 Live from the FIIA Barcelona Grand Via Compensator in Barcelona, Spain, it's The Cube at HP Discover Barcelona 2014, brought to you by headline sponsor HP. Here are your hosts, John Furrier and Dave Vellante. Okay, welcome back everyone. We are live in Barcelona for HP Discover 2014. This is The Cube, our flagship program. We go out to the events and they extract the signal from the noise. I'm John Furrier, the founder of Silicon Am. I'm joined by Dave Vellante, co-founder with dbond.org. And we're really excited to be here for all the action for HP's European customer conference. Dave, my impression, again, day one is, HP, great messaging from Meg Whitman on the keynote. You know, she comes across so good. She's so scripted, she's so polished. She's got the smile down, really well rehearsed. It's very much presidential-like, I mean, very political, kind of speaking, really well scripted. Really not something you'd see an impromptu, not nothing off the cuff. Every word, meticulously chosen, and she's clear. And so it's very much a clearly written speech. Turnarounds on track, she breaks the news about the breakup of the two Fortune 50 companies. She mentioned the debt loads, now net positive, all that good stuff. And then brings out the product stuff. And you had amazing keynote by Antonio Neary, I thought was the best out there. Yeah, I agree with that. Young Johns felt like he was really like, OK, it's going to happen this year, it's going to happen this year. And obviously, you know, that is still the proof of the pudding. We're going to hear from some of the software guys coming. But I think the software team, clearly a lot of pressure. The infrastructure team is moving along. I mean, the new management team is in there under Antonio Neary, under Bill Vectig, some good stuff. And of course, here this morning in the Cube, great content. It's very clear from cloud to mission critical, that's the focus of HB. It's all about the cloud. So what's your take? So, yeah, Meg was very scripted. I agree with you. She's very tight, and she doesn't stray, really polished, almost too scripted, though I got to say. But what I took away from her talk was it was very credible. She talked about, and here's the thing about Meg, she's not a grandstander. She said when she took over, it's going to take five years to turn HP around. And it's, you know, we're into year three of that five year turnaround. So she talked about 2012, we stabilized, kind of stopped the bleeding. The 2013 was a rebuilding year, and they started to reinvest in R&D. And she talked about that this year, this past year, they've increased R&D spending by 10%, which is, that's a big number for HP. I still feel as though they're paying the price, John, for their herd years. When that was all about cutting and slashing and chopping and squeezing R&D. As I've said many, many times, you can't just flick a switch and turn on the R&D engine. And so, then she talked about 2015 being, well, also in 2014, a lot of new innovations. Apollo, all flash arrays, Helion, sorry, Helion, I always say that wrong. SDN, and of course, the machine. I feel like the machine is IBM's sort of Watson moment, right? I don't know if anybody's going to, I don't know if the machine's going to become a product. I don't know if it's going to run any software. But it sure is interesting to hear Martin Fink talk about it. I think he's got a keynote this week talking more, giving a little more glimpse of the machine. And he's talking about 2015, the big news being in November, HP splitting off and took two companies, Hewlett Packard Enterprise, of which Meg will be the CEO and Chairman. And then Hewlett Packard, Inc, INC, not INK, even though a lot of the revenue will come from INK. And she will be the Chairman of that company, splitting them off into two Fortune 50 companies, each about, oh, 55 to 60 billion, around 60 billion in revenue. So, I mean, I think she's got a lot to chew on right now. And obviously the decision to keep the printer and the consumer business as part of HP, of which I was four, you go back on the record, we'll look at what people stood for. I'm still four, keeping them together. I think ultimately at this point, if they don't have the stomach for it, then that's something I can't control. If I was in charge, I'd definitely keep them together and I would definitely make the synergies work better. Bottom line is from my reporting and Dave and my investigation that I've found is, no matter how much I wish and hope for HP to have those two companies together, giving all the cash they throw off and all the innovation potential and all the channels that are available, is the bottom line is that they're not going to get there. And in my discussions with people close to the executive chamber, it's clear that the report is that HP is just two separate companies anyway. Over the years, they've had a lot of acquisitions going back to compact, deck. A lot of companies have come in. Yes. It's just a different company and you have already two separate companies. So my speculation and my guess at this point is Meg Whitman gave it the college try for all the reasons why we laid out keeping the two companies together. The bottom line is she probably said, look, this thing's just not going to work. This dog is hunting. Whatever her expression was, she said, we've got two separate companies. Let's just spin the thing off and create two Fortune 50 companies. And I think that's a good move at this point. I think it was not going to get across the goal line. Why even give