>> From theCUBE Studios in Palo Alto in Boston, bringing you data-driven insights from the cube in ETR. This is Breaking Analysis with Dave Vellante. >> On Friday, December 10th, Oracle announced a strong earnings beat and raise, on the strength of its licensed business, and slightly better than expected cloud performance. The stock was up sharply on the day and closed up nearly 16% surpassing 280 billion in market value. Oracle's success is due largely to its execution, of a highly differentiated strategy, that has really evolved over the past decade or more, deeply integrating its hardware and software, heavily investing in next generation cloud, creating a homogeneous experience across its application portfolio, and becoming the number one platform. Number one for the world's most mission critical applications. Now, while investors piled into the stock, skeptics will point to the beat being weighed toward licensed revenue and likely keep one finger on the sell button until they're convinced Oracle's cloud momentum, is more consistent and predictable. Hello and welcome to this week's Wikibond CUBE insights powered by ETR. In this breaking analysis, we'll review Oracle's most recent quarter, and pull in some ETR survey data, to frame the company's cloud business, the momentum of fusion ERP, where the company is winning and some gaps and opportunities that we see. The numbers this quarter was strong, particularly top line growth. Here are a few highlights. Oracle's revenues that grew 6% year on year that's in constant currency, surpassed $10 billion for the quarter. Oracle's non-gap operating margins, were an impressive 47%. Safra Catz has always said cloud is more profitable business and it's really starting to show in the income statement. Operating cash and free cash flow were 10.3 billion and 7.1 billion respectively, for the past four quarters, and would have been higher, if not for charges largely related to litigation expenses tied to the hiring of Mark Hurd, which the company said would not repeat in the future quarters. And you can see in this chart how Oracle breaks down its business, which is kind of a mishmash of items they lump into so-called the cloud. The largest piece of the revenue pie is cloud services, and licensed support, which in reading 10Ks, you'll find statements like the following; licensed support revenues are our largest revenue stream and include product upgrades, and maintenance releases and patches, as well as technical support assistance and statements like the following; cloud and licensed revenue, include the sale of cloud services, cloud licenses and on-premises licenses, which typically represent perpetual software licenses purchased by customers, for use in both cloud, and on-premises, IT environments. And cloud license and on-prem license revenues primarily represent amounts earned from granting customers perpetual licenses to use our database middleware application in industry specific products, which our customers use for cloud-based, on-premise and other IT environments. So you tell me, "is that cloud? I don't know." In the early days of Oracle cloud, the company used to break out, IaaS, PaaS and SaaS revenue separately, but it changed its mind, which really makes it difficult to determine what's happening in true cloud. Look I have no problem including same same hardware software control plane, et cetera. The hybrid if it's on-prem in a true hybrid environment like exadata cloud@customer or AWS outposts. But you have to question what's really cloud in these numbers. And Larry in the earnings call mentioned that Salesforce licenses the Oracle database, to run its cloud and Oracle doesn't count that in its cloud number, rather it counts it in license revenue, but as you can see it varies that into a line item that starts with the word cloud. So I guess I would say that Oracle's reporting is maybe somewhat better than IBM's cloud reporting, which is the worst, but I can't really say what is and isn't cloud, in these numbers. Nonetheless, Oracle is getting it done for investors. Here's a chart comparing the five-year performance of Oracle to some of its legacy peers. We excluded Microsoft because it skews the numbers. Microsoft would really crush all these names including Oracle. But look at Oracle. It's wedged in between the performance of the NASDAQ and the S&P 500, it's up over 160% in that five-year timeframe, well ahead of SAP which is up 59% in that time, and way ahead of the dismal -22% performance of IBM. Well, it's a shame. The tech tide is rising, it's lifting all boats but, IBM has unfortunately not been able to capitalize. That's a story for another day. As a market watcher, you can't help but love Larry Ellison. I only met him once at an IDC conference in Paris where I got to interview Scott McNealy, CEO at the time. Ellison is great for analysts because, he's not afraid to talk about the competition. He'll brag, he'll insult, he'll explain, and he'll pitch his stories. Now on the earnings call last night, he went off. Educating the analyst community, on the upside in the fusion ERP business, making the case that because only a thousand of the 7,500 legacy on-prem ERP customers from Oracle, JD Edwards and PeopleSoft have moved Oracle's fusion cloud ERP, and he predicted that Oracle's cloud ERP business will surpass 20 billion in five years. In fact, he said it's going to bigger than that. He slammed the hybrid cloud washing. You can see one of the quotes here in this chart, that's going on when companies have customers running in the cloud and they claim whatever they have on premise hybrid, he called that ridiculous. I would agree. And then he took an opportunity to slam the hyperscale cloud vendors, citing a telco customer that said Oracle's cloud never goes down, and of course, he chose the same week, that AWS had a major outage. And so to these points, I would say that Oracle really was the first tech company, to announce a true hybrid cloud strategy, where you have an entirely identical experience on prem and in the cloud. This was announced with cloud@customer, two years, before AWS announced outposts. Now it probably took Oracle two years to get it working as advertised, but they were first. And to the second point, this is where Oracle differentiates itself. Oracle is number one for mission critical applications. No other vendor really can come