 Welcome back to theCUBE's continuous coverage of HPE's latest GreenLake announcement, fire hose of innovation. We're seeing a cadence that HPE is delivering in cloud services. Daniel Newman is here. He's the principal analyst at Futurum, extraordinary research company. Daniel, great to see you. How you doing, man? Dave, great to be in person again. Six feet and safe, but it's good to be back. Yeah, it really is been a blur, right? So we're gonna talk about the pivot to cloud-based services. We're seeing that. Everybody's sort of leaning in, HPE's all in. We're gonna talk about value and what this all means to investors. We're gonna talk about data, but let me start with the whole as-a-service move. As I said, everybody's doing it. You see, virtually every company's HPE was, certainly the first to say we're all in. They've communicated very well to Wall Street. You know, everybody's in a debate. No, we were first. No, we were first, but you got to evaluate based upon the actions that they're taking. How do you look at the trends in this space and how do you look at HPE's performance? Yeah, I admired Antonio's early pivot. You know, when he got on stage and he said we're gonna move everything to as-a-service, I believe that was about two years ago now and the ambition was to have it by 2022, it immediately stood out to me because the momentum, the momentum was behind public cloud. You would have believed three years ago that every workload was gonna be in the public cloud and fortunately, guys like us knew that wasn't true, but what we did know was the customers, the enterprise were all becoming very comfortable and the preference was starting to be shown with that consumption of IT, meaning subscription-based, moving from CAPEX to OPEX. That to me was a signal that the timing was right. Now, once they got the timing right, it was really about how does this all happen, right? It's not necessarily just, oh, we're gonna flip a switch and we're gonna start to offer everything as a subscription, as a service. There's a lot of standing up those services, putting all that compute, all that network, all that storage into a data center, making sure that you have a way to accurately price it and make it quickly consumable, which is something, by the way, I've admired over the past couple of years watching the evolution of the software that HPE has been rolling, whether that's Green Lake Central, Esmeral, is that, you know, whether that's Kubernetes in the orchestration of, you know, hybrid cloud using containers, or that's just the ability to spin up a single compute workload in a timely fashion, that's the attraction to public cloud. So, you know, take HPE and its strategy aside, and yeah, what we have now is you have all of the traditional big iron IT OEMs all moving in this direction concurrently, they all understand from both evaluation standpoint, meeting Wall Street, and also meeting the customer where they are, they have to step up. They had to, whether that was what Dell was doing with Apex, Cisco with Plus, IBM's acquisition of Red Hat, all these companies were going from, you know, public to private, private to public, and then of course you got to go horizontal from edge to cloud as well. It's a lot to undertake, Dave, but it's an exciting time, and knowing that hybrid is the answer, the data's proving that it puts a lot of these companies in a good position to compete. Now, you mentioned that this is the customer preference for good reason, right, that gives them more flexibility, but there's also Wall Street's preference, right? You see that, you know, huge valuations, companies like Snowflake, Datadog, Elastic, it's that annual recurring revenue that is appealing. They want that, they want growth. We saw Q3 HPE, they did a beat and raise, I think 1,100 customers for GreenLake they announced, the orders were up well over 40%. I think revenue was up 30 plus percent, so those are the kind of metrics that Wall Street wants to see. Interestingly though, Daniel, of course the shift to an ARR model hurts the income statement, but it makes it more predictable, and that's what investors today want. What are your thoughts? Absolutely, I had a chance to speak multiple times over the past few years with the leadership at HPE, and that was the exact thing, Dave, that I raised. I said, you realize that it might be a sidestep or even a half a step backwards before you start to gain momentum, and the real problem with Wall Street is there's no patience. So you mentioned a couple of names like Datadog and Snowflake. These companies have exponential valuations to earnings because they don't earn anything yet, but most of the market is forward looking, and the market tries to anticipate where growth is going to come, and SaaS companies tend to drive fast growth and fast multiples. This is also left for a somewhat slow growth evaluation for companies like HPE, despite the fact that it's doing a lot of the right things. You mentioned, of course, mid double digit growth in GreenLake, large customer growth numbers. I believe you're surping a billion dollars in revenue or in subscription dollars. In fact, check that. On their way to a billion. On their way. On the way, close. I think it's booked maybe. Over 700 million in revenue. That way. And so as all those, the confluence of all those events, the market has to be able to basically cherry pick, though, a part of the business. And I think that's been a little bit of the problem, not just for HPE, but just for all these companies that are struggling with smaller multiples of their PE ratios. This is true for Cisco. This is true for IBM. This is true for HPE. And I'll kind of close my thought here, but as the company continues to talk about GreenLake and it continues to lean into this, this is the part that has to rise to the forefront of the Wall Street investor of the business media to say that existing part of the business is stable. It's solid. They have great customers. However, concurrently, the part of the business that is the future, the subscription part that attaches to the public cloud that is enabling companies to grow, that is where they're at and that is why we see more value. There's a lot of value to unlock. And it's because, you know, these small multiples and the business is heading in what I believe is the right direction. And HPE last quarter, sorry, they