(upbeat music) >> The ascendancy of cloud and SAS has shown new light on how organizations think about, pay for, and value hardware. Once sought after skills for practitioners with expertise in hardware troubleshooting, configuring ports, tuning storage arrays, and maximizing server utilization has been superseded by demand for cloud architects, DevOps pros, developers with expertise in microservices, container, application development, and like. Even a company like Dell, the largest hardware company in enterprise tech touts that it has more software engineers than those working in hardware. Begs the question, is hardware going the way of Coball? Well, not likely. Software has to run on something, but the labor needed to deploy, and troubleshoot, and manage hardware infrastructure is shifting. At the same time, we've seen the value flow also shifting in hardware. Once a world dominated by X86 processors value is flowing to alternatives like Nvidia and arm based designs. Moreover, other componentry like NICs, accelerators, and storage controllers are becoming more advanced, integrated, and increasingly important. The question is, does it matter? And if so, why does it matter and to whom? What does it mean to customers, workloads, OEMs, and the broader society? Hello and welcome to this week's Wikibon theCUBE Insights powered by ETR. In this breaking analysis, we've organized a special power panel of industry analysts and experts to address the question, does hardware still matter? Allow me to introduce the panel. Bob O'Donnell is president and chief analyst at TECHnalysis Research. Zeus Kerravala is the founder and principal analyst at ZK Research. David Nicholson is a CTO and tech expert. Keith Townson is CEO and founder of CTO Advisor. And Marc Staimer is the chief dragon slayer at Dragon Slayer Consulting and oftentimes a Wikibon contributor. Guys, welcome to theCUBE. Thanks so much for spending some time here. >> Good to be here. >> Thanks. >> Thanks for having us. >> Okay before we get into it, I just want to bring up some data from ETR. This is a survey that ETR does every quarter. It's a survey of about 1200 to 1500 CIOs and IT buyers and I'm showing a subset of the taxonomy here. This XY axis and the vertical axis is something called net score. That's a measure of spending momentum. It's essentially the percentage of customers that are spending more on a particular area than those spending less. You subtract the lesses from the mores and you get a net score. Anything the horizontal axis is pervasion in the data set. Sometimes they call it market share. It's not like IDC market share. It's just the percentage of activity in the data set as a percentage of the total. That red 40% line, anything over that is considered highly elevated. And for the past, I don't know, eight to 12 quarters, the big four have been AI and machine learning, containers, RPA and cloud and cloud of course is very impressive because not only is it elevated in the vertical access, but you know it's very highly pervasive on the horizontal. So what I've done is highlighted in red that historical hardware sector. The server, the storage, the networking, and even PCs despite the work from home are depressed in relative terms. And of course, data center collocation services. Okay so you're seeing obviously hardware is not... People don't have the spending momentum today that they used to. They've got other priorities, et cetera, but I want to start and go kind of around the horn with each of you, what is the number one trend that each of you sees in hardware and why does it matter? Bob O'Donnell, can you please start us off? >> Sure Dave, so look, I mean, hardware is incredibly important and one comment first I'll make on that slide is let's not forget that hardware, even though it may not be growing, the amount of money spent on hardware continues to be very, very high. It's just a little bit more stable. It's not as subject to big jumps as we see certainly in other software areas. But look, the important thing that's happening in hardware is the diversification of the types of chip architectures we're seeing and how and where they're being deployed, right? You refer to this in your opening. We've moved from a world of x86 CPUs from Intel and AMD to things like obviously GPUs, DPUs. We've got VPU for, you know, computer vision processing. We've got AI-dedicated accelerators, we've got all kinds of other network acceleration tools and AI-powered tools. There's an incredible diversification of these chip architectures and that's been happening for a while but now we're seeing them more widely deployed and it's being done that way because workloads are evolving. The kinds of workloads that we're seeing in some of these software areas require different types of compute engines than traditionally we've had. The other thing is (coughs), excuse me, the power requirements based on where geographically that compute happens is also evolving. This whole notion of the edge, which I'm sure we'll get into a little bit more detail later is driven by the fact that where the compute actually sits closer to in theory the edge and where edge devices are, depending on your definition, changes the power requirements. It changes the kind of connectivity that connects the applications to those edge devices and those applications. So all of those things are being impacted by this growing diversity in chip architectures. And that's a very long-term trend that I think we're going to continue to see play out through this decade and well into the 2030s as well. >> Excellent, great, great points. Thank you, Bob. Zeus up next, please. >> Yeah, and I think the other thing when you look at this chart to remember too is, you know, through the pandemic and the work from home period a lot of companies did put their office modernization projects on hold and you heard that echoed, you know, from really all the network manufacturers anyways. They always had projects underway to upgrade networks. They put 'em on hold. Now that people are starting to come back to the office, they're looking at that now. So we might see some change there, but Bob's right. The size of those market are quite a bit different. I think the other big trend here is the hardware companies, at least in the areas that I look at networking are understanding now that it's a combination of hardware and software and silicon that works together that creates that optimum type of performance and experience, right? So some things are best done in silicon. Some like data forwarding and things like that. Historically when you look at the way network devices were built, you did everything in hardware. You configured in hardware, they did all the data for you, and did all the management. And that's been decoupled now. So more and more of the control element has been placed in software. A lot of the high-performance things, encryption, and as I mentioned, data forwarding, packet analysis, stuff like that is still done in hardware, but not everything is done in hardware. And so it's a combination of the two. I think, for the people that work with the equipment as well, there's been more shift to understanding how to work with software. And this is a mistake I think the industry made for a while is we had everybody convinced they had to become a programmer. It's really more a software power user. Can you pull things out of software? Can you through API calls and things like that. But I think the big frame here is, David, it's a combination of hardware, software working together that really make a difference. And you know how much you invest in hardware versus