close to Oracle in this regard. And I would say that Oracle is recent quarterly performance to a large extent, is due to this differentiated approach. Over the past 10 years, we've talked to hundreds literally. Hundreds and hundreds of Oracle customers. And while they may not always like the tactics and licensing policies of Oracle in their contracting, they will tell you, that business case for investing and staying with Oracle are very strong. And yes, a big part of that is lock-in but R&D investments innovation and a keen sense of market direction, are just as important to these customers. When you're chairman and founder is a technologist and also the CTO, and has the cash on hand to invest, the results are a highly competitive story. Now that's not to say Oracle is not without its challenges. That's not to say Oracle is without its challenges. Those who follow this program know that when it comes to ETR survey data, the story is not always pretty for Oracle. So let's take a look. This chart shows the breakdown of ETR is net score methodology, Net score measures spending momentum and works ETR. Each quarter asks customers, are you adding in the platform, That's the lime green. Increasing spend by 6% or more, that's the fourth green. Is you're spending E+ or minus 5%, that's the gray. You're spending climbing by 6%, that's the pinkish. Or are you leaving the platform, that's the bright red retiring. You subtract the reds from the greens, and that yields a net score, which an Oracle's overall case, is an uninspiring -4%. This is one of the anomalies in the ETR dataset. The net score doesn't track absolute actual levels, of spending the dollars. Remember, as the leader in mission critical workloads, Oracle commands a premium price. And so what happens here is the gray, is still spending a large amount of money, enough to offset the declines, and the greens are spending more than they would on other platforms because Oracle could command higher prices. And so that's how Oracle is able to grow its overall revenue by 6% for example, whereas the ETR methodology, doesn't capture that trend. So you have to dig into the data a bit deeper. We're not going to go too deep today, but let's take a look at how some of Oracle's businesses are performing relative to its competitors. This is a popular view that we like to share. It shows net score or spending momentum on the vertical axis, and market share. Market share is a measure of pervasiveness in the survey. Think of it as mentioned share. That's on the x-axis. And we've broken down and circled Oracle overall, Oracle on prem, which is declining on the vertical axis, Oracle fusion and NetSuite, which are much higher than Oracle overall. And in the case of fusion, much closer to that 40% magic red horizontal line, remember anything above that line, we consider to be elevated. Now we've added SAP overall which has, momentum comparable to fusion in the survey, using this methodology and IBM, which is in between fusion and Oracle, overall on the y-axis. Oracle as you can see on the horizontal axis, has a larger presence than any of these firms that are below the 40% line. Now, above that 40% line, you see companies with a smaller presence in the survey like Workday, salesforce.com, pretty big presence still, Google cloud also, and Snowflake. Smaller presence but much much higher net score than anybody else on this chart. And AWS and Microsoft overall with both a strong presence, and impressive momentum, especially for their respective sizes. Now that view that we just showed you excluded on purpose Oracle specific cloud offering. So let's now take a look at that relative to other cloud providers. This chart shows the same XY view, but it cuts the data by cloud only. And you can see Oracle while still well below the 40% line, has a net score of +15 compared to a -4 overall that we showed you earlier. So here we see two key points. One, despite the convoluted reporting that we talked about earlier, the ETR data supports that Oracle's cloud business has significantly more momentum than Oracle's overall average momentum. And two, while Oracle is smaller and doesn't have the growth of the hyperscale giants, it's cloud is performing noticeably better than IBM's within the ETR survey data. Now a key point Ellison emphasized on the earnings call, was the importance of ERP, and the work that Oracle has done in this space. It lives by this notion of a cloud first mentality. It builds stuff for the cloud and then, would bring it on-prem. And it's been attracting new customers according to the company. He said Oracle has 8,500 fusion ERP customers, and 28,000 NetSuite customers in the cloud. And unlike Microsoft, it hasn't migrated its on-prem install base, to the cloud yet. Meaning these are largely new customers. Now this chart isolates fusion and NetSuite, within a sector ETR calls GPP. The very giant, public and private companies. And this is a bellwether of spending in the ETR dataset. They've gone back and it correlates to performance. So think large public companies, the biggest ones, and also privates big privates like Mars or Cargo or Fidelity. The chart shows the net score breakdown over time for fusion and NetSuite going back to 2019. And you can see, a big uptick as shown in the blue line from the October, 2020 survey. So Oracle has done a good job building and now marketing its cloud ERP to these important customers. Now, the last thing we want to show you is Oracle's performance within industry sectors. On the earnings call, Oracle said that it had a very strong momentum for fusion in financial services and healthcare. And this chart shows the net score for fusion, across each industry sector that ETR tracks, for three survey points. October, 2020, that's the gray bars, July 21, that's the blue bars and October, 2021, the yellow bars. So look it confirms Oracles assertions across the board that they're seeing fusion perform very well including the two verticals that are called out healthcare and banking slash financial services. Now the big question is where does Oracle go from here? Oracle has had a history of looking like it's going to break out, only to hit some bumps in the road. And so investors are likely going to remain a bit cautious and take profits off the table along the way. But since the Barron's article came out, we reported on that earlier this year in February, declaring Oracle a cloud giant, the stock is up more than 50% of course. 