 from Austin, Texas. It's theCUBE. Covering Dell EMC World 2016. Brought to you by Dell EMC. Now, here are your hosts, Dave Vellante and Stu Miniman. Welcome back to Austin, everybody. This is theCUBE, the worldwide leader in live tech coverage. I'm here with Stuart Miniman and Peter Burris is joining us. He's the chief research officer at SiliconANGLE Media. He's been walking the halls, listening to the analyst presentations, getting the Kool-Aid injection from the execs at Dell. It's been a while, I think, since you've participated in this specific event. Has it not? Oh, long time. Long time. So what'd you learn today? Well, mainly the conversations that the analyst went through had more to do with the integration is going well. We were set up a good plan. We set up a good executive team. We got the work done. We're still not 100% ready to completely say that it's behind us. A lot of work yet to do on talking about customers, how we handle accounts, how we manage accounts, but that overall there's, at least the first day, was very much devoted to the idea that the integration is done. That there are now a lot of conversation about day one, day one, day one, one company, day one, or first day, whatever it was. So mostly it was dedicated to that. So the kind of the premise that I started to touch on with David Goulden, the president of Dell EMC, kind of former EMC classic, was that there's been this collapse in infrastructure, hardware, and software pricing and it's affected margin. And he sort of debated that, Stu, it was interesting. And he was right in the sense that EMC gross margin has held up pretty well, but you've definitely seen pressure over the last 10 years on cash flow and even gross margin as well. But to their credit, they have done a decent job of keeping margins up, they and Cisco as well. And a couple of other startups, but that's a different side case. The point is, we're entering a new era of IT where cloud is obviously driving the conversations. A company like Dell EMC has to keep its cost down. It's got to make cuts, it's got to streamline operations, it's got to rationalize how it does things in order to be competitive with the cloud from a cost structure standpoint. Do you guys buy that? Yeah, I mean, Dave, one of the things I looked at, on EMC classic, let's just take, they're the leader in the all flash array. Well, what does the top line and bottom line revenue of all flash array look like compared to what they were selling with traditional hard to strive and hybrid arrays? And the concern I always had for EMC is even if they have a home run with one of these new technologies, it's not necessarily enough to keep them growing because they're so big and they have such a diverse portfolio. Something we've seen, Cisco, EMC, many other companies, they reach this kind of a saturation point and storage has been such a fragmented marketplace. And I always call it, it's the knife fight in a dark alleyway. Even if you do really well, you're going to walk out of there with a bunch of gashes and bleeding somewhere because there's so many pieces there. I mean, pure storage has taken their piece in the market. There's so many different things as to how it's coming. That being said, EMC is doing well in a lot of the growth areas. All flash arrays converge, hyper-converge, all strengths for EMC and areas where they feel that Dell plus EMC are going to be better than they were a part. And they may be right, but Dave, you're fundamentally asking a question. I think you're also amplifying it, Stu, is where are the scale economies? We keep hearing that bigger is going to be better. Bigger is better, bigger is better. And this has been a forever conversation in the industry. You go with the big player who may be a little bit slower or the new player who may be more specialized, but may not have the same breadth of financial and other arrangements. Well, it's not obvious that the economies that certainly Dell EMC are talking about are resident in how we do manufacturing, although clearly Dell supply chain advantages remains very much enforced today. Substantial, right. Yeah, but they're still getting components from elsewhere. They're not having to invest heavy in fads. They're not building these $4 billion data centers. That's not where they're going. So where are the efficiencies? And where the efficiencies are going to be is really where the next shoe is going to drop. It's how they engage their customers. IT is hard. We like to talk about it being easy, go to the cloud, do all these things. Z-less. Yeah, all those other stuff. This is hard, it's hard work. It's really hard work. And the frictionless, the transaction costs of doing IT at the technology, at the relationship, and et cetera, multiple of different levels are very expensive. It's hard. And although it's going to get easier over time, it's not easy today. And so the big question is, will in fact we see Dell EMC generate significant efficiencies for their customers truly from the breadth of the portfolio where they can have one or fewer numbers of contracts that can cover a broad array of product lines so that you don't have to go to these individual players and contract each of them anew? And that's an open question. And that is going to be key. How much discussion in the analyst event today was around that specific issue as it relates to the channel? It was the entire conversation I had with the executives I eat lunch with, but that's because I'm a geek. Zero conversation amongst the analysts themselves. Interesting, because to me that is the critical issue. It's how they gain efficiencies, you're right. It's all about how they engage customers. And the channel is a key part of that. Well, channels are related part of that, right? Because at the end of the day, all the contracts that we're talking about extend into the partners as well. Yeah, absolutely. 