 from London, England, extracting the signal from the noise. It's theCUBE, Cover, Discover 2015, brought to you by Hewlett Packard Enterprise. Now your hosts, John Furrier and Dave Vellante. Hello everyone, welcome to day two of theCUBE's special broadcast here live in London, England for HPE Discover, HPE Enterprise Discover 2015 here in Europe. This is theCUBE. SiliconANGLE's flagship program. We go out to the events and extract the signal from the noise. I'm John Furrier with my co-host Dave Vellante and we're here for day two of three days of wall-to-wall coverage. We are rocking here in London out last night talking to all the execs. Dave, celebrating my birthday, 50 years old. Awesome, John, congratulations. Celebrating my 50th birthday. I celebrated HPE's 50th birthday in 1989 when I was 12 years old with HPE when I worked there. But great to see the new HPE. And I think to me, the big story here is the shackles of HPE is off. They're now two separate performing divisions. You have a singular focus in the enterprise. This is kind of what HPE wanted to do a few years ago, make Whitman's done it. Again, that deleveraging that she's doing, similar to what Michael Dell's trying to do with Dell EMC is already in place. So the ball's rolling, it's out there, right? So now they have to perform. And what you're seeing now is a focus of management really getting the guns blaring. And the big thing that I took away from yesterday was obviously the clear focus on the mega trends of the cloud. This is going to be a cloud company. And they recognize that they will not be the public cloud but they will be the constructors and partners for private cloud and hybrid cloud and everything in between. They're a little bit late to the party but that's not a bad thing. It's an early part of the game here. And I think being a fast follower is something HPE has always done. I think it's going to be an interesting time to see how HPE performs. But ultimately, the game is on for HPE. And now while HPE is doing that, you got EMC and Dell, the big acquisition of EMC by Michael Dell. They got to go through that process. So it's going to be kind of an interesting time in the next year or so where there's going to be this lull in the marketplace where EMC and Dell trying to figure things out, HPE now guns blaring. And I expect HPE to really make some big moves. I want to get your thoughts certainly on the M&A from what we're hearing kind of the vibe here is organic M&A growth both going to happen. Try to go as fast as they can on the organic side. Already shifts are being made in the cloud. Bill Hilf is officially taking over the entire cloud product engineering go to market for the cloud group. That is now new news. We discovered that yesterday here on theCUBE. And now you're going to start seeing shifts R&D on manageability. We heard that from Bill Hilf. Again, organic as fast as they can, but they will do M&A. It's clear to me that every executive that we talk to had a twinkle in their eye, Dave, about M&A. Well, John, so Meg Whitman has said this is going to take a long time and it has. So, you know, this he said it's going to be a five year process, but to me, the split between HP Enterprise and HP Inc. was inevitable and it's the right move for HP. Now what I'm really sensing, John, is I said this, you know, last night we were talking, I feel like the deck is stacked in the favor of HP Enterprise because what HP did is they took out a 14 and a half billion dollar note. They basically hit HP Inc. with that note, with that debt, they restructured their debt and there's virtually no debt on the balance sheet of HPE. That means that HP Enterprise can now start doing M&A. So everybody we've talked to in the senior ranks has their shopping list. They're not sharing who's on that shopping list, but I have no doubt that they're sharpening their pencil, looking for opportunities to do M&A. Now, so the quick question is okay, can HP consistently successfully do that M&A? It was clearly some winners in there with 3-par, you could argue 3-com was pretty good, but can they find these diamond in the rough, tuck in Joe Tucci-like M&A candidates to really try to drive ROI from an M&A standpoint? Number one, number two, the organic innovation, right? So the Mark Heard years were all about cutting and getting jacking up the stock price. So now we're starting to see trickling out of things like the machine and memrister. That's what this synergy is all about. We'll see if it can be cost effective, but on paper, it looks really, really strong and actually quite unique in the marketplace. So we're seeing that. The other big news, of course, you mentioned is cloud and HP has said, okay, look, we're out of the public cloud. They finally gave up on that, which I think is the right move because they don't have the volume or the differentiation up the stack to compete like Oracle does with Amazon or Azure. So rather they're going to partner with Azure, resell Azure services, and they can make money at that. Last thing I want to make is from a financial perspective, HP is running at 10% operating margin, HP Enterprise. They have upside there. Their goal is I think 9%, sorry, their server business is running at 13%. So there's a lot of upside there. I mean, you're talking about a company that can generate some serious cash flow. And so I think that the stock price is at 50 cents on the revenue dollar has nothing but upside, John. And also the software piece is a big part of their margin expansion, having a software business. Yeah, third, if you look at the breakdown of their business, the drag on the business