it a shot? Play defense for a little bit while longer. It might slow the turnaround down to about a year. This could cut into her turnaround, Dave, for about a year in my opinion. Yeah, well, it's going to be distracting. No doubt about it. But it had to be done. It's inevitable. As I talked to them about the numbers this morning, operating profit of the PC business is 4% and the printing business is 18%. Whereas if you look at the enterprise business, it's 15% for EG and 31% for software. So you've got a much more profitable software business. If HP can increase the contribution from software, it can really, I think, drive a lot of profitability and a lot of cash flow. And so it gives them focus. It's always been odd to me that the HP portfolio, the whole end-to-end story, I just never saw that as a huge- What do you mean, a two-end thing? End-to-end. HP would always talk about how we are one of the few providers that can do end-to-end from device all the way through services and everything in between servers, the whole portfolio. Dell now makes that claim. We're the only company after HP splits off to do that. IBM left that business. I disagree with you. I think that absolutely was something they should have gone for. But they could. But who should have gone for it? HP should have gone for end-to-end. No, I disagree. My point was I just never saw the value to customers of having that end-to-end. So maybe you disagree with that. What's the value of a customer being able to? So it's one-stop shopping, but I mean, you've got different sales teams. Well, if you look at the success of Amazon, this is an Oracle, for instance. These are small examples, but they point to the one trend. An integrated stack and having some sort of closed, abstracted away, hardened infrastructure, it's going to be a good thing. Converged infrastructure, hyperconverged, essentially. Sure, but IBM has an integrated stack, right? And it's just not the mobile devices all the way to mainframes. I just think that the back-end platforms are going to be shrunk down like hills that go down to a flat plane. And that is that having the edge controller at the edge is really important. Is it a weakness that Apple's not in the server business? No, they are. It's called the cloud. They just don't make service. Oh, a good point, okay. I mean, that's a great example. That highlights my point. Well, so then HP's end-to-end with the cloud. Google is end-to-end. The value of the cloud abstraction to the user is going to be a function of what lock-in properties are there. And some lock-in, quite frankly, is okay. Back in the PC day, when I bought an Intel processor inside my PC, I didn't say, hmm, proprietary processor by Intel. It was all distracted away from me. All provided was great computing to allow my Windows to run. Okay, but so as long as they're in the cloud, they're end-to-end, right? Well, as long as end-to-end, yeah, exactly, end-to-end. Hence, I like the device. HP had core competency in manufacturing. Could have competed and can become, could have been a world-dominant player like Samsung. Look how fast Samsung- But essentially they're saying internally, even with the supply chain. No, they're saying internally, we cannot do this. We do not have the talent. We can't have the expertise. You're saying we don't have the synergies, right? And we're losing focus, right? I don't buy that. I just think they don't want the management and the team to pull it off. Why are they going to be able to then succeed separately? Okay, why is Samsung come out of nowhere to be such a dominant force in the handheld business? Because they love it. Innovation. Innovation, manufacturing, low-cost manufacturing. They jumped on Android. HP could have done that. They were sideways with, you know, Palmo OS. They had potentially people who knew software. See, when you lose talent, right? And management talent and engineering talent and R&D. HP was bone-drying. You're saying something different, I think. I think you're saying they just, they missed an opportunity with Palm and the devices. Well, they missed many, right? They lost 10 others, right? But, okay, as a result, they lost talent. But, okay, so now you're- That's my point. But now you're Meg. Yeah, you're Meg. Don't you agree that keeping that asset is better than spending it off? Yes. And selling it, right? Yeah, but I think it comes to a realization where you go, look it, can we make the turnaround? And you have to look at the opportunity. And you have a computer, PC, computer team and the printer team that know their stuff. They know the channels, they know their products, they know pricing, they know retail. And so by decoupling and keeping them highly cohesive, that's a viable business strategy. Different than what I would have tried to pull off under one company, but given the changes and all the different- Why, what would you have tried to do? I would have had a phone out immediately. I would have had a tablet. I would have gone after Android. I would have flushed Palmo OS immediately. But that is some sort of internet of things, device-centric probe network. I would have had everything in on Android right away. And I would have gone to that after Samsung and go at least for a number three position in that market, or number two to Apple. Now, Samsung's overtaking Apple in overall share. So these things are kind of up in the air. You remember the, I think the first HP discovery we were ever at, Leo Apatecker said, this is our strategy, we're going to go for that. Now it was around Palmo