software kind of depends on the performance requirements you have. And I'll talk about that later but that's really the big shift that's happened here. It's the vendors that figured out how to optimize performance by leveraging the best of all of those. >> Excellent. You guys both brought up some really good themes that we can tap into Dave Nicholson, please. >> Yeah, so just kind of picking up where Bob started off. Not only are we seeing the rise of a variety of CPU designs, but I think increasingly the connectivity that's involved from a hardware perspective, from a kind of a server or service design perspective has become increasingly important. I think we'll get a chance to look at this in more depth a little bit later but when you look at what happens on the motherboard, you know we're not in so much a CPU-centric world anymore. Various application environments have various demands and you can meet them by using a variety of components. And it's extremely significant when you start looking down at the component level. It's really important that you optimize around those components. So I guess my summary would be, I think we are moving out of the CPU-centric hardware model into more of a connectivity-centric model. We can talk more about that later. >> Yeah, great. And thank you, David, and Keith Townsend I really interested in your perspectives on this. I mean, for years you worked in a data center surrounded by hardware. Now that we have the software defined data center, please chime in here. >> Well, you know, I'm going to dig deeper into that software-defined data center nature of what's happening with hardware. Hardware is meeting software infrastructure as code is a thing. What does that code look like? We're still trying to figure out but servicing up these capabilities that the previous analysts have brought up, how do I ensure that I can get the level of services needed for the applications that I need? Whether they're legacy, traditional data center, workloads, AI ML, workloads, workloads at the edge. How do I codify that and consume that as a service? And hardware vendors are figuring this out. HPE, the big push into GreenLake as a service. Dale now with Apex taking what we need, these bare bone components, moving it forward with DDR five, six CXL, et cetera, and surfacing that as cold or as services. This is a very tough problem. As we transition from consuming a hardware-based configuration to this infrastructure as cold paradigm shift. >> Yeah, programmable infrastructure, really attacking that sort of labor discussion that we were having earlier, okay. Last but not least Marc Staimer, please. >> Thanks, Dave. My peers raised really good points. I agree with most of them, but I'm going to disagree with the title of this session, which is, does hardware matter? It absolutely matters. You can't run software on the air. You can't run it in an ephemeral cloud, although there's the technical cloud and that's a different issue. The cloud is kind of changed everything. And from a market perspective in the 40 plus years I've been in this business, I've seen this perception that hardware has to go down in price every year. And part of that was driven by Moore's law. And we're coming to, let's say a lag or an end, depending on who you talk to Moore's law. So we're not doubling our transistors every 18 to 24 months in a chip and as a result of that, there's been a higher emphasis on software. From a market perception, there's no penalty. They don't put the same pressure on software from the market to reduce the cost every year that they do on hardware, which kind of bass ackwards when you think about it. Hardware costs are fixed. Software costs tend to be very low. It's kind of a weird thing that we do in the market. And what's changing is we're now starting to treat hardware like software from an OPEX versus CapEx perspective. So yes, hardware matters. And we'll talk about that more in length. >> You know, I want to follow up on that. And I wonder if you guys have a thought on this, Bob O'Donnell, you and I have talked about this a little bit. Marc, you just pointed out that Moore's laws could have waning. Pat Gelsinger recently at their investor meeting said that he promised that Moore's law is alive and well. And the point I made in breaking analysis was okay, great. You know, Pat said, doubling transistors every 18 to 24 months, let's say that Intel can do that. Even though we know it's waning somewhat. Look at the M1 Ultra from Apple (chuckles). In about 15 months increased transistor density on their package by 6X. So to your earlier point, Bob, we have this sort of these alternative processors that are really changing things. And to Dave Nicholson's point, there's a whole lot of supporting components as well. Do you have a comment on that, Bob? >> Yeah, I mean, it's a great point, Dave. And one thing to bear in mind as well, not only are we seeing a diversity of these different chip architectures and different types of components as a number of us have raised the other big point and I think it was Keith that mentioned it. CXL and interconnect on the chip itself is dramatically changing it. And a lot of the more interesting advances that are going to continue to drive Moore's law forward in terms of the way we think about performance, if perhaps not number of transistors per se, is the interconnects that become available. You're seeing the development of chiplets or tiles, people use different names, but the idea is you can have different components being put together eventually in sort of a Lego block style. And what that's also going to allow, not only is that going to give interesting performance possibilities 'cause of the faster interconnect. So you can share, have shared memory between things which for big workloads like AI, huge data sets can make a huge difference in terms of how you talk to memory over a network connection, for example, but not only that you're going to see more diversity in the types of solutions that can be built. So we're going to see even more choices in hardware from a silicon perspective because you'll be able to piece together different elements. And oh, by the way, the other benefit of that is we've reached a point in chip architectures where not everything benefits from being smaller. We've been so focused and so obsessed when it comes to Moore's law, to the size of each individual transistor and yes, for certain architecture types, CPUs and GPUs in particular, that's absolutely true, but we've already hit the point where things like RF for 5g and wifi and other wireless technologies and a whole bunch of other things actually don't get any better with a smaller transistor size. They actually get worse. So the beauty of these chiplet architectures is you could actually combine different chip manufacturing sizes. You know you hear about four nanometer and five nanometer along with 14 nanometer on a single chip, each one optimized for its specific application yet together, they can give you the best of all worlds. And so we're just at the very beginning of that era, which I think is going to drive a ton of innovation. Again, gets back to my comment about different types of devices located geographically different places at the edge, in the data center, you know, in a private cloud versus a public cloud. All of those things are going to be impacted and there'll be a lot more options because of this silicon diversity and this interconnect diversity that we're just starting to see. >> Yeah, David. David Nicholson's got a graphic on that. They're going to show later. Before we do that, I want to introduce