 Hello and welcome to This Week in Tech. I'm Shelly Kramer, Managing Director and Principal Analyst here at the Cube Research, and I'm joined today by Zias Caravalla, Independent Analyst with ZK Research and member of our Cube Collective Community of Analysts and Thought Leaders. Zias, great to see you. Hey Shelly, how you been? You know, since the last time we talked, which was about two seconds ago, I've been great. Zias and I decided to launch this series. This weekly series called This Week in Tech. And so we just recorded what was our first episode. This will be our second episode. And we felt like we spent the majority of the time in the prior conversation talking about announcements coming out of Cisco's WebEx Live event in Amsterdam. And so we decided we would hop on again and record another short video conversation about sort of other things that are happening in the tech ecosystem that we think are interesting and worth talking about. So with that, we're going to dive into the conversation that's on many people's minds, the Veritas Cohesity merger and the implications for data security and AI platforms. I know you have many thoughts on this. And I think that some folks see this as less of a merger and more of a strategic alignment, bringing kind of the individual strengths of these two companies together to provide more comprehensive solutions, which is not unusual in today's tech world, right? We've got two key players in the data protection industry, highly fragmented industry. Each of those players bring different skills and different kind of benefits, I think, to this. Zs, I know you wrote about this for Silicon Angle and called this a market that is ripe for consolidation. And in your article, you highlighted some marketing advantages of this merger and those included produced customer acquisition costs. And it used to be that Cohesity was fighting against largely Veritas and Dell for customers. And so Veritas brings a pretty robust customer ecosystem into the equation. So of course, then we'll see reduced customer acquisition costs. You mentioned global expansion, Cohesity's customer base is largely centered in the United States. Veritas has customers across the world. So Cohesity's, I think, big brand and market presence combined with Veritas's larger footprint will help with customer acquisition. You also mentioned the fact that you thought that Cohesity's big customer base meant that it has a large data set for AI and then bringing the Veritas customer base into that equation will help no doubt supercharge the company's AI efforts. And lastly, you touched a little bit on the financial benefits. And that's always a big part of any situation like this. And Veritas brings profitability into the equation, which I think allows the companies then to spend more on R&D and expansion and innovation and be able to kind of do all of that in a speedier manner. So touched on a lot of the pros that you outlined in your article yesterday. Let's weigh in a little bit. What do you think? Yeah, it was an interesting move. You know, when I look at the landscape and I'm looking at a spreadsheet of all the vendors and the data protection space, I think there's 50th. So that's a lot. That's a lot. And there's really only a handful that matter, right? That are of significant size and Cohesity and Veritas for two of them. Although a 3% share, Cohesity is a relatively small player, right? Although nobody's a big player. I think the market leaders beam with 12%. So that tells you how fragmented it is. And so it is right for consolidation. And now, one of the things I pointed out in my course is in general, I'm not a big fan when a disruptor acquires a legacy provider. And I did caveat that within general because it often denotes that the innovators growth had slowed down. Michael Facker from Cohesity reached out to me and said, how dare you? You're wrong about this. We haven't slowed down. Here's an IDC link to an IDC report that says we're growing. And indeed, at 3%, they are showing a higher growth rate than C.M. Vien, who's about 10% or, you know, which, but again, he was four times as big. So take that with what you will. But on the point though, they still, they are growing in the teens, which is good. So, and the other reason I found it curious though is they both go after the same customer segment, which is large enterprise. And so there will be some product rationalization to do. I also found it interesting that from Veritas, it wasn't the all of Veritas, right? They did pieces of it. They did make the SMB product. They took the large enterprise product. At least if they think of the SMB product, you can argue it opened up a different segment for them, right? So, you know, and I also think the cultures are different. Everybody says the cultures are aligned, but you never know until you get into it. But Veritas has been on a slow decline for the better part of two decades, right? They were by the de facto standard for a long time. And they have been the biggest shareholder of the last, oh, I don't know, 15 years. And so they largely would focus on keeping the customers they have or cohesities. The culture has been really more of a customer acquisition. And so often those two things don't really gel. So I do think there's a lot of potential for the deal, but I also think there's a lot of risk for the deal. And for the price they paid, they could have acquired a lot of customers, you know, for that amount and maybe giving them a customer base. The one thing, Shelly, that I think companies don't often understand when they make acquisitions like this is just because you're the incumbent