OS, which at the time, you know, it was pretty good OS, but they announced it and then pulled back. Everything looks hard, but the market changes so fast. Again, I point to Samsung. I remember when I held the first Google phone, it was a Google phone and there was no Samsung's. And I think what was happening was they were negotiating with the OEMs on, by the way, I know they were doing that. Google was basically saying, look it, we can make a phone and we will make a phone. We don't want to make a phone, but will someone make a phone? So Samsung stepped up and said, we'll make a phone. So Google instantly says, we want to own the software. We don't want to own the phone. So that's what their choice was. So they're giving up the phone business to get speed to market with Android, which they were successful. So if I'm HP, that's clearly what they're going to do. They're going to back off and say, we're not going to have a phone. Michael Dell has told me personally, there's no phone in Dell's future. So Dell's not going to do a phone, but I just got to think, if you have core competency in making stuff really small, fast and cheap, why not do it? Why not have a position of a consumer device in there? If you could pull it off. Again, if you could pull it off. They had an opportunity there. If they weren't so sideways with the Carly Leo situation, they had that leadership gap right there where it just all collapsed. I think Meg Whitton is not her problem. Well, Heard was a superstar on Wall Street. Who? Heard. I think Heard was gearing up the pedals to start doing some cranking stuff. And we reported on SiliconANGLE, as you know, that Heard had some serious M&A deals on the table. That could have got autonomy, chip code, a bunch of other companies for less than a billion. So they could have stockpiled in one move that. They already know you wouldn't have to three-part. That was Heard's move. One of the success stories. Yeah, that was his last big acquisition, right? Mark Heard, known as being kind of like the chainsaw owl of the tech industry of like chopping down the bone was just a shrewd operator, held people's feet to the fire, but ultimately he was about to make his growth move to spin the numbers up and he got whacked on that silly charge. But like, you know, technicality with his thing. Well, it cost HP a lot of time and it's taken many, many years now to do that general. But I think you're right though. I think HP is on that right track. And as I say, cash heals all wounds. And HP's throwing off a ton of cash right now and it's able to, it gives the company a lot of flexibility financially to pay down debt, to do dividends, to do stock buybacks, and to increase R&D. You know, Dave, I was looking at Meg Whitman and what I saw up there today was a woman who was saying, a leader who was saying to the troops here in Europe, customers, it starts with the customer. I love that. I know this kind of kind of sounds like it's, you know, kumbaya and that standard rhetoric for political like speeches. But I like when I hear it. I mean, I think when someone says every decision revolves around the customer, you know, when I talk to Andy Jassy at Amazon that's the one thing that Andy Jassy talks about, the customer. When people talk about the customer value, that gets my attention. And then we got to evaluate if they truly mean that. So that got, what was one impressive thing I liked about that keynote today. The second thing is you kind of saw her with her posture that she has confidence as if she's got some cards she's about to play. You know, it's kind of like that poker face where, you know, it's got a swagger but not too cocky. She knows she's got some cards. That's my read on that. And that was just kind of my personal takeaway. She was kind of almost swaying on this stage with a manner of really big confidence. I like that. I think that sends a great message. And I talked to a lot of people in the industry, other industry analysts I saw on the floor here and it was overwhelmingly a popular consensus that, wow, I actually believe Meg was one comment I heard from a quote naysayer analyst, I will say his name. But, you know, he was like, I'm skeptical but I actually hear her talk, I'm, she's believable. That is the sign of confidence shifts. If she can bring that together with business performance, the vector and the different units, I think she's gonna change. I find her maternary, which is the female version of Avuncular, okay? No, so she's up there. What do I mean by that? You know that? Explain for us. The strong aunt, Avuncular is uncle-like, right? So the strong aunt that you trust, right? Somebody who slaps you around if you get out of line, right? If your parents aren't around. And I say you trust and she knows where she's going. You put your kids in her car and say, take care of my kids, I trust you, right? I mean, that's Meg, she got the hand on the wheel of HP. I honestly don't, I don't believe that yet. I honestly don't, I'm not there yet. With Meg Whitman for me personally, I'm not there. I don't have that comfortable feeling yet that you do. I just don't have it. Until I meet her and look her in the eyes and ask her some pointed questions, I don't have that. I mean, on stage, she comes close to a great performer. You've not met her? I've not met her in person, sat down on the table and said, you know, what's on your mind? You could really read a person by looking him in the eyes and ask them some very pointed questions about their business. And you can, you know, you can tell someone by their