some data. I actually want to ask Keith to comment on this before we, you know, go on. This next slide is some data from ETR that shows the percent of customers that cited difficulty procuring hardware. And you can see the red is they had significant issues and it's most pronounced in laptops and networking hardware on the far right-hand side, but virtually all categories, firewalls, peripheral servers, storage are having moderately difficult procurement issues. That's the sort of pinkish or significant challenges. So Keith, I mean, what are you seeing with your customers in the hardware supply chains and bottlenecks? And you know we're seeing it with automobiles and appliances but so it goes beyond IT. The semiconductor, you know, challenges. What's been the impact on the buyer community and society and do you have any sense as to when it will subside? >> You know, I was just asked this question yesterday and I'm feeling the pain. People question, kind of a side project within the CTO advisor, we built a hybrid infrastructure, traditional IT data center that we're walking with the traditional customer and modernizing that data center. So it was, you know, kind of a snapshot of time in 2016, 2017, 10 gigabit, ARISTA switches, some older Dell's 730 XD switches, you know, speeds and feeds. And we said we would modern that with the latest Intel stack and connected to the public cloud and then the pandemic hit and we are experiencing a lot of the same challenges. I thought we'd easily migrate from 10 gig networking to 25 gig networking path that customers are going on. The 10 gig network switches that I bought used are now double the price because you can't get legacy 10 gig network switches because all of the manufacturers are focusing on the more profitable 25 gig for capacity, even the 25 gig switches. And we're focused on networking right now. It's hard to procure. We're talking about nine to 12 months or more lead time. So we're seeing customers adjust by adopting cloud. But if you remember early on in the pandemic, Microsoft Azure kind of gated customers that didn't have a capacity agreement. So customers are keeping an eye on that. There's a desire to abstract away from the underlying vendor to be able to control or provision your IT services in a way that we do with VMware VP or some other virtualization technology where it doesn't matter who can get me the hardware, they can just get me the hardware because it's critically impacting projects and timelines. >> So that's a great setup Zeus for you with Keith mentioned the earlier the software-defined data center with software-defined networking and cloud. Do you see a day where networking hardware is monetized and it's all about the software, or are we there already? >> No, we're not there already. And I don't see that really happening any time in the near future. I do think it's changed though. And just to be clear, I mean, when you look at that data, this is saying customers have had problems procuring the equipment, right? And there's not a network vendor out there. I've talked to Norman Rice at Extreme, and I've talked to the folks at Cisco and ARISTA about this. They all said they could have had blowout quarters had they had the inventory to ship. So it's not like customers aren't buying this anymore. Right? I do think though, when it comes to networking network has certainly changed some because there's a lot more controls as I mentioned before that you can do in software. And I think the customers need to start thinking about the types of hardware they buy and you know, where they're going to use it and, you know, what its purpose is. Because I've talked to customers that have tried to run software and commodity hardware and where the performance requirements are very high and it's bogged down, right? It just doesn't have the horsepower to run it. And, you know, even when you do that, you have to start thinking of the components you use. The NICs you buy. And I've talked to customers that have simply just gone through the process replacing a NIC card and a commodity box and had some performance problems and, you know, things like that. So if agility is more important than performance, then by all means try running software on commodity hardware. I think that works in some cases. If performance though is more important, that's when you need that kind of turnkey hardware system. And I've actually seen more and more customers reverting back to that model. In fact, when you talk to even some startups I think today about when they come to market, they're delivering things more on appliances because that's what customers want. And so there's this kind of app pivot this pendulum of agility and performance. And if performance absolutely matters, that's when you do need to buy these kind of turnkey, prebuilt hardware systems. If agility matters more, that's when you can go more to software, but the underlying hardware still does matter. So I think, you know, will we ever have a day where you can just run it on whatever hardware? Maybe but I'll long be retired by that point. So I don't care. >> Well, you bring up a good point Zeus. And I remember the early days of cloud, the narrative was, oh, the cloud vendors. They don't use EMC storage, they just run on commodity storage. And then of course, low and behold, you know, they've trot out James Hamilton to talk about all the custom hardware that they were building. And you saw Google and Microsoft follow suit. >> Well, (indistinct) been falling for this forever. Right? And I mean, all the way back to the turn of the century, we were calling for the commodity of hardware. And it's never really happened because you can still drive. As long as you can drive innovation into it, customers will always lean towards the innovation cycles 'cause they get more features faster and things. And so the vendors have done a good job of keeping that cycle up but it'll be a long time before. >> Yeah, and that's why you see companies like Pure Storage. A storage company has 69% gross margins. All right. I want to go jump ahead. We're going to bring up the slide four. I want to go back to something that Bob O'Donnell was talking about, the sort of supporting act. The diversity of silicon and we've marched to the cadence of Moore's law for decades. You know, we asked, you know, is Moore's law dead? We say it's moderating. Dave Nicholson. You want to talk about those supporting components. And you shared with us a slide that shift. You call it a shift from a processor-centric world to a connect-centric world. What do you mean by that? And let's bring up slide four and you can talk to that. >> Yeah, yeah. So first, I want to echo this sentiment that the question does hardware matter is sort of the answer is of course it matters. Maybe the real question should be, should you care about it? And the answer to that is it depends who you are. If you're an end user using an application on your mobile device, maybe you don't care how the architecture is put together. You just care that the service is delivered but as you back away from that and you get closer and closer to the source, someone needs to care about the hardware and it should matter. Why? Because essentially what hardware is doing is it's consuming electricity and dollars and the more efficiently you can configure hardware, the more bang you're going to get for your buck. So it's not only a quantitative question in terms of how much can you deliver? But it also ends up being a qualitative change as capabilities allow for things we couldn't do before, because we just didn't have the aggregate horsepower to do it. So