16 of those points were from Friday's move upward, but still, Oracle's highly differentiated strategy of integrating hardware and software together, investing in a modern cloud platform and selectively offering services that cater to the hardcore mission critical buyer, these have served the company, its customers and investors as well. From a cloud standpoint, we'd like to see Oracle be more inclusive, and aggressively expand its marketplace and its ecosystem. This would provide both greater optionality for customers, and further establish Oracle as a major cloud player. Indeed, one of the hallmarks of both AWS and Azure is the momentum being created, by their respective ecosystems. As well, we'd like to see more clear confirmation that Oracle's performance is being driven by its investments in technology IE cloud, same same hybrid, and industry features these modern investments, versus a legacy licensed cycles. We are generally encouraged and are reminded, of years ago when Sam Palmisano, he was retiring and leaving as the CEO of IBM. At the time, HP under the direction ironically of Mark Hurd, was the now company, Palmisano was asked, "do you worry about HP?" And he said in fact, "I don't worry about HP. I worry about Oracle because Oracle invests in R&D." And that statement has proven present. What do you think? Has Oracle hit the next inflection point? Let me know. Don't forget these episodes they're all available as podcasts wherever you listen, all you do is search it. Breaking Analysis podcast, check out ETR website at etr.plus. We also publish a full report every week on wikibon.com and siliconANGLE.com. You can get in touch with me on email David.vellante@siliconangle.com, you can DM me @dvellante on Twitter or, comment on our LinkedIn posts. This is Dave Vellante for theCUBE Insights. Powered by ETR. Have a great week everybody. Stay safe, be well, and we'll see you next time. (upbeat music)

>>from around the globe. It's the Cube with digital coverage of Dell Technologies. World Digital Experience Brought to you by Dell Technologies. Hello, everyone. And welcome back to the cubes wall to wall coverage of Dell Technologies World, The digital experience 2020. The Virtual Cube is coming at you. I'm Dave Volonte. And with me or two Great guest, my colleague and longtime business friend Howard Elias. He's the chief customer officer and president of services and digital Adele. And also joining me is Sri Raj, aka Sri Can't him Nene, who is the managing director of digital insights at Cargo, which is one of the world's largest privately held companies in the top maker and distributor of agricultural products and the things that we eat every day. Gentlemen, thanks so much for your time and coming on the Cube. Great to see you. >>Great to see you, Dave. And three. Great to see you again as well. >>Good to be with you both. So >>I wanna Howard, I wanna talk about start by talking about digital transformation. I'm gonna make it laugh. So I was talking to a customer every day or the other day, and we all talk about, you know, digital transformation. And I said, What's digital transformation to you? He said, Dave, my S a P system was 15 years old and I have to upgrade. It was like, Okay, there's eso There's a spectrum, as you know, but what do you seeing as digital transformation? What does that mean to your customers? >>Well, what we're seeing is a glimpse of the future. And first of all, Dave, Great to be with you again, uh, free and all of you out there hope everybody's safe. And, well, thanks for joining us, Adele Technologies World today. But digital transformation from our customers perspectives the technology enablement of experiences with customers, partners and employees, a swells automating processes to deliver value to the all key stakeholders. And we've just seen a glimpse of the future. Customers are accelerating their adoption of technology. We see this through necessity, right when everybody had to pivot from or toe work from home, especially those professional workers and for the most part, whether companies plan forward or not, we all embraced and learned new ways of being productive remotely, and that was all enabled by technology. But we've seen it in every walk of life. It's really an acceleration of trends that were already underway, whether it was the remote experience for professional employees, whether it's e commerce experience, whether it's telemedicine, distance learning. All of these things have been available for a while, but we've seen them be embraced and accelerated tremendously due to what we've seen over the last six months in all industries. And free will talk about what's happening specifically in the agricultural industry, and what we've seen is customers that have made investments over the years have been ableto move even faster in their specific industries. We've just on a survey of about 4600 customers around the world, and 80% have accelerated their investments in digital technology to improve the experience of their employees of their customers and of their partners. >>Yes, so So thank you for that, Howard. Three. I mean, a lot of people might think of cargo. There's physical business, but it's anything but. I mean, you've got such a huge data component to your business, but I wonder what you would add. I mean, we're maybe talk a little bit. I mean, it's such amazingly, you know, rich and deep company. But maybe talk about your digital transformation journey and at least in your sphere of the world where you're at. >>Yeah, thanks, David. You know, Howard's absolutely right. What? What Cove it has done is just accelerated the need for technology on farm and with our customers. And and certainly in the last few months, we've seen that accelerate tremendously, right? A t end of the day. Agriculture has been a technology first, um, industry for for hundreds of years, and and so we're seeing that take fold in the form of digital adoption, the use of analytics, the use of really unique sensor technologies like cameras and computer vision. Um, sound I liken it to the senses that we all have every day that we used to make decisions. Well, we're now seeing that adopted with our with our customers. And so it's a really interesting time, and I think an opportunity for for the industry to really