actions, certainly their results and their staff speaks volumes. So I think I give her good check marks on that. But until I hear her really in a question environment talking. She reminds me a lot of my old boss, Pat McGovern, in a way. Very sort of robotic, not great necessarily in front of a crowd, but one-on-one. Really smart and engaging. I think, I mean, I think my observation of how Meg Whitman is handling herself, Dave, is that it's a very dangerous job she took, right? She took over her company. And why I kind of have a spot on my heart for her is that she took over a company that I love. I love HP. I think HP as a historic company in Silicon Valley is one of those companies that, quite frankly, is a poster child for what companies should look like. Bill and Dave built a company. Google's another one. Google and HP are kind of the old school news block, but VMware in that category. There's a lot of stuff going on in Silicon Valley right now where, you know, the Uber controversy, there's a lot of bad stuff happening in these growing startups, they get all this money. They don't build durable companies. And what's happening is it creates a very, you know, toxic culture when people get jobs and they have to get flipped. So right now in Silicon Valley, there's a real negative culture for these rapidly growing programmer-like culture startups. And I think the tide is shifting. People are pointing to HP, Google, VMware, Intel. These are companies of durability, Cisco. So I think HP's in that elite class for sure. So when she took over that job day, I was very impressed. Because you know what? It was a no job, no, I don't think anyone wanted. You know, did you say she took one for the team? No, but I think, you know, she's not going to put herself out there for the press because HP has been a kicking coast for the press. The press has been pounding on HP. Why would Meg Whitman put herself in a position to be outside of anything but scripted interviews at this point? So I think that she's taking a playbook out of Steve Jobs, which is don't talk to the press as least as possible. So that's my take. And I think that's a fair move. I give her credit for that. We do have questions from the crowd from Bert Latimer. Hey, Bert, question, John and Dave. Will it use some of its cash? Will HP use some of its cash to start making strategic acquisitions? Now, you brought this up. Yes, it already has. You brought this up? It already has. I mean, you've calipped us. You know, Meg has talked about this. I asked her two years ago, what's the better use of cash, R&D or M&A? She said, paying down debt. I'm not going to do anything until we pay down the debt. And so what's happened since then? Pay down some debt, fair amount of debt. They're now, according to Meg, a net cash position that's positive as opposed to a net debtor. And I think that means they're throwing off cash every year as opposed to going backwards. And so what have they done? They chose to do dividends and buybacks but the billion dollars on that and they've started to do what she calls tuck ins to Joe Tucci word too. She said, we will do tuck ins. Eucalyptus is an example of one of those tuck ins. At the time, they were very, I think, singed, obviously, by the autonomy debacle and the overpayment of that. But HP, to answer the first question, HP has to do acquisitions. It must do acquisitions because R&D's too risky. If HP can't find the balance between organic R&D and acquisitions, in my opinion, it's not going to be able to continue to innovate. The companies today that are innovating have a balance between organic R&D and acquisitions. So HP's got to get good at acquisitions again. I totally 100% agree with you, Dave. This is absolutely awesome. I think your point, you've been banging this drum for a long time and I got to say, it's the same old thing you can talk about IBM. They do tuck unders, not big numbers, but they buy the right companies for their growth strategy. HP's got to get there. I 100% agree with you. They can't wait for organic R&D to hit the market. The market's moving too fast right now and it's highly competitive, especially in the cloud space where the stakes are all the chips are on the table in that market. HP's betting on the cloud heavily. They're betting on open source and they're really trying to boost up their software business. So outside of Vertica, it's, I can't put my finger on them. Where's the winning? Man, they're awesome. I can't put my finger and say, oh, autonomy is awesome. It's too elusive. Vertica, I can say that's awesome. Yeah, but you know, I tell you, you look at how IBM does acquisitions and how Oracle do acquisitions. They're very financially oriented, M&A. It's all about IRR for those guys. I think EMC's maybe a little, I mean, they're definitely driven by IRR, but maybe a little bit more latitude on strategy. HP, you look at the Vertica acquisition, you know, you remember how that deal went down. It was like Lynch calling people up, you know, wheeling a deal in, okay, bang, we'll do it. And then they sat on that asset for a long time. And it wasn't, it was probably a year out that they started to really integrate it and taking advantage of it. Yeah, autonomy. Where was the IRR on that? I mean, so those are signs. No, I think Meg wanted to back out. In fact, I wrote a blog post that said she should pay the penalty clause. Had they done that, they might have been in good shape on that hit. Well, but the point is that a lot of those, in my opinion, were sort of emotional buys. We got to do this