this chart actually comes out of some performance tests that were done. So it happens to be Dell servers with Broadcom components. And the point here was to peel back, you know, peel off the top of the server and look at what's in that server, starting with, you know, the PCI interconnect. So PCIE gen three, gen four, moving forward. What are the effects on from an interconnect versus on performance application performance, translating into new orders per minute, processed per dollar, et cetera, et cetera? If you look at the advances in CPU architecture mapped against the advances in interconnect and storage subsystem performance, you can see that CPU architecture is sort of lagging behind in a way. And Bob mentioned this idea of tiling and all of the different ways to get around that. When we do performance testing, we can actually peg CPUs, just running the performance tests without any actual database environments working. So right now we're at this sort of imbalance point where you have to make sure you design things properly to get the most bang per kilowatt hour of power per dollar input. So the key thing here what this is highlighting is just as a very specific example, you take a card that's designed as a gen three PCIE device, and you plug it into a gen four slot. Now the card is the bottleneck. You plug a gen four card into a gen four slot. Now the gen four slot is the bottleneck. So we're constantly chasing these bottlenecks. Someone has to be focused on that from an architectural perspective, it's critically important. So there's no question that it matters. But of course, various people in this food chain won't care where it comes from. I guess a good analogy might be, where does our food come from? If I get a steak, it's a pink thing wrapped in plastic, right? Well, there are a lot of inputs that a lot of people have to care about to get that to me. Do I care about all of those things? No. Are they important? They're critically important. >> So, okay. So all I want to get to the, okay. So what does this all mean to customers? And so what I'm hearing from you is to balance a system it's becoming, you know, more complicated. And I kind of been waiting for this day for a long time, because as we all know the bottleneck was always the spinning disc, the last mechanical. So people who wrote software knew that when they were doing it right, the disc had to go and do stuff. And so they were doing other things in the software. And now with all these new interconnects and flash and things like you could do atomic rights. And so that opens up new software possibilities and combine that with alternative processes. But what's the so what on this to the customer and the application impact? Can anybody address that? >> Yeah, let me address that for a moment. I want to leverage some of the things that Bob said, Keith said, Zeus said, and David said, yeah. So I'm a bit of a contrarian in some of this. For example, on the chip side. As the chips get smaller, 14 nanometer, 10 nanometer, five nanometer, soon three nanometer, we talk about more cores, but the biggest problem on the chip is the interconnect from the chip 'cause the wires get smaller. People don't realize in 2004 the latency on those wires in the chips was 80 picoseconds. Today it's 1300 picoseconds. That's on the chip. This is why they're not getting faster. So we maybe getting a little bit slowing down in Moore's law. But even as we kind of conquer that you still have the interconnect problem and the interconnect problem goes beyond the chip. It goes within the system, composable architectures. It goes to the point where Keith made, ultimately you need a hybrid because what we're seeing, what I'm seeing and I'm talking to customers, the biggest issue they have is moving data. Whether it be in a chip, in a system, in a data center, between data centers, moving data is now the biggest gating item in performance. So if you want to move it from, let's say your transactional database to your machine learning, it's the bottleneck, it's moving the data. And so when you look at it from a distributed environment, now you've got to move the compute to the data. The only way to get around these bottlenecks today is to spend less time in trying to move the data and more time in taking the compute, the software, running on hardware closer to the data. Go ahead. >> So is this what you mean when Nicholson was talking about a shift from a processor centric world to a connectivity centric world? You're talking about moving the bits across all the different components, not having the processor you're saying is essentially becoming the bottleneck or the memory, I guess. >> Well, that's one of them and there's a lot of different bottlenecks, but it's the data movement itself. It's moving away from, wait, why do we need to move the data? Can we move the compute, the processing closer to the data? Because if we keep them separate and this has been a trend now where people are moving processing away from it. It's like the edge. I think it was Zeus or David. You were talking about the edge earlier. As you look at the edge, who defines the edge, right? Is the edge a closet or is it a sensor? If it's a sensor, how do you do AI at the edge? When you don't have enough power, you don't have enough computable. People were inventing chips to do that. To do all that at the edge, to do AI within the sensor, instead of moving the data to a data center or a cloud to do the processing. Because the lag in latency is always limited by speed of light. How fast can you move the electrons? And all this interconnecting, all the processing, and all the improvement we're seeing in the PCIE bus from three, to four, to five, to CXL, to a higher bandwidth on the network. And that's all great but none of that deals with the speed of light latency. And that's an-- Go ahead. >> You know Marc, no, I just want to just because what you're referring to could be looked at at a macro level, which I think is what you're describing. You can also look at it at a more micro level from a systems design perspective, right? I'm going to be the resident knuckle dragging hardware guy on the panel today. But it's exactly right. You moving compute closer to data includes concepts like peripheral cards that have built in intelligence, right? So again, in some of this testing that I'm referring to, we saw dramatic improvements when you basically took the horsepower instead of using the CPU horsepower for the like IO. Now you have essentially offload engines in the form of storage controllers, rate controllers, of course, for ethernet NICs, smart NICs. And so when you can have these sort of offload engines and we've gone through these waves over time. People think, well, wait a minute, raid controller and NVMe? You know, flash storage devices. Does that make sense? It turns out it does. Why? Because you're actually at a micro level doing exactly what you're referring to. You're bringing compute closer to the data. Now, closer to the data meaning closer to the data storage subsystem. It doesn't solve the macro issue that you're referring to but it is important. Again, going back to this idea of system design optimization, always chasing the bottleneck, plugging the holes. Someone needs to do that in this value chain in order to get the best value for every kilowatt hour of power and every dollar. >> Yeah. >> Well this whole drive performance has created some really interesting architectural designs, right? Like Nickelson, the rise of the DPU right? Brings more processing power into systems that already had a lot of processing power. There's also been some really