move forward. >>I mean, in terms of the three in terms of the pandemic, you know, we we talked to a lot of customers. Howard just mentioned a survey. You certainly saw the pivot in tow work from home you know, increase in laptop momentum. And in Dell's business, we saw that you're seeing identity access, management, cloud security and point security. Even even VD I These were big tail winds early on. What did the pandemic due to your business and just in terms of your your priorities did you have to obviously shift to those things to support work from home? What happened to your digital transformation was was anything put on hold and is restarting. Can you just Yeah, I don't know what you could tell us about that, but anything you could describe and add some color to that narrative would be really helpful to our audience. >>Certainly. Yeah. You know, I think overnight we had, ah, workforce that went from being in the office toe working from home and and that just accelerated the need for for collaboration tools. Things like like teams and and Skype and Zoom have just taken off right? But also technologies that allow for virtual engagement, like white boarding and brainstorming sessions that we used to do in the office with customers and suppliers. We're now having to do in a virtual setting. So so that has just transformed how we do business on the customer. And, you know, technologies like computer vision and and sound really transform the need to to leverage labor differently. Right? One of the biggest challenges that the cove it has has placed is how labor interacts with animals and and with food production. And we've just seen a significant adoption of technology to help alleviate some of those stresses. >>Now you guys probably have seen the tongue in cheek cartoons, the covert wrecking ball, you know, the guys in the audience or the building saying digital transformation. Not on my watch in the cove, it comes in. I've often joked, uh, I guess we have to have a sense of humor in these times, but But if it ain't broke, don't fix it. We'll cove. It kind of broke everything. And Howard, when you think about digital transformation, yes, was going on before co vid. But But there are a lot of industries that hadn't been disrupted. I think about health care. I think about financial services. I think about defense. I mean, the list goes on unlike publishing, for instance, which got totally disrupted by the Internet. But now it seems like If you're not a digital business, you're out of business. Eso Are you seeing like virtually every industry adopting digital? Or are you seeing any trends that are different by industry? What are you seeing out there >>were absolutely seeing every company in every industry adopted in their own way, thinking through their business models. I mean, even think about what's happened in your local town. How technology is able enabled restaurants to dio, you know, uh, take out and delivery through digital tools, your local dry cleaner, your your local butcher and your baker. I mean, everybody's having toe be creative and reinvent. It's not just the, you know, large professional industrial financial services companies who are also reinventing. But I go back to what I said before what we're seeing. These trends were already underway. They've just been put into hyperspeed what folks were thinking about doing in two or three years we're doing into two or three months. The pivot toe work from home worldwide happened in two or three weeks, and it's not the crisis we planned for, but we're always preparing for the future. The groundwork was laid, and now it's just been accelerated. We're seeing it everywhere, including inside Adele. You know, I think about all the processes and the way we serve our employees, our customers and partners we've accelerated were adopting the product model within our own Del digital organization, for example, that's been accelerated. The move to multi cloud on having a cloud operating model no matter where the infrastructure has been accelerated. And you know, everything we've talked about on the client experience. Security models, networking model software, defined models, every every industry, every company has had to embrace this >>so sorry. I mean, I'm fascinated by your business. I mean again, I think a lot of people think of it as a real physical business. But there's so much data. You're the head of digital insights, which is You've got data running through your your entire operations. There's other things. There's there's double take words I see in your your background like aqua culture. So So how are you re imagining the future of your industry? >>That's Ah, that's a fascinating question, Dave. You know, think, Imagine this. You could listen to a shrimp eat and then turn that into unique insights about the feeding patterns on behaviors of shrimp, right? Who would have imagined 10 years ago that we would have technology that enabled us to do things like that? Right? And so, from aquaculture thio the dairy industry to, you know, grain origination. We're leveraging digital and data to really help our customers and producers make better, more informed decisions where in in the past it was really experience that allowed them toe be good farmers and and good stewards of our planet. Now we're using technology, so it's really an opportunity toe harness, the power of digital for our industry. >>Well, you know, and it's critical because we have people to feed and actually it's working. I mean, the yields that air coming out of the industry or are amazing. I know there's a lot of discussion now, but hey, you know, we're actually getting a lot of food to people. And now there's a discussion around nutrition that's that's front and center, and I presume technology and data fit in there as well. Three. I wonder if you could comment. >>Yeah, you know, by 2050 day there will be nearly 10 billion people on this planet. And to feed that growing population, we're gonna need 70% more protein on DSO. As you think about the impacts that that that growing population has on the planet. There's also, you know, nutrition. But think about sustainability. How do we how do we grow this food and get it from the place that it's produced to the place where it's consumed in a way that's a resource efficient and effective? So there's nutrition in just the middle class in Asia, you