vendor, nobody's gonna hand you the business. And I remember when Mitel and Shortel merged, Mitel bought Shortel for its cloud platform and they thought all the Mitel customers would automatically jump on the Shortel cloud. But what they found out was that, you know, customers were still going through the regular RFP process and the incumbency didn't make a difference at all. If you're gonna change vendors, then you're gonna weigh your incumbent in as with equal footing as any other one. So I think that the thesis may be that you become the de facto upgrade, but that doesn't always happen. And so there's a risk, right? So you took on $2 billion in debt in order to do this. So your execution better be fast. And I think in the short term, the convults and Veens and Dells, they're gonna jump all over the customer base with all this flood telling them why this isn't a good deal. And so Nassaj Poon and I will say the CEO is an execution machine, but this is something he's gotta execute sooner than later though, because the more uncertainty there is, the more competitive flood will be out there, which puts more doubt in the customer's minds. Well, and you know, I mean, there are some product redundancy issues and integration when you have a situation like this integration is always a challenge. And a lot of times customers don't wanna wade through that muck, you know? And I think that if I are the competitors in this space, that's what I'm gonna be coming to my customers and my prospects talking about, you know, do you really wanna slog through this? And you know, what's that gonna look like and what kind of a pain in the neck is it going to be? So I do think that is a definite challenge for them. Yeah, well, we'll see what, you know, obviously that's the, again, when you anytime you enter a consolidation play, execution does depend on a lot of things, including staff reduction, product rationalization, you know, the margin profiles of both companies are quite different. And so there's a lot of moving parts. And you know, I do think, you know, Sanjay Pooner has proven he can execute. So it's, you know, this is time for him to do that. Yeah, yeah. Well, you know, and in your article, you also mentioned the challenge of debt management as being an issue. You wanna touch on that a little bit? I mean, Well, it's funny today with interest rates being so high. Right, if it was a few years ago where you had some 2% interest rates, it's free money, but to, you know, so they'll be about, I think the new story said they'd be about 1.6 billion revenue combined and they got 2 billion in debt, right? So that means a good chunk of their earnings every year will go to pay off the interest and really go service the debt. So if they can actually make this company some, you know, one plus one equals five and IPO and raise lots of money, they could pay that on the debt. If the integration takes longer than expected and they shed some customers, the revenue base drops from that 1.6, now your revenue to debt ratio goes up, right? You know, changes and then you wind up with a problem on your hands. You know, we've seen many companies go through that, right, Avaya, Riverbed companies like that. And so, you know, for, and this is why crisp integration has to happen sooner than later to make sure that that one plus one does equal five and they're able to capitalize on this and raise the money they need to be able to pay off the debt. You know, it is interesting the chatter among, you know, analysts and others in the space, you know, some people have viewed this as a, you know, Cohesity has been looking for opportunities for alliances and partnerships. As you mentioned, Sanjay Poonan has a background in leading successful acquisitions. So that's a positive thing. But there are other analysts who think this is, you know, who are less than enthusiastic about this one comment I saw was, you know, this is, this reminds me of the disastrous Symantec Veritas merger. And so, it's interesting to see the different voices on, you know, in the analysts community on this. And you know, one thing I know for sure. Well, there's a lot less product overlap there, right? So, I mean, I think that's a valid statement. Yeah. Yeah. So we'll be watching. That's for sure. So with that now, I know you last week were at F5 App World's event to place in San Jose and hopefully all that rain business was done. Well, the event was in size. That was good. It rained a little bit. Well, obviously. Yeah. No, I have a lot of friends in the area who've really been sort of inundated with all the crazy things. Yeah, we had, we had at least in our sunroom and things like that. But we got a lot of rain, that's for sure. Yeah. So, you know, as expected at this or pretty much any event, AI was pretty much in every conversation and every presentation. I know that F5 announced the F5 AI data framework, which is a new data platform designed to deliver, you know, putting AI to work to provide better app and API protection and more quickly, more easy to use. I think that's something, you know, quick and easy to use. Those are the key parts of any value prop today. This data fabric is designed to help adapt and respond to threats in a quick way. Gender and AI is supposed to improve the user experience. I know that F5 said they'll be introducing an AI assistant later in 2024 that'll give customers an intelligent partner. I don't know who's not doing this, right? You know, everybody, everywhere. But this F5's NLP interface will allow users to ask questions of their data and generate dashboards in real time. And I can see this as being incredibly valuable. Just like we're