interesting, you know, kind of innovation in the area of systems architecture too. If you look at the way Nvidia goes to market, their drive kit is a prebuilt piece of hardware, you know, optimized for self-driving cars, right? They partnered with Pure Storage and ARISTA to build that AI-ready infrastructure. I remember when I talked to Charlie Giancarlo, the CEO of Pure about when the three companies rolled that out. He said, "Look, if you're going to do AI, "you need good store. "You need fast storage, fast processor and fast network." And so for customers to be able to put that together themselves was very, very difficult. There's a lot of software that needs tuning as well. So the three companies partner together to create a fully integrated turnkey hardware system with a bunch of optimized software that runs on it. And so in that case, in some ways the hardware was leading the software innovation. And so, the variety of different architectures we have today around hardware has really exploded. And I think it, part of the what Bob brought up at the beginning about the different chip design. >> Yeah, Bob talked about that earlier. Bob, I mean, most AI today is modeling, you know, and a lot of that's done in the cloud and it looks from my standpoint anyway that the future is going to be a lot of AI inferencing at the edge. And that's a radically different architecture, Bob, isn't it? >> It is, it's a completely different architecture. And just to follow up on a couple points, excellent conversation guys. Dave talked about system architecture and really this that's what this boils down to, right? But it's looking at architecture at every level. I was talking about the individual different components the new interconnect methods. There's this new thing called UCIE universal connection. I forget what it stands answer for, but it's a mechanism for doing chiplet architectures, but then again, you have to take it up to the system level, 'cause it's all fine and good. If you have this SOC that's tuned and optimized, but it has to talk to the rest of the system. And that's where you see other issues. And you've seen things like CXL and other interconnect standards, you know, and nobody likes to talk about interconnect 'cause it's really wonky and really technical and not that sexy, but at the end of the day it's incredibly important exactly. To the other points that were being raised like mark raised, for example, about getting that compute closer to where the data is and that's where again, a diversity of chip architectures help and exactly to your last comment there Dave, putting that ability in an edge device is really at the cutting edge of what we're seeing on a semiconductor design and the ability to, for example, maybe it's an FPGA, maybe it's a dedicated AI chip. It's another kind of chip architecture that's being created to do that inferencing on the edge. Because again, it's that the cost and the challenges of moving lots of data, whether it be from say a smartphone to a cloud-based application or whether it be from a private network to a cloud or any other kinds of permutations we can think of really matters. And the other thing is we're tackling bigger problems. So architecturally, not even just architecturally within a system, but when we think about DPUs and the sort of the east west data center movement conversation that we hear Nvidia and others talk about, it's about combining multiple sets of these systems to function together more efficiently again with even bigger sets of data. So really is about tackling where the processing is needed, having the interconnect and the ability to get where the data you need to the right place at the right time. And because those needs are diversifying, we're just going to continue to see an explosion of different choices and options, which is going to make hardware even more essential I would argue than it is today. And so I think what we're going to see not only does hardware matter, it's going to matter even more in the future than it does now. >> Great, yeah. Great discussion, guys. I want to bring Keith back into the conversation here. Keith, if your main expertise in tech is provisioning LUNs, you probably you want to look for another job. So maybe clearly hardware matters, but with software defined everything, do people with hardware expertise matter outside of for instance, component manufacturers or cloud companies? I mean, VMware certainly changed the dynamic in servers. Dell just spun off its most profitable asset and VMware. So it obviously thinks hardware can stand alone. How does an enterprise architect view the shift to software defined hyperscale cloud and how do you see the shifting demand for skills in enterprise IT? >> So I love the question and I'll take a different view of it. If you're a data analyst and your primary value add is that you do ETL transformation, talk to a CDO, a chief data officer over midsize bank a little bit ago. He said 80% of his data scientists' time is done on ETL. Super not value ad. He wants his data scientists to do data science work. Chances are if your only value is that you do LUN provisioning, then you probably don't have a job now. The technologies have gotten much more intelligent. As infrastructure pros, we want to give infrastructure pros the opportunities to shine and I think the software defined nature and the automation that we're seeing vendors undertake, whether it's Dell, HP, Lenovo take your pick that Pure Storage, NetApp that are doing the automation and the ML needed so that these practitioners don't spend 80% of their time doing LUN provisioning and focusing on their true expertise, which is ensuring that data is stored. Data is retrievable, data's protected, et cetera. I think the shift is to focus on that part of the job that you're ensuring no matter where the data's at, because as my data is spread across the enterprise hybrid different types, you know, Dave, you talk about the super cloud a lot. If my data is in the super cloud, protecting that data and securing that data becomes much more complicated when than when it was me just procuring or provisioning LUNs. So when you say, where should the shift be, or look be, you know, focusing on the real value, which is making sure that customers can access data, can recover data, can get data at performance levels that they need within the price point. They need to get at those datasets and where they need it. We talked a lot about where they need out. One last point about this interconnecting. I have this vision and I think we all do of composable infrastructure. This idea that scaled out does not solve every problem. The cloud can give me infinite scale out. Sometimes I just need a single OS with 64 terabytes of RAM and 204 GPUs or GPU instances that single OS does not exist today. And the opportunity is to create composable infrastructure so that we solve a lot of these problems that just simply don't scale out. >> You know, wow. So many interesting points there. I had just interviewed Zhamak Dehghani, who's the founder of Data Mesh last week. And she made a really interesting point. She said, "Think about, we have separate stacks. "We have an application stack and we have "a data pipeline stack and the transaction systems, "the transaction database, we extract data from that," to your point, "We ETL it in, you know, it takes forever. "And then we have this separate sort of data stack." If we're going to inject more intelligence and data and AI into applications, those two stacks, her contention is they have to come together. And when you think about, you know, super cloud bringing