why from London England it's the kue covering discover 2016 London brought to you by Hewlett Packard Enterprise now here's your host dave vellante and tall gilles welcome back to HP discover 2016 everybody from the banks of the River Thames were here at London Excel Excel London i'm here with paul gill and my co-host this is day two of HPE discover coming live the cube the worldwide leader in live tech coverage paul yesterday we heard a lot about composable we had Meg Whitman on stage what they do here is the keynote sir actually in the afternoon at two o'clock local time and so they take a big two-hour break in the afternoon for keynotes normally at these events they inject you with the kool-aid first thing in the morning well here they give people time to get up and cruise in or European very European and so and so as a result they go tend to go later into the evening so the show floor closes you know sometime after six o'clock and then the night life begins last night was a the event normally is a big storage party and the first night last night they combined it for the data center infrastructure group and but you know it's it's a lot of lot of business going on here people are doing you know dinners in the evenings and you know customer dinners and the like there's an analyst event here of course it's running simultaneous to AWS reinvent which has I understand about 130 analysts there and a lot of press I think 30,000 people showed up for that shows I'm sure a more invigorated crowd there as well with all the growth that's going on in AWS growth diversity you know it's in Vegas at one point amazon had said they're not going to make that show bigger than 10,000 people but it's exploded and then so the juxtapose that sort of high-growth business with the low growth cash flow 50 billion dollar be a myth which is HPE a lot smaller than it used to be yep and I think the next discover let's see will the deal will the micro focus deal probably won't close until August so it's really about a year from now we're going to see a really different HPE and of course don't rule out some other big moves with the balance sheet cleaned up you know HP could make some additional I certainly got the cash and and they've got the and it would behoove them to do something more dramatic something to inject some more energy one thing I took away from our interviews yesterday was a very tame button down crowd the the people we had on the cube for the most part were were generous toward their competitors they were courteous gentlemanly if you will and I really was hoping to see more energy more more competitiveness they had opportunities to take on dell to take on IBM wouldn't even mention their competitors by name and that's something that maybe we'd like to see HP inject a little boat a little bit more competitive energy into the HP experience at least that's what I took away from yesterday he got that a little bit from a cloud glass I was challenging him on some of the compatible stuff and and you know he sort of laid out I thought he did a decent job of it laid out so why they're different why the fluid pools of infrastructure being able to call on whether storage or compute or networking it will was different than say you know juxtaposed relative to do tanukhs which they said was sort of chunks of infrastructure that you couldn't scale independently and and that was sort of interesting but a concept that is still taking shape I sense they haven't really defined what composable is about in a way that they can articulate to the market it's an interesting idea it's certainly something that given their their partner ecosystem should should play well to do customers who already have a hybrid or a environment with a lot of different players but you know IBM has been working on cognitive for a couple years now and I think has finally got a message kind of crystallized ground that HP is doing this with composable but they're still earlier on in the process and the other thing we heard from Alistair winter who sort of challenged my assertion that HP was really a products company said no or actually a services company and so I'm not sure do they leave with services to the leawood products I still see HP es of technology and products company first and then services sort of wrapped around that although he suggested that there's a new emerging set of services that are non product related that they're leading with and so that's an interesting so market doesn't get excited about services the marque gets excited about products and so they I can understand them wanting to lead with with a products orientation because otherwise you know your Accenture and which is buttoned down very profitable company but but not one that inspires a lot of enthusiasm among their their customer base so I can see why they're doing that but I'll clearly services the the Prophet engine of HPD right now yes and I agree with you I think you know it's a it's interesting actually again we're talking about reinvent which is a services company right but their packaging products as services and I think they deliver their messaging largely comparing themselves to products we have this database so we have this storage and it's better because and it's fast and you know a lot of speed and feed sort of sort of angles but packaged as services and a question is will that change over time will it shift more toward business outcomes which frankly are less interesting to cover and it's harder to compare companies on the basis of you know business company from business outcome from company a versus business outcome from Company B I think the difference with AWS is they are they are creating new markets I mean they are enable a new kind of company kinds of companies to to grow and flourish and it's a whole new model that yes there are services company but not in any conventional definition of a services company there's a it's an entirely do new type of service and so that generates a lot of excitement but cloud will mature over time they will have to to figure out you know how what message how they position themselves when they are a big slow growing company which they will be at something well the other interesting thing we keep bringing up amazon me and we do so because it's essentially the new reference model for how organizations are competing other vendor community is competing them you see that with HP with their capacity on demand that's a direct response to the public class lutely and so then you're right i think the big innovation