hit almost 35% gross margin, which is a high mark, high watermark for them. If you extract VMware out of Dell, they're in the mid-20s. So these are two different businesses and I think that's a big reason why Dell's moving into the space. I almost think like the board conversation at HPE was, hey, let's not keep thinking about building boxes, let's build services and let's add value to those services that are software based and then we can kind of control our own destiny as opposed to Intel getting all the margins and AMD or whatever it is. So how do you see as a service driving value of for HPE, it's customers and ultimately what do they have to do to convince Wall Street? Recurring revenue companies drive higher multiples. It's not even a debate. And companies that have a large percentage of their business as recurring tend to drive much higher valuation and tend to also be more beloved by shareholders. The performance of HPE has been good. It's been solid. It's been in the right place, especially given the circumstances of the pandemic and the impact of on-prem IT. We all saw the explosion of SaaS, the explosion of cloud, SaaS and chips are hot. They're always hot. But everything that was sort of sandwiched in the middle became a little bit more murky throughout the pandemic times and the ability for HPE and these companies that are in this space that are operating to be able to bridge this gap that companies have. 25 or so percent of workloads are in the public cloud. That means the rest need services from companies like HPE. So the TAM is growing because the overall size of the workload, the volumes of data are all growing exponentially. And that's an opportunity. But the market wants to see fast growth, Dave. I mean, they're not going to accept the single digit overall growth if you want to get the kind of multiples of a, you know, even a Microsoft data 40 or a Salesforce at 100. But HPE with its software play is starting to play in those spaces where investors in the market maybe can start to recognize that it is undervalued. So we live in a data centric world. Antonio talks about this all the time and we're seeing HPE makes some moves in terms of data, data management. You see what they're doing with Esmerell and that's a big part of the software play. So to the extent that you can lean into that wave have a higher contribution from software higher margin business obviously and a more predictable revenue stream. That seems to be the right direction in my view. It's going to take some time to play out. They're not going to overnight. You know, they don't have a green sheet of paper. They are a clean sheet of paper. They have a business that they have to manage and they have to service their customers. But to the extent that the majority of their business over time can become as a service shouldn't that confer higher margins and greater value to investors? Yeah, it's sticky for enterprise users when you move to that subscription model it's not as easy as just lifting and shifting. You build your entire business process around these investments and these technologies. Software is sticky. It's organizationally complex because where HPE sits in the stack where their analytics solutions and software help you more successfully deploy SAP type workloads. The entire company runs on that. So the involvement and the importance of the role that HPE is playing is huge. The challenge for customers isn't as big. Customers get this. The enterprise users, the CIOs, they get the importance. Wall Street though, it's a little harder for them sometimes to digest whereas they might be looking at something like a snowflake that you mentioned that's fairly straightforward. Almost all of its revenue is pure subscription and it's looked at as 20 years of perpetuity whereas people are still trying to wonder is HPE gonna be sticky? Are these customers not only gonna keep with HPE but are they gonna increase, right? Is that net revenue expansion going to take place across the portfolio and as HPE rolls out more services, right? Started with storage and then it moves to compute and then it adds edge layer services. Are people going to buy the whole stack? Because that of course also as we've seen with some of the bigger players can be an extremely attractive value proposition. Well I also think as they move into cloud, HPE's always been about optionality. So I feel as though with their data play for example, they can get deeper into data management but they can also partner with others. You're leaning into open source so that means you can expand your portfolio. And that's kind of what the cloud game is. Here's the cloud, we got all these different options. Choose what you want, we'll manage it for you. We'll charge you for that but we'll take away that headache. That's a good business. Choose your own cloud adventure. Last week Oracle reported and I'm only pointing this out because you look at the company and everybody was what's with their IaaS number? Why is it not bigger, smaller? Why don't we know, right? But over the last couple of years we've realized that it's no longer little c and big c. Little c which I would call infrastructure as a service no longer exists. Cloud is one big number. So HPE being in the cloud through its hybrid services, its software, its platform support is just as much about being in the cloud as a company that offers IaaS or a company that offers SaaS. However, convincing the market that this is the case is the trick. We're starting to see companies because you hear when IBM reports how their numbers are they're tying in all kinds of global business services and they're tying in red hat numbers and then they're tying in their public cloud numbers. But what I'm saying is up to this point a lot of these hybrid services are kind of not necessarily being bucketed like this big c of cloud but it really is the entire stack of infrastructure, platform, software. And then of course all those attached services for companies to deploy this that equal a cloud number. And so the subscription number grows, GreenLake's customer account grows and I think convincing the street and everybody in between that this is a cloud number and not a on-prem or a attach to the cloud number is going to really help boom the overall value that people see in what HPE is doing. And I think not only HPE but I think others are