compute to data, that was what Haduck was supposed to be. It ended up all sort of going into a central location, but it's almost a rhetorical question. I mean, it seems that that necessitates new thinking around hardware architectures as it kind of everything's the edge. And the other point is to your point, Keith, it's really hard to secure that. So when you can think about offloads, right, you've heard the stats, you know, Nvidia talks about it. Broadcom talks about it that, you know, that 30%, 25 to 30% of the CPU cycles are wasted on doing things like storage offloads, or networking or security. It seems like maybe Zeus you have a comment on this. It seems like new architectures need to come other to support, you know, all of that stuff that Keith and I just dispute. >> Yeah, and by the way, I do want to Keith, the question you just asked. Keith, it's the point I made at the beginning too about engineers do need to be more software-centric, right? They do need to have better software skills. In fact, I remember talking to Cisco about this last year when they surveyed their engineer base, only about a third of 'em had ever made an API call, which you know that that kind of shows this big skillset change, you know, that has to come. But on the point of architectures, I think the big change here is edge because it brings in distributed compute models. Historically, when you think about compute, even with multi-cloud, we never really had multi-cloud. We'd use multiple centralized clouds, but compute was always centralized, right? It was in a branch office, in a data center, in a cloud. With edge what we creates is the rise of distributed computing where we'll have an application that actually accesses different resources and at different edge locations. And I think Marc, you were talking about this, like the edge could be in your IoT device. It could be your campus edge. It could be cellular edge, it could be your car, right? And so we need to start thinkin' about how our applications interact with all those different parts of that edge ecosystem, you know, to create a single experience. The consumer apps, a lot of consumer apps largely works that way. If you think of like app like Uber, right? It pulls in information from all kinds of different edge application, edge services. And, you know, it creates pretty cool experience. We're just starting to get to that point in the business world now. There's a lot of security implications and things like that, but I do think it drives more architectural decisions to be made about how I deploy what data where and where I do my processing, where I do my AI and things like that. It actually makes the world more complicated. In some ways we can do so much more with it, but I think it does drive us more towards turnkey systems, at least initially in order to, you know, ensure performance and security. >> Right. Marc, I wanted to go to you. You had indicated to me that you wanted to chat about this a little bit. You've written quite a bit about the integration of hardware and software. You know, we've watched Oracle's move from, you know, buying Sun and then basically using that in a highly differentiated approach. Engineered systems. What's your take on all that? I know you also have some thoughts on the shift from CapEx to OPEX chime in on that. >> Sure. When you look at it, there are advantages to having one vendor who has the software and hardware. They can synergistically make them work together that you can't do in a commodity basis. If you own the software and somebody else has the hardware, I'll give you an example would be Oracle. As you talked about with their exit data platform, they literally are leveraging microcode in the Intel chips. And now in AMD chips and all the way down to Optane, they make basically AMD database servers work with Optane memory PMM in their storage systems, not MVME, SSD PMM. I'm talking about the cards itself. So there are advantages you can take advantage of if you own the stack, as you were putting out earlier, Dave, of both the software and the hardware. Okay, that's great. But on the other side of that, that tends to give you better performance, but it tends to cost a little more. On the commodity side it costs less but you get less performance. What Zeus had said earlier, it depends where you're running your application. How much performance do you need? What kind of performance do you need? One of the things about moving to the edge and I'll get to the OPEX CapEx in a second. One of the issues about moving to the edge is what kind of processing do you need? If you're running in a CCTV camera on top of a traffic light, how much power do you have? How much cooling do you have that you can run this? And more importantly, do you have to take the data you're getting and move it somewhere else and get processed and the information is sent back? I mean, there are companies out there like Brain Chip that have developed AI chips that can run on the sensor without a CPU. Without any additional memory. So, I mean, there's innovation going on to deal with this question of data movement. There's companies out there like Tachyon that are combining GPUs, CPUs, and DPUs in a single chip. Think of it as super composable architecture. They're looking at being able to do more in less. On the OPEX and CapEx issue. >> Hold that thought, hold that thought on the OPEX CapEx, 'cause we're running out of time and maybe you can wrap on that. I just wanted to pick up on something you said about the integrated hardware software. I mean, other than the fact that, you know, Michael Dell unlocked whatever $40 billion for himself and Silverlake, I was always a fan of a spin in with VMware basically become the Oracle of hardware. Now I know it would've been a nightmare for the ecosystem and culturally, they probably would've had a VMware brain drain, but what does anybody have any thoughts on that as a sort of a thought exercise? I was always a fan of that on paper. >> I got to eat a little crow. I did not like the Dale VMware acquisition for the industry in general. And I think it hurt the industry in general, HPE, Cisco walked away a little bit from that VMware relationship. But when I talked to customers, they loved it. You know, I got to be honest. They absolutely loved the integration. The VxRail, VxRack solution exploded. Nutanix became kind of a afterthought when it came to competing. So that spin in, when we talk about the ability to innovate and the ability to create solutions that you just simply can't create because you don't have the full stack. Dell was well positioned to do that with a potential span in of VMware. >> Yeah, we're going to be-- Go ahead please. >> Yeah, in fact, I think you're right, Keith, it was terrible for the industry. Great for Dell. And I remember talking to Chad Sakac when he was running, you know, VCE, which became Rack and Rail, their ability to stay in lockstep with what VMware was doing. What was the number one workload running on hyperconverged forever? It was VMware. So their ability to remain in lockstep with VMware gave them a huge competitive advantage. And Dell came out of nowhere in, you know, the hyper-converged market and just started taking share because of that relationship. So, you know, this sort I guess it's, you know, from a Dell perspective I thought it gave them a pretty big advantage that they didn't really exploit across their other properties, right? Networking and service and things like they could have given the dominance that VMware had. From an industry perspective though, I do think it's better to have them be coupled. So. >> I agree. I