of AWS is its business model you know in essence and so you know again will we see thinking about this way look at the stack that am on is building i'm in there in two semiconductors they're into storage there in to compute their into database there into middle where and and you know hundreds and hundreds of other services compare that to the HP approach which is to partner now for the stack yeah and that's what I really came away we do as someone who is not is intimately involved with HPE as as you have been and and some of the other Wikibon analysts have been this was all about partnering and what HP is doing is making a liability into an asset right they were late to the cloud to the public cloud they abandoned the public cloud and they got some criticism for that but they have turned that liability into an asset by divesting themselves of anything that wasn't core to the infrastructure business and partnering like crazy it seems like that I mean it's a strategy is very interesting strategy if they can pull it off if they can be the best company to partner with they could build an ecosystem that that really can't be matched well and and again you'd love to make comparison so you've sencha Lee got HPE lining up you know against del we'll see what happens with Lenovo they need some time to sort of bake that strategy but essentially those come those companies are comfortable with lower margin businesses all right re selling other people's technologies largely you know it used to be Intel and Microsoft and now it's this broader ecosystem notwithstanding EMC obviously owns a lot of its its own IP so del now now owns that but for instance dell dell emc resells newt annex that's a key part of its portfolio and they're doing hundreds of millions of dollars of business there and and dell is comfortable with that dell is a company that when they were public had nineteen percent gross margin CMC's got you know close to sixty percent gross margins before it went private you blend those together and you're talking about thirty percent gross margin maybe thirty three percent gross margin similar to where hpe is it's an operating profit model that's much much lower we're talking you know the the low teens amazon web services operating profit in in their most recent quarter was around thirty three percent these are non-gaap numbers so think about the the difference there i mean you're talking double the operating profit and this is it no to both infrastructure company so the big question I'm getting to is will Amazon go up to stack further you're seeing it eat away into database and you know you watch what Microsoft did over the years and it kept going up and up and up in the up the stack you're seeing companies basically run their applications on AWS notwithstanding there are many many companies like for instance service now who own their own cloud but many companies are choosing to run their applications inside of AWS will AWS go and sort of eat away at that part of the ecosystem why shouldn't they I mean if your if your AWS right now you're you're king of the hill and as Microsoft did in the 90s when it was king of the hill it initiated a land grab Microsoft got into every market it could because he could afford to fail and and it wouldn't impact the bottom line significantly so use on is they move fast they do a lot but what do they do it at every at every reinvent its shock and awe just the sheer number of new products and services they announced at the show is is always it's phenomenal well the the why shouldn't they is because it's basically would be screwing their ecosystem but you know their mantra is well we focus on the customers so sort of coming back to hpe what does HPE do does HPE make a big move between now and in a year from now at you know when we're here let's say next year at London discover will there be a big move will HP go out and try to make a big move yeah I'm not sure what's out there I mean there were rumors about them acquiring new tanukhs there was other rumors about them acquiring simplicity I don't think that would be game-changing he also move like Citrix might be game changing but that's sort of a shift back to the to the clouds but imagine what way game changer this plane we made a merger with Cisco I I don't know these are it's it's hard to think of an acquisition that would really change the rules right now there aren't that many affordable companies out there that that are transformative so a couple of choices then is to continue to do tuck-ins which they absolutely will do and must do and can do now because the balance sheet is substantially cleaned up you know and or rather make some kind of big move like you said you know but will I think the it was real that they were talking to emc I think there was no question now about that is there another move like that you mentioned Cisco there perhaps our I've been throwing Citrix into the Hat I don't see those as necessarily game-changer citrix is a game changer and and too much overlap with cisco yes absolutely yeah and so that doesn't make a lot of sense to me and so as a result one could say all right well certainly in the near term anyway what HP will do is continue to do some tuck-ins the interesting thing to me is going to be HP's hpe software strategy HP definitely said okay look the software portfolio that we've collected over the last decade is not working you know or we can't figure out how to make it work so let's just sell it off get some cash in there keep our foot in the water in terms of having some ownership but there's a lot of software companies out there will they start over yes and and will they start tucking in some of those software companies to make their infrastructure run better to enable the hybrid you know cloud to be more simple that's that I think is very viable approach not necessarily earth shattering but I think it's a viable approach and one that's steady as she goes keep throwing off cash and serve the customers through the channels an excellent point Dave I mean they have to be careful as you said of not polluting their their partner ecosystem not competing with their partners but there's certainly going to be areas of software business where they do not have a robust partner ecosystem those would be natural areas for them to acquire into ok we r wrapping up the the opening we got a wall-to-wall coverage here all day long we'll go be go until 6 p.m. local time so keep right there there's the cube this is HPE discover 2016 live from London we're right back