is enterprise services. Software contributes 30% operating margin. So to the extent that they can shift the product mix towards software and do some of these tuck-ins like Vertica and really drive the value through revenue growth, that's going to shift the mix. HP, like Dell, frankly, can be very dangerous if they can shift the mix towards software. I think one of the things, Dave, that I'm observing is that, you know, they always say, buy and invest on the down cycle. And we're seeing that right now, certainly in Silicon Valley, you're seeing the capital markets kind of softening up in those unicorns. Some of them will be dead, some will be survivors. The new normal, if you will, is the Uber, the Airbnb's, data-driven companies. We're here in that same message from HP, the cloud native. But you also got these existing visits. If you're not making money, you're going to be out of business. So you're going to have a lot of startups that kind of hit this critical mass kind of on a growth basis, but not crossover. So I think HP's going to be in a really, really good position now from an M&A standpoint that if you're a startup or you're, say, you're doing 10, 20, 30, 40, $50 million in revenue and you're a nice little segment of their portfolio, it's better for HP to start acquiring those companies now. Because as you say, quoting Joe Tucci, it's better to have overlap than gaps. HP has a lot of gaps, certainly on the developer side, they want to do more there. But in DevOps, there's a really fast moving market. So the M&A thing will be a very big deal for HP. And I think not only will they get good bargains, accu-hires and potentially revenue opportunities in this down cycle or this softening cycle. Certainly the M&A side on the enterprise will be good. There's no bubble bursting on the enterprise. The enterprise is booming. The question is, is just not enough unicorns or public companies that are going to come out of this wave of enterprise at this moment. Certainly many companies are overfunded. So to me, I think that's going to be a huge dynamic for HP. Well, and when the funding dries up, that's when HP can jump in, HP and others, and start picking up companies. The key to me, John, is how they can HP demonstrate that it consistently can integrate these companies, put it into the HP machine and drive ROI, much in the same way that IBM has done, EMC over the years, Oracle have done a specially good job, Cisco to a large extent, Microsoft as well, as well as Intel have done an exceptional job of taking small companies, bringing it into the machine and getting virtually instant ROI out of these small companies. But HP has got scar tissue, and I think a lot of people that are here within HP, there's certainly been a lot of management turnover, certainly on the cloud side, and at the upper management ranks from Bill Vecti moving on and others, but they all have scar tissue with the autonomy deal. Well, Vertica was a great acquisition. So doing integration for integration's sake doesn't matter if the product's not driving value. So to me, I think HP is going to be very sensitive to buying non-value-added companies out of the autonomy overpriced. The headache that they've had with that. Well, you know, and you look at, you know, three-part great acquisition, but it was kind of a no-brainer. I mean, they had gotten a bidding war with Dell and paid 2.5 billion for three-part, which again, was a good acquisition, but it wasn't a diamond in the rough. I mean, that was a big nut. Vertica though. Just while Vertica was an outstanding acquisition, the problem was that HP sat on it for way too long, but when they finally figured out what they had after Meg came in and said, holy cow, you know, you're starting to see the results. Vertica grew 50% license revenues last year. Well, if you look at the acquisition that are shining right now in my mind, it's three-part, save their storage business, and that continues to bear fruit. And now you've got virtualization and you've got software linux on top of all that. You've got Vertica and Aruba. Aruba is going to be a big deal. I see what Dom or Dominic Orr is doing with Aruba. It's super impressive. He's this great guy to have on theCUBE. Certainly, he can go deep and talk about the physics of wireless as well as the business value. I see Aruba being a real leader for HP to essentially reboot what was once a great networking group. Kind of like, kind of soft now because of the noise around networking and certainly SDN. But I think networking is going to be something to watch. That's going to be the battleground in the cloud game. SDN is still an open book at this point. A lot of people are weighing in on that saying, hey, you know, it's working, we'll tool up. But the bottom line, Dave, networking will be a battleground for Software Defined Data Center. It'll be the battleground for hybrid cloud and certainly it's going to be the networking value for the apps and big data. So with theCUBE, we're covering it live here. Go to Twitter and search on hashtag cube gems. You know, we love, people call us the ESPN of tech but they have web gems, we have cube gems. Check out cube gems and check out all the highlights. We're not putting out highlights from the guests in real time, quick snippets, 50 to one and a half minutes of high quality sound bites and content. Check out cube gems. Of course, go to crowdpages.co, crowdpages.co slash hpe discover and join the conversation with us and Bert Latimore and the folks on crowdchat.net slash hpe discover. This is theCUBE live here in London. We'll be right back with more after this short break.