know, having a higher propensity to spend and dealing with that challenge on one end of the spectrum and then on the other end of the spectrum, being ableto really deal with with sustainability. >>I would have watched your career over the decades, and you've had so many roles, and I always used to joke with you. They give you the hardest problems if you want. If you want to get stuff done, you give it to the busiest guy. It was always Howard, you know, help us with with our own transformations. Help us do the integrations, whether it was m and a or the course, the largest in just >>industry I love a good challenge is you know, >>I do know and so I want to get. Get the update on Dell's own transformation. I've been talking to a number of your executives this week, and it looks like you know, you guys air, drinking your own champagne, dog food and whatever you wanna call it. But but bring us up to date on what you guys are doing internally. >>We are, and we're no different than any of our customers. And having Thio focus on our digital transformation agenda, I mentioned earlier the adoption of our product model, you know, moving from a project based Dell Digital and I T Organization to one that's a product model. So these are balanced teams with a product manager, a designer and developers working closely with the business and the function in an agile manner and the C I. C. D pipeline manner. And all of this again has been accelerated. We have our own del digital cloud, which is our hybrid cloud that we leverage internally. We're software defining everything, and it's really paying dividends because what we've seen literally in the last 6 to 8 months is higher levels of security, higher levels of availability, higher levels of resiliency. We've been able to handle all of the increased transactions on our e commerce engines, all at higher quality and lower costs. Now we the groundwork for this with Jen Felch in the team over the last couple of years, but again, by necessity, had to accelerate. And we've done that. And we're even moving faster now on data pipelines and really understanding all of our key processes and understanding the work flows and the data flows, working with machine learning and artificial intelligence again, exactly the way Cargill and other of our customers are doing in their businesses. I know you're talking or have talked to Doug Schmidt. You know, we've digitized and automated thousands of processes and our services organization Theobald bility on a remote basis to service our customers were we've invented new and innovative ways the service our customers remotely versus going on site, not just in break fix, deployment, remote change, management, manage services, consulting. It's just, you know, great to see all this wonderful innovation come together serving our customers. >>Thank you for that, Howard. And you, you said something that triggered me in a good way. Data pipelines. I use that term a lot. And three I wonder if you could talk about this because you're You guys have been around since the 18 hundreds, I think the largest privately held company in United States, I think, right, and probably close to one of the largest in the world. And so >>you >>got a lot of data and a lot of different places. So a huge challenge for you is okay. How do you manage those data pipelines? Those data, the data lifecycle, And I would think the company the size of cargo to the extent that you can reduce the end to end time it takes to go from raw data to insights E. That's gonna be telephone numbers for for your business and your bottom line that you can then reinvest and get back to customers, etcetera and be competitive. I wonder if you could talk about >>you >>know, that whole concept of the data pipeline And how are you using data and and some of the challenges of compressing that end to end cycle time and Leighton >>see, to >>get to insights >>that day. You know, Carlos, 155 year old company and and at our core were a supply chain company. Right? Um, you know, taking food from where it's produced, getting it through the manufacturing process, toe customers. And so at the end of the day, I I joked that not only are we have physical supply chain company, but we're also a data supply chain company. So the data value chain right is really about taking all the different inputs in data that we have in turning that into unique insights. And I don't think there's ah company on the planet in the food space that has the ability to connect those dots in the way that we dio. And so our ability to create unique, actionable insights for our customers is going to be really powerful, especially in the in the coming years. >>So talk about let's talk about Dell a little bit. I always ask, uh, technology leaders how your vendors doing for you? How did they help you through the pandemic? How would you grade del uh, in terms of its support through the pandemic? >>Dell has been absolutely fantastic, right? I mean, I think it is really need to have partners like Dell helping us achieve our mission for our customers. And I know they feel that way about us as their customers. So it's really wonderful. Toe have the type of collaboration and partnership that we do. >>Alright, Howard, Same question for you. How would you grade Del Onda? How you guys have done through the through the pandemic with regard to supporting your customers. I mean, you're you're never one toe overhype, uh, in my experience with you. But give us the your take. >>Why would grade del by what our customers say? And we do it both through direct conversations as well as the data and telemetry we get and the data and telemetry we have in terms of our NPS r R C sat scores or service level objectives that were delivering all have remained in profile. The team has really risen to the occasion. Been super creative, passionate, full of grit. We heard Alison and Angela talk about that the Dell Technologies world this morning, and our team is embodied that spirit and that great to be able to deliver. But in the conversations we're having with customers three and his peers, uh, you know, look, it's it's been a challenging time, but as you know, Dell has always focused on delivering value for the long term. We're not in it for the short term, and that has served us well. That philosophy Theobald active. We have with working with customers, eyes always about