fine. Of course. But I think finally they're starting to realize that wow, we all know everything's not going to the public cloud. I understand it's a hybrid world. Public cloud spend companies the hyperscale is collectively spent $100 billion last year on CapEx. That's like a gift to a company like HPE that can connect the dots and create that abstraction layer that hides the underlying complexity. We'll take care of that for you. We'll make everything cloud native. We can bring cloud native on-prem and out to the edge, which is like the Wild West. That's a trillion dollar opportunity. There's no limit to market potential for companies out there and HPE specifically. Well, the edge is a massive opportunity. And that's what I said. You know, a lot of us are and we do this ourselves as both analysts and sometimes as media personalities is we like to debate how big the opportunity of cloud is. And of course there are some firms that try to market size this but actually I think it's extraordinarily difficult to market size this especially because of the edge. You talk about data and analytics. I recently attended the IAA event. It's a car event in Munich. And you just look at the amount of data that vehicles are going to be creating in the coming years. They're basically massive rolling data centers full of chips, compute, networking storage. This is all going to take significant infrastructure investments at scale and it's creating this humongous opportunity at the edge. And you look at 5G's impact and as we roll out 5G at scale, every one of these things brings more data, connects more devices and all that intelligence needs infrastructure. It needs software. It needs services. So the overall TAM-DAVE is going to continue to grow and I think if anything it tends to be underestimated because it's really hard to define just how big the data equation is actually going to be in the market. And digital changes the equation. It's no longer server storage, networking, database. It's cloud services that are enabling digital transformations. I'll give you one more thing that just crossed my mind but I think is important is if you even look at the ESG and sustainability efforts that most companies are going to be taking, the amount of investment in trying to capture, comprehend, manage just the data and analytics to understand your footprint and understand how you are going to achieve carbon neutrality and how you are going to do this up and down. I mean, that's just one thing. And of course that's a, I wouldn't call it table stakes but at this point the market expects every company to be making this kind of investment. Well, when you run a multinational global enterprise that has Edge, that has data centers, that has manufacturing facilities, there's just unbelievable requirements on technology. And again, we got to connect that public cloud somehow. So we can't ignore the fact that those public cloud players are all addressing this. They're all bringing solutions out. But companies like HPE, this is where their sweet spot is. And this is where I believe they're going to have to compete very aggressively and efficiently to show we are a great partner to the public cloud. But our legacy and our capabilities mean we understand this part of the business. We believe we're the right fit. And trust me, the Azure's and AWS, they're not going to make this easy. They're going to be competitive but they're also going to be very cooperative. Well, and they're coming into the home court of the on-prem vendors. So that's going to be interesting to see how that plays out. As an observer, as an analyst, what do you want to see from HPE GreenLake Cloud Services? What are the areas that you're going to be watching that could serve as indicators of success and momentum? Well, we didn't even talk, because we did talk about some of that, but we didn't even talk about AI and ML, for instance. All this data itself has to be managed and processed. So the fact that you're getting to that data management at scale, the fact that you're building out orchestration for containers. Well, this is because of that data deluge, conundrum, whatever word we want to use for it. But the best companies in the world are going to find a way to extract more value from that data, and that's going to be through the application of AI, of ML, of neural networks, deep learning, and other important capabilities. Having a foot into that, Dave, is something I want to see HPE, and it already does, but I want to see the participation there. This is an area that I think Public Cloud is doing really well. They've really made big investments, both with homegrown chips, with partnering with the likes of NVIDIAs and Intel to offer a lot of enhancement, acceleration, ML and AI services. I think this is going to be an area that, on-prem and through hybrid offerings, we're going to want to see the company compete. And then of course, I think back to the one thing, Dave, I'll just kind of wrap on this, is that customer growth. I mean, you talked about how to get valuation, how to get the street up. People get excited about overall growth. They need to get that narrative carved out about GreenLake, about the subscription growth, the service growth point next, and all that stuff. But all that has to start to equate to overall growth. I think there needs to be at least single, high-digit, single overall percentage growth, especially because the whole portfolio is supposed to be there. Companies that get those big multiples are growing fast. Yeah, and growth on that large of a base would get people's attention. You mentioned custom chips. HPE, you know, HPE's heritage, and HPE, they have chops in custom silicon. So it'd be interesting to see if, you know, the future, you talk about AI, inference at the edge, huge disruptive potential opportunities. And I'm really curious to see how that plays out because that is another trillion dollar market opportunity. Daniel, thanks so much for coming on theCUBE. It's great to have you. Looking forward to working with you in the future. Yeah, it's great to be here. Sorry we didn't get to those chips earlier. We could have gone down a whole nother path, but it was great to talk to you, Dave. And thank you for watching, everybody. This is theCUBE's continuous coverage of HPE's big GreenLake announcement. Keep it right there for more great content.