mean, they could. I think they could have dominated in super cloud and maybe they would become the next Oracle where everybody hates 'em, but they kick ass. But guys. We got to wrap up here. And so what I'm going to ask you is I'm going to go and reverse the order this time, you know, big takeaways from this conversation today, which guys by the way, I can't thank you enough phenomenal insights, but big takeaways, any final thoughts, any research that you're working on that you want highlight or you know, what you look for in the future? Try to keep it brief. We'll go in reverse order. Maybe Marc, you could start us off please. >> Sure, on the research front, I'm working on a total cost of ownership of an integrated database analytics machine learning versus separate services. On the other aspect that I would wanted to chat about real quickly, OPEX versus CapEx, the cloud changed the market perception of hardware in the sense that you can use hardware or buy hardware like you do software. As you use it, pay for what you use in arrears. The good thing about that is you're only paying for what you use, period. You're not for what you don't use. I mean, it's compute time, everything else. The bad side about that is you have no predictability in your bill. It's elastic, but every user I've talked to says every month it's different. And from a budgeting perspective, it's very hard to set up your budget year to year and it's causing a lot of nightmares. So it's just something to be aware of. From a CapEx perspective, you have no more CapEx if you're using that kind of base system but you lose a certain amount of control as well. So ultimately that's some of the issues. But my biggest point, my biggest takeaway from this is the biggest issue right now that everybody I talk to in some shape or form it comes down to data movement whether it be ETLs that you talked about Keith or other aspects moving it between hybrid locations, moving it within a system, moving it within a chip. All those are key issues. >> Great, thank you. Okay, CTO advisor, give us your final thoughts. >> All right. Really, really great commentary. Again, I'm going to point back to us taking the walk that our customers are taking, which is trying to do this conversion of all primary data center to a hybrid of which I have this hard earned philosophy that enterprise IT is additive. When we add a service, we rarely subtract a service. So the landscape and service area what we support has to grow. So our research focuses on taking that walk. We are taking a monolithic application, decomposing that to containers, and putting that in a public cloud, and connecting that back private data center and telling that story and walking that walk with our customers. This has been a super enlightening panel. >> Yeah, thank you. Real, real different world coming. David Nicholson, please. >> You know, it really hearkens back to the beginning of the conversation. You talked about momentum in the direction of cloud. I'm sort of spending my time under the hood, getting grease under my fingernails, focusing on where still the lions share of spend will be in coming years, which is OnPrem. And then of course, obviously data center infrastructure for cloud but really diving under the covers and helping folks understand the ramifications of movement between generations of CPU architecture. I know we all know Sapphire Rapids pushed into the future. When's the next Intel release coming? Who knows? We think, you know, in 2023. There have been a lot of people standing by from a practitioner's standpoint asking, well, what do I do between now and then? Does it make sense to upgrade bits and pieces of hardware or go from a last generation to a current generation when we know the next generation is coming? And so I've been very, very focused on looking at how these connectivity components like rate controllers and NICs. I know it's not as sexy as talking about cloud but just how these opponents completely change the game and actually can justify movement from say a 14th-generation architecture to a 15th-generation architecture today, even though gen 16 is coming, let's say 12 months from now. So that's where I am. Keep my phone number in the Rolodex. I literally reference Rolodex intentionally because like I said, I'm in there under the hood and it's not as sexy. But yeah, so that's what I'm focused on Dave. >> Well, you know, to paraphrase it, maybe derivative paraphrase of, you know, Larry Ellison's rant on what is cloud? It's operating systems and databases, et cetera. Rate controllers and NICs live inside of clouds. All right. You know, one of the reasons I love working with you guys is 'cause have such a wide observation space and Zeus Kerravala you, of all people, you know you have your fingers in a lot of pies. So give us your final thoughts. >> Yeah, I'm not a propeller heady as my chip counterparts here. (all laugh) So, you know, I look at the world a little differently and a lot of my research I'm doing now is the impact that distributed computing has on customer employee experiences, right? You talk to every business and how the experiences they deliver to their customers is really differentiating how they go to market. And so they're looking at these different ways of feeding up data and analytics and things like that in different places. And I think this is going to have a really profound impact on enterprise IT architecture. We're putting more data, more compute in more places all the way down to like little micro edges and retailers and things like that. And so we need the variety. Historically, if you think back to when I was in IT you know, pre-Y2K, we didn't have a lot of choice in things, right? We had a server that was rack mount or standup, right? And there wasn't a whole lot of, you know, differences in choice. But today we can deploy, you know, these really high-performance compute systems on little blades inside servers or inside, you know, autonomous vehicles and things. I think the world from here gets... You know, just the choice of what we have and the way hardware and software works together is really going to, I think, change the world the way we do things. We're already seeing that, like I said, in the consumer world, right? There's so many things you can do from, you know, smart home perspective, you know, natural language processing, stuff like that. And it's starting to hit businesses now. So just wait and watch the next five years. >> Yeah, totally. The computing power at the edge is just going to be mind blowing. >> It's unbelievable what you can do at the edge. >> Yeah, yeah. Hey Z, I just want to say that we know you're not a propeller head and I for one would like to thank you for having your master's thesis hanging on the wall behind you 'cause we know that you studied basket weaving. >> I was actually a physics math major, so. >> Good man. Another math major. All right, Bob O'Donnell, you're going to bring us home. I mean, we've seen the importance of semiconductors and silicon in our everyday lives, but your last thoughts please. >> Sure and just to clarify, by the way I was a great books major and this was actually for my final paper. And so I was like philosophy and all that kind of stuff and literature but I still somehow got into tech. Look, it's been a great conversation and I want to pick up a little bit on a comment Zeus made, which is this it's the combination of the hardware and the software and coming together and the manner with which that needs to happen, I think is critically important. And the other thing is because of the diversity of the chip architectures and all