what's in the best interests of our customers in the long term. Because if we do that, it will ultimately be in the best interest of Dell. >>Well, it's It's been amazing to just watch. I mean, it's just ironic that we got hit with this at the beginning of this decade. It's gonna It's obviously gonna define. You know what we do going forward. I think we've all talked about it. It's funny. Everybody in our business and the technology business. We've become covert experts in some way, shape or form overnight. But we've talked a lot about the the things that we see as as permanent, and I think that >>you >>know you clearly the your two companies are examples of agility leaning into technology. And, as you said, Howard here for the long term, 155 years old, I think story said so well, here's to another 155 years. Gentlemen, thanks so much for coming to Cuba. Awesome guests. >>Thanks. Day. Appreciate it. >>Thank you for watching everybody. Our continuing coverage of Dell Technologies World 2020. You're watching the Cube?

>> From the Silicon Angle Media Office in Boston, Massachusetts, it's The Cube. Now, here's your host Dave Vellante. >> Hi everybody. Welcome to this Cube Insights powered by ETR. In this breaking analysis we're going to look at recent spending data from the ETR Spending Intentions Survey. We believe tech spending is slowing down. Now, it's not falling off a cliff but it is reverting to pre-2018 spending levels. There's some concern in the bellwethers of specifically financial services and insurance accounts and large telcos. We're also seeing less redundancy. What we mean by that is in 2017 and 2018 you had a lot of experimentation going on. You had a lot of digital initiatives that were going into, not really production, but sort of proof of concept. And as a result you were seeing spending on both legacy infrastructure and emerging technologies. What we're seeing now is more replacements. In other words people saying, "Okay, we're now going into production. We've tried that. We're not going to go with A, we're going to double down on B." And we're seeing less experimentation with the emerging technology. So in other words people are pulling out, actually some of the legacy technologies. And they're not just spraying and praying across the entire emerging technology sector. So, as a result, spending is more focused. As they say, it's not a disaster, but it's definitely some cause for concern. So, what I'd like to do, Alex if you bring up the first slide. I want to give you some takeaways from the ETR, the Enterprise Technology Research Q4 Pulse Check Survey. ETR has a data platform of 4,500 practitioners that it surveys regularly. And the most recent spending intention survey will actually be made public on October 16th at the ETR Webcast. ETR is in its quiet period right now, but they've given me a little glimpse and allowed me to share with you, our Cube audience, some of the findings. So as I say, you know, overall tech spending is clearly slowing, but it's still healthy. There's a uniform slowdown, really, across the board. In virtually all sectors with very few exceptions, and I'll highlight some of the companies that are actually quite strong. Telco, large financial services, insurance. That's rippling through to AMIA, which is, as I've said, is over-weighted in banking. The Global 2000 is looking softer. And also the global public and private companies. GPP is what ETR calls it. They say this is one of the best indicators of spending intentions and is a harbinger for future growth or deceleration. So it's the largest public companies and the largest private companies. Think Mars, Deloitte, Cargo, Coke Industries. Big giant, private companies. We're also seeing a number of changes in responses from we're going to increase to more flat-ish. So, again, it's not a disaster. It's not falling off the cliff. And there are some clear winners and losers. So adoptions are really reverting back to 2018 levels. As I said, replacements are arising. You know, digital transformation is moving from test everything to okay, let's go, let's focus now and double-down on those technologies that we really think are winners. So this is hitting both legacy companies and the disrupters. One of the other key takeaways out of the ETR Survey is that Microsoft is getting very, very aggressive. It's extending and expanding its TAM further into cloud, into collaboration, into application performance management, into security. We saw the Surface announcement this past week. Microsoft is embracing Android. Windows is not the future of Microsoft. It's all these other markets that they're going after. They're essentially building out an API platform and focusing in on the user experience. And that's paying off because CIOs are clearly more comfortable with Microsoft. Okay, so now I'm going to take you through some themes. I'm going to make some specific vendor comments, particularly in Cloud, software, and infrastructure. And then we'll wrap. So here's some major themes that really we see going on. Investors still want growth. They're punishing misses on earnings and they're rewarding growth companies. And so you can see on this slide that it's really about growth metrics. What you're seeing is companies are focused on total revenue, total revenue growth, annual recurring revenue growth, billings growth. Companies that maybe aren't growing so fast, like Dell, are focused on share gains. Lately we've seen pullbacks in the software companies and their stock prices really due to higher valuations. So, there's some caution there. There's actually a somewhat surprising focus given the caution and all the discussion about, you know, slowing economy. There's some surprising lack of focus on key performance indicators like cash flow. A few years ago, Splunk actually stopped giving, for example, cash flow targets. You don't see as much focus on market capitalization or shareholders returns. You do see that from Oracle. You see that last week from the Dell Financial Analyst Meeting. I talked about that. But it's selective. You know these are the type of metrics that Oracle, Dell, VMware, IBM, HPE, you know generally HP Inc. as well will focus on. Another thing we see is the Global M&A across all industries is back to 2016 levels. It basically was down 16% in Q3. However, well and that's by the way due to trade wars and other