learning, you know, to use voice commands in terms of creating images and things like that, that functionality that we're starting to get accustomed to, I think being able to, you know, look at your data, ask questions, have dashboards generated in real time, that would be huge. And then, you know, part of what F5 is saying that this will assist with is with help implementing a policy or generating product configurations and things like that. And the tools expected to act as an embedded customer support manager, which lets customers ask their questions and get recommendations based on the collective knowledge available to F5. And this is where I think is something worth thinking about, you know, your knowledge base is only as valuable as the amount of data that's fed into it, right? And so, you know, when you have a question engine and you're asking for solutions or recommendations or whatever, you know, your knowledge base needs to be constantly being fed and it needs to be pretty robust. So that'll be interesting to watch. Yeah, I was there actually speaking at the investor event. And F5 was a fascinating company. And I'll talk about the structure of the company first then why the AI stuff matters. So if, and it's the application delivery controller space isn't one that's for a lot of people is obvious as to what it does, right? So a server is easy, right? It's a server network boxes, provide network traffic. When you deploy a workload, there are a bunch of things that you need around the workload to make it work better, you need to load balance, you need DNS, you need to encrypt SSL traffic or decrypt it, right? You need different types of security services. And so F5 has always been that product that sits between the applications and the network. I characterize it as the Rosetta Stone. It talks networking, it talks applications and it translates those things to make sure the apps run optimally. Now, as app architecture has changed, so have the family factor for application delivery controllers. So you needed a virtual one. So when you think about what happened with virtualization, I could put a workload in motion. If I'm using only physical ADCs, how do I then take those ADC services and move it with the workload? I got a virtualized version. So as apps move to the cloud, I have to create a cloud version of ADCs. As things have moved more to containers, I need containerized services, right? As the app, the API economy is driven, right? Now I need API level services. And so historically, when you look at the companies that have played in the space, there have been different companies that have serviced each one. F5s that are a rollup of a bunch of different products, Nginx, Volterra, they just bought a company called Wib that does the API level ones. And they're the only company that's created a platform, an ADC platform where all your application and security services that you need are available from them. Now, the reason AI becomes important is, let's say I wanna create a security policy that doesn't allow certain users to access certain applications or I wanna, if some user authentication fails, I wanna deny access to these types of services. Well, if I've got five different types of ADCs in five different places, I'd have to make sure those policies are in alignment, right? So now I can create ones propagated out across the environment, right? So, I think that's beautiful music, right? Yeah. And to me, they're a fascinating company and one that's largely misunderstood because they play a really important role. I know there's some criticism from some financial analysts that think, well, you can just buy your load balachers and things from the cloud. You can, but an AWS load balancer isn't gonna work in JCP. And a JCP one's not gonna work in Azure, right? So they're the only ones that create that cross-cloud fabric. And if you believe, so my message to the financial analysts was, if you believe the world's going hybrid, multi-cloud, nobody's gonna argue with that. If you believe that increases complexity, right? Then F5 is the only one that can create that fabric that sits between that cloud layer or that hybrid multi-cloud layer in the apps and create those services. So, so I think that they're really in kind of a unique position in that I like them, they're positioning here. I think that, and I think what AI does is it just allows them to continue to reduce complexity. So the more complicated the world becomes from an app perspective, the more you need a company like F5 to simplify. I agree, I agree. And I'm going back to the interactive dashboards and things like that. Being able to query things like how many attacks did my infrastructure experience last week? How many of those were SQL injection attacks? Where are they coming from? That kind of functionality I think is really attractive. And I do think that you make a really, really good point in terms of things are getting so complex. And the more the vendors can do to simplify user experiences in every way, I think they simplify functionality, simplify, speeds adoption, all of these things. I think this is really, really important. I agree. So I know that we cover a couple of things here. And I think we're going to talk a little bit now as we wrap up this show about just what we're seeing in terms of performance, vendor performance in the security sector. And in short, security is as strong as ever makes perfect sense. The rise in cyber threats is astronomical that is not expected to stop anytime soon because all of us race to embrace AI and integrate AI into our business operations, Thrab Actors are using AI to help speed and launch