because, or we need this because. Whereas I think that, you know, more disciplined M&A is around, okay, what are we going to get out of it? And, you know, it's like the Bill Belichick of negotiations on buying. You know, there's a walk away price. And I just, there's no reason why HP can't get really good at that. Yeah, and I think my other big story, Dave, just look at some other big trends. There's the tale of two HPs. Now, I don't mean two separate companies. There's the tale of HP internally and externally. Internally is their employees and their customers. You know, I come back every year to HP to discover both in the U.S. and Barcelona, Dave. And I say to myself, who says this company's effed up? I mean, people like working here. There are good people. I like the people that work at HP. I think they have great customers. The customers all love HP. So it's interesting. There's two real worlds of HP. There's the reality of HP, which is what the employees are doing, the productivity, and the customers who love HP. Then there's the external perspective. The bloggers are writing, oh, HP sucks. They're down in the trenches. And that's because of their financial results. So, now granted, they're in the business to make money, not keep their employees and customers happy all the time. They've got to produce a profit. That's one of the key objectives that Bill and Dave laid out of HP for profit. So I think they know that. So HP's getting hammered. I think really that doesn't do them justice. I think they have an internal culture. And I say the same for IBM, by the way. I walk away and I say, these companies have good management. They're not in the tank at all. So, you know what I'm saying? There's two perspectives. I think too, John, that HP's changed the way it communicates to the outside world. Since it's done all these acquisitions and become such a huge company, it's really guarded in how it messages and how it communicates. And it's very, a lot of its messaging is very scripted. And it's hard to get the executives to open up and get off their message. And I think, you know, that's true for other companies. You kind of expect it out of Oracle. But Oracle will talk and trash the competition. HP doesn't. You know, IBM, very, very messes. Like HP used to be, I think in some ways more approachable. And so that's why I think the bloggers sort of have a backlash. They're more professional than they used to be. I think that's what you're seeing there. All right, let's summarize day one. Dave, what'd you think? Give it a grade. You know, I think it's the slow turnaround continues. I mean, it's better than last year, better than June, better than last year's discover. It's another tick of the clock. So, you know, solid B. To get an A, I want to see return to growth in some of the strategic areas. I want to see more progress in cloud. I want to see more progress in software. Robert Jung's talked about a lot of developer momentum. Maybe that can be seen inside HP. I'd like to see that outside of the marketplace. And I'd like to see, you know, the some of the declining businesses stem. I want to see the new stuff offset the declines of the old stuff in order to get an A. But very solid B. You think it from my grade? Yeah, absolutely. You know, I give him a B plus. I won't say A minus, because you know, I look at the cube as a representative of HP. When we don't have young John's on, Bill Decti's not on, Meg Whitman's not on the cube. That's guaranteed off the A, right? A minus, not even off the target. So, if young John's Meg and Decti came on, I give him an A, because the cube is what we do, right? So, I would like them to sit down, but outside of that, great action, one-on-one conversations with the cloud group. Man, that group is going to break out. I predict that that's going to break out here. So we have good content. Yeah, I think you're right about that. The infrastructure group is solid too. I think you're right. I think the cloud business is going to soar. Software, I can't wait to talk to those guys, but I'm not getting knocked off my chair with software. Okay, just not. I just don't see it yet. Haven, I get the open source thing there. I got Haven, cloud sassing it. I just got to dig into that a little more. It's not coming across big to me on the show. Everything else is, you know, certainly there's a little bit of big data, but it's not really one thing. The infrastructure group products are, as well as cloud. I mean, cloud, you got infrastructure service, platform as a service, and software as a service. And it's like HP's got little bits and pieces of all that. I think their infrastructure as a service is going to do really, really well, because HP at its heart is really an infrastructure company. And I think it's got more work to do on those other layers. So, that's what we need. Okay, well that's a wrap for day one. We are here live in Barcelona, day one on the books. We've got two more days. Go to silkenangle.com or live at silkenangle.tv or go to crowdchat.net slash HP Discover. Join the conversation. We also have the live stream there as well. We put the content anywhere we can. Share that with you. We're extracting the signal from the noise. Connecting the dots with Tim Crawford out in the wild there, having a great time. Here in Barcelona, we'll see you tomorrow. We've got a lot of events to go to tonight, Dave. Let's try to keep our Barcelona nightlife action going if we can. Be there fresh tomorrow morning here, live here in Barcelona, secure. That's a wrap. We'll see you tomorrow.