on the cube. Alan Andreoli runs the compute and the storage, sort of the piece part if you will where people want it, the channel wants to configure its own, sort of roll your own and then Rick Lewis runs the converged infrastructure and the software defined pieces and the cloud was folded under him both reporting up to Antonio. So you could see they essentially cleaned up in my view the infrastructure piece because let's face it, cloud as HPE sort of defines cloud is really infrastructure. So they probably had some interesting things going on internally which by the way it's not necessarily a bad thing. They wanted the cloud group to go out and do some ice breaking which happened and they're very clear they had to consolidate that in and then under Dominic Orr you've got the internet of things and so that's where the, I believe the Aruba piece fits in and other intelligent edge pieces fit in and so it's a much more streamlined organization still $50 billion so it's not a small organization but much smaller than the $120 billion monolith that was HPE. And it's still the worldwide leader in servers by a fairly substantial margin. In the earnings call last week Meg Whitman said that really the only part of the business that had underperformed in the most recent quarter was the core server business and she said that's a fixable problem. She said hyperconverge is going very strongly, storage is doing very well, Aruba is doing well, service is going well. If they can get the core server business firing on all cylinders which is really a sales problem then she was painting a very optimistic picture of growth and I think that's a question as we look at these big legacy giants like IBM like HPE trying to make a transition, when do they tip? When does that tipping point arrive that they begin to grow the business in the new areas as the legacy business declines and I think the question we're going to be asking coming out of this or going into this event is is this a growth story or is this an asset management story? Well certainly a cash flow story, HPE threw off $2.1 billion in free cash flow last year which was above its expectations and it returned $3 billion to shareholders in the form of dividends and stock buybacks and so the stock's actually doing quite well as a function of reducing the flow so they've used that cash in a number of ways so these large companies, IBM, HPE, Oracle, EMC before it went private with the acquisition by Dell all threw off a lot of cash so they are cash flow machines, they all face a similar dynamic in that the new stuff, while it's growing very quickly, is not growing fast enough and is not large enough to offset the decline in the old. You see classic cases within HPE is three par. I call three par the gift that keeps on giving so three par was an acquisition it made back in the herd days for $2.5 billion and it's delivered. It's a leader in all flash. It has shored up the company's storage portfolio. Half of the company's business now the three par, the division's business is all flash so there's a ways to go and only by the way, probably only less than 20% of the market is all flash and so there's opportunities for upside there but they've been squeezing a lot of juice out of that lemon for a while but that's an example, Paul, of a situation where the three par business still has, you know, it's eked out some nice growth actually but it's not been enough to offset the declines in the older MSA business so HPE's business still tends to be lumpy and so you pointed out ISS didn't perform last quarter. Several quarters ago it was the big star and so these are product cycles and so I think to answer your question and to your point these are large companies, diversified portfolios where pieces are going to click, pieces aren't and the key for my standpoint is they got to throw off cash to be able to keep the balance sheet stable due intelligent tuck-in acquisitions like the Aruba acquisition which appears to be very good. Three par I think was a big massive, you know, massive 2.5 billion and that massive but pretty big acquisition, kind of a no-brainer to fill a hole so increasingly tuck-ins to support essentially their infrastructure business and maybe even shore up some pieces of what used to be software in a very complex portfolio which is now going to be gone under micro-focus but are there things that they can do in software to support their infrastructure business? That's the kind of thing that we want to look for going forward. And acquisitions are a big question mark. A lot of speculation in the last quarterly results about whether HP's impressive balance sheet, the amount of cash that they have, is this the time that they're going to go fishing for some big acquisitions? As you know the HP of old really was a good company at managing acquisitions. Much of HP was built from acquisitions and HP now in a position where they have the cash to go after some big fish. Are they going to go after big fish or are they going to, you know, like a Nutanix in the Hypergood Roadshare or are they going to focus on smaller players and collect this patchwork into something more co-existent? Well that was a rumor this summer that they were going to actually spin out the software division and buy Nutanix. I don't think that's going to happen now in Nutanix IPO. And then there was a rumor in the register about them buying SimpliVity for $4 billion. That's not going to happen. I think that was sort of a red herring by some SimpliVity to get some more cash. But so, and then the other big rumor, of course, that if Hillary Clinton won that Meg was going to go work for administration, that's obviously not going to happen now so we can sort of put that rumor to bed. You know, Meg is here at least for some period of time to sort of keep driving the ship. All right, so Paul Gill and I were back, we're going to be covering HPE Discover from London wall-to-wall coverage for the next three days. We're obviously got a simul task going on at Amazon re-invent where John Furrier and Stu Miniman and company are there. But Paul and I are here all week. Keep right there, buddy, we'll be right back because theCUBE, we're live from London.