attacks and that sort of thing. So it's really interesting. Let's talk a little bit about what we're seeing a little bit on the earnings front. I know you mentioned Fortinet earlier and the fact that they might have kind of crushed it. Yeah, Fortinet put up a very strong Q4 and being raised for them. The stock jumped 16% after an hour of trading and the guidance as well. And I think, you know, there's obviously, I think Fortinet's a very, the execution there has always been very strong, right? They don't do things that don't directly lead to revenue. They could market better. But for the most part, Fortinet's, their execution has always been very strong. But I do think the secular trends that are following this concept of the security platform, it's creating some tailwinds for them and Palo and the bigger security vendors. And I think, you know, Asiso said this earlier, or last year, I guess since we're in 2024 now where he finally understood that the best to breed everywhere doesn't lead to best in class threat protection. And what he was talking about was if I try and go best to breed everywhere, now from policy perspective and a configuration perspective, there's so much heavy lifting involved that I just can't keep up. And I think, so we're seeing more of a drive towards platform. And now this is where the interesting dynamic comes from is the Fortinet platform better than Palo Alto's and which is there's better than Cisco's or how do you measure the performance of a security platform? So I don't think companies are ever gonna go down to one platform, but I do think the days of 200 security vendors is rapidly coming to an end. Companies will actually get more. Hey, Azias, can you pick up? Can you pick up? I don't know if it's internet on your end or my end, what's going on, but it has to do with your transition. And so if you could just pick up this, kind of maybe start over with this sentence, I can't tell exactly where we glitched, but you actually completely went away for a second. The stream here does record locally, right? Yes. And then upload. So even if you couldn't see me, but I can start over. Yeah, I couldn't hear any audio or anything. So we can just kind of dive in again, just in case. Okay. All right, well, Fortinet did it out this week and they put up a very strong beat and raise quarter. They raised their numbers for next quarter as well. It was a Q4, so they finished off the year strong. Now, this isn't a surprise to me because I do think the tailwinds created by the shift to security platform is helping them, but also the other bigger security vendors. And so we're seeing a bit of a rising tide here. And I think what we're seeing here is finally the realization from security professionals. In fact, the CISO said this to me last year that he finally understands that best to breed everywhere doesn't lead to best-in-class rep protection. And we discussed that a little bit further and he talked about how when you try and do best to breed everywhere, you wind up with the further management and policy perspective having to do all that on a box by box basis or a vendor by vendor basis. And the manual overhead on that is just astronomically hot. And so especially now with the AI becoming a big part of security, you wanna have more data from fewer vendors. And so I don't think companies are going out of one security platform, but they're likely to pick two or three that they decide to go forward with. And foreign net certainly has become one of them. But I think there's a challenge for the vendor community and buyers is how you differentiate these security platforms. Is the foreign net platform really better than Palo's or is Palo's better than Cisco? So is Cisco- Where does he scale? Where does he scale? Yeah, I mean, it's very difficult to tell the performance of these things, I guess until you're breached. You know, at that point, maybe it's too late, but I do think this is a trend we'll continue to see is more and more companies converging and consolidating down their security vendors, especially in the AI era where you do need a unified data set. Yeah, I absolutely agree, absolutely agree. Well, with that, unless there's something else you'd like to touch on, I think- No, I think security is gonna be fun to watch. We should see lots and lots of innovation here. RSA's coming up, I'm expecting, while we are consolidating down to security vendors there's always new startups coming and so there's never a sleepy day in the world of cyber. Never a dull moment. And you know, when you say something like there's never a sleepy day, what I think about all the time is truly how CISOs get a minute's sleep because I just feel like it's so stressful job, so much responsibility, so much constantly changing. I mean, it is, you're right, they do not get, they can't get into it. And you don't know who would wanna be a CISO for a bank or a government institution or a retailer where people- Utility, critical infrastructure? Yeah. Absolutely, yeah. And you know what? Paying them a whole lot of money is great, but you're still carrying around that huge responsibility and so much stress. And as you said, it's a rapidly evolving landscape and threat actors are just gonna keep getting better. And so anyway- That's what you need in AI. You gotta fight fire with fire. If the threat actor's using AI, you have no choice but to use AI back. 100%. So with that, we're gonna wrap this second episode this week in tech. Diaz Karavallan, thank you so much for joining me. I look forward to being back here with you again next week and to our viewing and listing audience. Thank you and we'll see you next time.