uncertainties and other economic slowdowns and Brexit. But tech M&A has actually been pretty robust this year. I mean, you know take a look at some examples. I'll just name a few. Google with Looker, big acquisitions. Sales Force, huge acquisition. A $15 billion acquisition of Tableau. It also spent over a billion dollars on Click software. Facebook with CTRL-labs. NVIDIA, $7 billion acquisition of Mellanox. VMware just plunked down billion dollars for Carbon Black and its own, you know, sort of pivotal within the family. Splunk with a billion dollar plus acquisition of SignalFx. HP over a billion dollars with Cray. Amazon's been active. Uber's been active. Even nontraditional enterprise tech companies like McDonald's trying to automate some of the drive-through technology. Mastercard with Nets. And of course the stalwart M&A companies Apple, Intel, Microsoft have been pretty active as well as many others. You know but generally I think what's happening is valuations are high and companies are looking for exits. They've got some cool tech so they're putting it out there. That you know, hey now's the time to buy. They want to get out. That maybe IPO is not the best option. Maybe they don't feel like they've got, you know, a long-term, you know, plan that is going to really maximize shareholder value so they're, you know, putting forth themselves for M&A today. And so that's been pretty robust. And I would expect that's going to continue for a little bit here as there are, again, some good technology companies out there. Okay, now let's get into, Alex if you pull up the next slide of the Company Outlook. I want to start with Cloud. Cloud, as they say here, continues it's steady march. I'm going to focus on the Big 3. Microsoft, AWS, and Google. In the ETR Spending Surveys they're all very clearly strong. Microsoft is very strong. As I said it's expanding it's total available market. It's into collaboration now so it's going after Slack, Box, Dropbox, Atlassian. It's announced application performance management capabilities, so it's kind of going after new relic there. New SIM and security products. So IBM, Splunk, Elastic are some targets there. Microsoft is one of the companies that's gaining share overall. Let me talk about AWS. Microsoft is growing faster in Cloud than AWS, but AWS is much, much larger. And AWS's growth continues. So it's not as strong as 2018 but it's stronger, in fact, much stronger than its peers overall in the marketplace. AWS appears to be very well positioned according to the ETR Surveys in database and AI it continues to gain momentum there. The only sort of weak spot is the ECS, the container orchestration area. And that looks a little soft likely due to Kubernetes. Drop down to Google. Now Google, you know, there's some strength in Google's business but it's way behind in terms of market share, as you all know, Microsoft and AWS. You know, its AI and machine learning gains have stalled relative to Microsoft and AWS which continue to grow. Google's strength and strong suit has always been analytics. The ETR data shows that its holdings serve there. But there's deceleration in data warehousing, and even surprisingly in containers given, you know, its strength in contributing to the Kubernetes project. But the ETR 3 Year Outlook, when they do longer term outlook surveys, shows GCP, Google's Cloud platform, gaining. But there's really not a lot of evidence in the existing data, in the near-term data to show that. But the big three, you know, Cloud players, you know, continue to solidify their position. Particularly AWS and Microsoft. Now let's turn our attention to enterprise software. Just going to name a few. ETR will have an extensive at their webcast. We'll have an extensive review of these vendors, and I'll pick up on that. But I just want to pick out a few here. Some of the enterprise software winners. Workday continues to be very, very strong. Especially in healthcare and pharmaceutical. Salesforce, we're seeing a slight deceleration but it's pretty steady. Very strong in Fortune 100. And Einstein, its AI offering appears to be gaining as well. Some of the acquisitions Mulesoft and Tableu are also quite strong. Demandware is another acquisition that's also strong. The other one that's not so strong, ExactTarget is somewhat weakening. So Salesforce is a little bit mixed, but, you know, continues to be pretty steady. Splunk looks strong. Despite some anecdotal comments that point to pricing issues, and I know Splunk's been working on, you know, tweaking its pricing model. And maybe even some competition. There's no indication in the ETR data yet that Splunk's, you know, momentum is attenuating. Security as category generally is very, very strong. And it's lifting all ships. Splunk's analytics business is showing strength is particularly in healthcare and pharmaceuticals, as well as financial services. I like the healthcare and pharmaceuticals exposure because, you know, in a recession healthcare will, you know, continue to do pretty well. Financial services in general is down, so there's maybe some exposure there. UiPath, I did a segment on RPA a couple weeks ago. UiPath continues its rapid share expansion. The latest ETR Survey data shows that that momentum is continuing. And UiPath is distancing itself in the spending surveys from its broader competition as well. Another company we've been following and I did a segment on the analytics and enterprise data warehousing sector a couple weeks ago is Snowflake. Snowflake continues to expand its share. Its slightly slower than its previous highs, which were off the chart. We shared with you its Net Score. Snowflake and UiPath have some of the highest Net Scores in the ETR Survey data of 80+%. Net Score remembers. You take the we're adding the platform, we're spending more and you subtract we're leaving the platform or spending less and that gives you the Net Score. Snowflake and UiPath are two of the highest. So slightly slower than previous ties, but still very very strong. Especially in larger companies. So that's just some highlights in the software sector. The last sector I want to focus on is enterprise infrastructure. So Alex if you'd bring that up. I did a segment at the end of Q2, post Q2 looking at earning statements and also some ETR data on the storage spending segment. So I'll start with Pure Storage. They continue to