75, I heard somewhere in the vicinity of 70, 75% of Dell EMC's business is going through the channel. Yeah, and I heard 60 today, so it's... So say it's, let's take the low number. It's more than half. Low number, 60%. Which means that a sizable percentage of the actual relations that determine these efficiencies are through partnerships themselves. So this is going to be one of the most important conversations in the industry over the next few years. And as I said, we've heard a lot about how the product integration, supply chain and manufacturing integration's gone. The next year to drop is going to happen early next year with Dell EMC when we actually see how the account plans all come together and they start to roll out a new way of thinking about engagement. It's a massive acquisition, obviously. And many people like to think, oh, it's a massive acquisition. It's going to fail because big acquisitions fail. They don't always fail. I mean, HP failed. Its acquisitions failed. IBM transformed the company with an acquisition of PWC. Oracle transformed its company with many, many acquisitions. You know, I guess you could argue that Cisco sort of grew at least early on through acquisitions. Oh, absolutely. Right? There's no question. There's clear examples. They're brilliant at it. Yeah, absolutely. They set the stage. They set the template. That's the blueprint. Now, there's never been anything this large, but is the fact that EMC in particular, but Dell is not bad at acquisitions as well, but EMC was very good at acquisitions. Is that going to portend, give us a glimpse of what this acquisition will be like, or is this whole new ground, new territory that is just uncharted waters? Well, I'll give you my answer to it. Obviously, your perspective would be very useful here as well. From a standpoint of the mechanics of running the clean room, choosing the right priorities and how they conducted the integration, choosing the right people to do it. I have seen no evidence whatsoever that they didn't pick great people to do it. They didn't choose the right perspective, customer value, don't dislocate the customer, don't disrupt the customer. So from that perspective, and I'm top, you were talking about it earlier Stu, there are real reasons to suspect that the portfolio fits together pretty nicely. It's not like it's a total mess like all the HP acquisitions were. So from that perspective, it's set up to go well, and it seems to be going well. All that boils down, however, to how does the customer feel as the customer moves from current contracts to the next round of contracts, which are going to be that much more strategic, that much more complex, and that much more risky because of some of these different transformation issues. Yeah, a lot of good points there, Peter. And as we've been looking at the merger of these two, it's not like Dell came in and they're just totally overbearing on everything. Michael touches a lot of what is happening here, which is very different from kind of how EMC did things. But if you look at the corporate functions, I mean, CMO of the whole corporation is Jeremy Burton. Many of the communication people are on the EMC side. So you've got some teams that are heavily EMC focused, EMC legacy, some that are heavily Dell legacy focused. They had a lot of time to get used to this and has been pointed out many times. They had a long, very good relationship for about 10 years. I was actually at EMC for a lot of that time. And I can say culturally, there was some struggles there at times, but the way David Golden put it, he said there was that kind of lens that you each had to look through and you couldn't do everything together when it's an OEM relationship. As opposed now, we're all in the same team. They're all pulling in the same direction. Now, are there some cuts that are happening? Absolutely. Are there some people that are leaving? Absolutely. But overall, the feel I get from both sides that when I talk to is pretty good. The channel, a little bit nervous, which we talked about in the intro, Dave. Customers, I want to talk to them more, but so far there haven't been a lot of seismic changes. So there's nothing to scare them off. I know they're making sure that they don't do anything to disrupt what they're doing this year, next year. They want to set themselves up for that growth. And that's where I want to see some of the keynotes tomorrow looking forward. We had a good chat with kind of the IoT guy, Peter. We'd love to talk with you a little bit more. Yeah, Andy, so some interesting spaces where Dell EMC, Dell Technologies feel they can grow. And not to be too much of a, to be too crazy about hero worship