have elevative spending intentions. Especially in that giant public and private, that leading indicator. There are some storage market headwinds. The storage market generally is still absorbing that all flash injection. I've talked about this before. There's still some competition from Cloud. When Pure came out with its earnings last quarter, the stock dropped. But then when everybody else announced, you know, negative growth or, in Dell's case, Dell's the leader, they were flat. Pure Storage bounced back because on a relative basis they're doing very well. The other indication is Pure storage is very strong in net app accounts. Net apps mix, they don't call them out here but we'll do some further analysis down the road of net apps. So I would expect Pure to continue to gain share and relative to the others in that space. But there are some headwinds overall in the market. VMware, let's talk about VMware. VMware's spending profile, according to ETR, looks like 2018. It's still very strong in Fortune 1000, or 100 rather, but weaker in Fortune 500 and the GPP, the global public and private companies. That's a bit of a concern because GPP is one of the leading indicators. VMware on Cloud on AWS looks very strong, so that continues. That's a strategic area for them. Pivotal looks weak. Carbon Black is not pacing with CrowdStrike. So clearly VMware has some work to do with some of its recent acquisitions. It hasn't completed them yet. But just like the AirWatch acquisition, where AirWatch wasn't the leader in that space, really Citrix was the leader. VMware brought that in, cleaned it up, really got focused. So that's what they're going to have to do with Carbon Black and Security, which is going to be a tougher road to hoe I would say than end user computing and Pivotal. So we'll see how that goes. Let's talk about Dell, Dell EMC, Dell Technologies. The client side of the business is holding strong. As I've said many times server and storage are decelerating. We're seeing market headwinds. People are spending less on server and storage relative to some of the overall initiatives. And so, that's got to bounce back at some point. People are going to still need compute, they're still going to need storage, as I say. Both are suffering from, you know, the Cloud overhang. As well, storage there was such a huge injection of flash it gave so much headroom in the marketplace that it somewhat tempered storage demand overall. Customers said, "Hey, I'm good for a while. Cause now I have performance headroom." Whereas before people would buy spinning discs, they buy the overprovision just to get more capacity. So, you know, that was kind of a funky value proposition. The other thing is VxRail is not as robust as previous years and that's something that Dell EMC talks about as, you know, one of the market share leaders. But it's showing a little bit of softness. So we'll keep an eye on that. Let's talk about Cisco. Networking spend is below a year ago. The overall networking market has been, you know, somewhat decelerating. Security is a bright spot for Cisco. Their security business has grown in double digits for the last couple of quarters. They've got work to do in multi-Cloud. Some bright spots Meraki and Duo are both showing strength. HP, talk about HPE it's mixed. Server and storage markets are soft, as I've said. But HPE remains strong in Fortune 500 and that critical GPP leading indicator. You know Nimble is growing, but maybe not as fast as it used to be and Simplivity is really not as strong as last year. So we'd like to see a little bit of an improvement there. On the bright side, Aruba is showing momentum. Particularly in Fortune 500. I'll make some comments about IBM, even though it's really, you know, this IBM enterprise infrastructure. It's really services, software, and yes some infrastructure. The Red Hat acquisition puts it firmly in infrastructure. But IBM is also mixed. It's bouncing back. IBM Classic, the core IBM is bouncing back in Fortune 100 and Fortune 500 and in that critical GPP indicator. It's showing strength, IBM, in Cloud and it's also showing strength in services. Which is over half of its business. So that's real positive. Its analytics and EDW software business are a little bit soft right now. So that's a bit of a concern that we're watching. The other concern we have is Red Hat has been significantly since the announcement of the merger and acquisition. Now what we don't know, is IBM able to inject Red Hat into its large service and outsourcing business? That might be hidden in some of the spending intention surveys. So we're going to have to look at income statement. And the public statements post earnings season to really dig into that. But we'll keep an eye on that. The last comment is Cloudera. Cloudera once was the high-flying darling. They are hitting all-time lows. They made the acquisition of Hortonworks, which created some consolidation. Our hope was that would allow them to focus and pick up. CEO left. Cloudera, again, hitting all-time lows. In particular, AWS and Snowflake are hurting Cloudera's business. They're particularly strong in Cloudera's shops. Okay, so let me wrap. Let's give some final thoughts. So buyers are planning for a slowdown in tech spending. That is clear, but the sky is not falling. Look we're in the tenth year of a major tech investment cycle, so slowdown, in my opinion, is healthy. Digital initiatives are really moving into higher gear. And that's causing some replacement on legacy technologies and some focus on bets. So we're not just going to bet on every new, emerging technology, were going to focus on those that we believe are going to drive business value. So we're moving from a try-everything mode to a more focused management style. At least for a period of time. We're going to absorb the spend, in my view, of the last two years and then double-down on the winners. So not withstanding the external factors, the trade wars, Brexit, other geopolitical concerns, I would expect that we're going to have a period of absorption. Obviously it's October, so the Stock Market is always nervous in October. You know, we'll see if we get Santa Claus rally going into the end of the year. But we'll keep an eye on that. This is Dave Vellante for Cube Insights powered by ETR. Thank you for watching this breaking analysis. We'll see you next time. (upbeat tech music)