here, but it's also a good team. It's a good team and the bench also is really good. Well, I think that's a key point is that a lot of these acquisitions are successful because the acquiring company is acquiring talent and empowers that talent to continue its mission. Man, I think that's clearly the case here. A lot of people are concerned about culture because you got a EMC culture of hardcore execution. Yeah, but we talked about this, Dave. And I know that we've said that the Dell culture is more oriented towards customers, which may be the case. But let's be clear, hardcore supply chain is hardcore operations. Oh, you know, I couldn't agree more. I mean, look, HP had a big supply chain advantage. It gave up on it. IBM had a big supply chain advantage. It gave up on it when it got rid of its X86 PC business and then its server business. Dell's hanging on to that supply chain. We've heard rumors in the past too. They're going to sell their PC business. They are the supply chain dominant player right now. That should, in theory, allow them to compete with the ODMs and compete for a cloud business as an arms dealer, not a bad business. Grows off a lot of cash. Totally viable business model. It's not as attractive as Microsoft's gross margins. Okay. Not many are. Not many are, right. There's a handful, maybe two or three, right? So it's all about being able to, as you say, leverage those operational efficiencies, continue to drive cash flow. David Goulden told us off camera, I'm sure he would have said it on camera. He's not like he said, don't tell anybody this. But their debt service today of Dell EMC is less than EMC as a company for stock buybacks and dividends. So I've never had an issue with Dell paying off its debt. I don't see that as a problem unless if the PC market dramatically tanks and things really go south and cash flow squeeze. By the way, I don't think Silver Lake has an issue with that either. Right. Exactly. So. Their owners seem pretty happy with the way the debt's getting paid back. Okay, so I mean, I think they'll continue to de-lever. I think they got it under control. At least for now. If interest rates start going up, I think they're a little concerned about that. That's why they want to get some of the more expensive debt off the books faster. Well, there's another reason why they want to do it, Dave, is because we were going back to this notion of engagement. And to be able to go to a client and say, okay, you're going to take on something really complex. We're going to be here with you and keep this part of it really simple through products, great products, great integration, services, and contracting. Financing is going to be a big part of that, especially as you start trying to keep the partners engaged and behaving the way you want them to. So Dell wants to have a low cost capital, not only to service its debt, but also because it makes it easier to extend out into their overall engagement strategy. And that's going to be a big part of their success. Right, that's a really good point. That's a really good point because they can now, to the extent that they can achieve that, they can go to customers with a flexibility message that is, look at how IBM has played that card over the years so successfully. Right, really good point, Peter. All right, last thoughts too. So, you know, obviously Dave, I'm going to look a lot at kind of the converged and hyper-converged pieces here. We've seen how kind of the Dell power edge is proliferating itself through the EMC portfolio, which is kind of a first big chunk of kind of the synergies that they talked about, bringing those companies together. After the keynote, I'd love to dig in more with kind of the VxRail converged Nutanix stuff, but we'll talk about that more tomorrow, Dave. And my last thought is, you know, you hear a lot of, you love the competition, right? Talking about, oh, EMC Dell, EMC going to be distracted. They're in big trouble, they're a mess. I don't see that. I don't see them distracted. I don't see them taking their eye off the ball. I think they're energized, they're maintaining talent. People around here are pumped up. Customers, baby. They got a deep bench and you're right. They're focused on the customers. Your last thought. Not my last thought. It's going to come down to how well Dell EMC serves and sustains its customers. If I had one more thought, it would be, it's pretty clear that we've got a new approach to engagement or value proposition coming out of Amazon, rent virtual machines, Oracle's coming at it from a rent application services in the cloud. Dell EMC is going to have to come at it from an equally compelling value proposition around engagement for on-premise. Excellent. All right, well, this is a wrap at day one. The event kicks off right now. Everybody's sort of rolling into the Exhibitor Hall. Alabama shakes tonight. We'll be going all day tomorrow, wall-to-wall coverage. This is theCUBE wrapping up day one. Go to siliconangle.tv. You'll see all the coverage, siliconangle.com for all the news, wikibon.com for all the research. Check out crowdchat.net slash Dell EMC world. We've got a crowd chat going on. Transcript of theCUBE interviews today. It's a wrap for day one. We'll see you tomorrow, everybody. Thanks for watching.