those different pieces and elements, it's going to be how software tools evolve to adapt to that new world. So I look at things like what Intel's trying to do with oneAPI. You know, what Nvidia has done with CUDA. What other platform companies are trying to create tools that allow them to leverage the hardware, but also embrace the variety of hardware that is there. And so as those software development environments and software development tools evolve to take advantage of these new capabilities, that's going to open up a lot of interesting opportunities that can leverage all these new chip architectures. That can leverage all these new interconnects. That can leverage all these new system architectures and figure out ways to make that all happen, I think is going to be critically important. And then finally, I'll mention the research I'm actually currently working on is on private 5g and how companies are thinking about deploying private 5g and the potential for edge applications for that. So I'm doing a survey of several hundred us companies as we speak and really looking forward to getting that done in the next couple of weeks. >> Yeah, look forward to that. Guys, again, thank you so much. Outstanding conversation. Anybody going to be at Dell tech world in a couple of weeks? Bob's going to be there. Dave Nicholson. Well drinks on me and guys I really can't thank you enough for the insights and your participation today. Really appreciate it. Okay, and thank you for watching this special power panel episode of theCube Insights powered by ETR. Remember we publish each week on Siliconangle.com and wikibon.com. All these episodes they're available as podcasts. DM me or any of these guys. I'm at DVellante. You can email me at David.Vellante@siliconangle.com. Check out etr.ai for all the data. This is Dave Vellante. We'll see you next time. (upbeat music)

from the cube studios in Palo Alto in Boston connecting with thought leaders all around the world this is a cube conversation on June 23rd the Wall Street Journal reported that Dell is exploring strategic options for its approximately 81% share in VMware both Dell and VMware stocks popped on the news we believe that Dell is floating this trial balloon to really gauge investor customer and partner sentiment and perhaps send a signal to the short sellers that you know what Michael Dell has other arrows in his quiver to unlock in case you want to squeeze me I'm gonna squeeze you back who knows hello everyone and welcome to this week's wiki Bond cube insights powered by ETR in this breaking analysis we'll unpack some of the complicated angles in the ongoing VMware saga and assess five scenarios that we think are possible as it pertains to this story as always we're going to bring in some ETR customer data to analyze what's happening with the spending picture let's take a look at what happened and just do a quick recap The Wall Street Journal story said that Dell was considering spinning off VMware or buying the remaining 19 percent of VMware stock that it doesn't own the Journal article cited unnamed sources and said that a spinoff would not likely happen until 7 September 2021 for tax reasons that would mark of course the 5 year anniversary of Dell acquiring EMC and would allow for a tax free transaction always a good thing what's going on here and what options does Dell really have what does it mean for Dell VMware customers and partners we're gonna try to answer those questions today so first of all why would Dell make such a move well I think there's tweet from your own name Marc he's a portfolio manager at one main capital it kind of sums it up he laid out this chart which shows Dells market cap prior to the stock pop you know it's closer to 38 billion today and the value of its VMware owner which is over 50 billion since the stock pop but let me cut to the chase investors value the core assets of Dell which accounts for around 80 billion dollars in revenue when you exclude vmware somewhere south of negative 10 billion dollars why it's because Dell is carrying more than 30 billion dollars of core debt when you exclude Dell Financial Services and it looks like a conglomerate owning the vast majority of VMware shares Michael Dell has something like a 97 percent voting control Cordell is a low margin low growth business and as some have complained that Michael uses VMware as his piggy bank and many investors just won't touch the stock so the stock generally Dell stock has underperformed I've often said even going back to the EMC days that owning the stock of VMware's owner is actually a cheap way to buy vmware but that's assuming that the value somehow gets unlocked at some point so Dell is perhaps signaling that it has some options and other levers to pull as I said you may be trying to give pause to the shorts now let's have a look at some of the ETR spending data and value and evaluate the respective positions of Dell and VMware in the market place this chart here uses the core ETR methodology that we like to talk about all the time for those not familiar we use the concept of net score net score is a simple metric it's like Net Promoter Score sort of the chart shows element the elements of Dells net score so each quarter ETR goes out and ask customers do you plan to adopt the vendor new that's the lime green at 4% spend more relative to last year more meaning more than 6% that's the forest green and you can see that's at 32% flat spend is the grey meaning plus or minus 5% and then decrease spending by 6 percent or greater that's the pink and that's just 11% for Dell or are you replacing the platform to see that that's the bright red there at 7% so net score is a measure of momentum and it's derived by adding the greens and subtracting the Reds and he can see Dell in the last ETR survey which was taken at the height of the pandemic has a net score of 18% now we we colored that soft red it's not terrible but it's not great either now of course this is across Dells entire portfolio and it excludes vmware so what about vmware so this next graphic that we're showing you it applies the exact same methodology to vmware and as you can see vmware has a much higher net score at 35% which of course shouldn't surprise anybody it's a higher growth company but 46% of vmware customers plan to spend more this year relative to last year and only 11% planned to spend less that's pretty strong now what if we combined dell and vmware and looked at them as a single entity hmm wouldn't that be interesting okay here you go so there were nine hundred and seventy five respondents in the last ETR survey when we matched the two companies together and you can see the combined net score is 27% with 42 percent of respondents planning to spend more this year than they did last year so you may be asking well is this any good how does this compare to dell and vmware competitors well I'm glad you asked so here we show that in this chart the net score comparisons so we take the combined dell and vmware at 27% Cisco as we often reported consistently shows pretty strong relative to the enterprise data center players and you can see HPE is a kind of a tepid 17 percent so it's got some work to do to live up to the promises of the HP HPE split we also we also show IBM red hat at 14% so there's some room for improvement there also and you can see IBM in the danger zone as we break that down and red hat much stronger but you know what it softened somewhat in the EGR survey since last year so we'd like to see better momentum from IBM and RedHat it's kind of unfortunate that kovat hit when it did his IBM was just kind of ramping up its RedHat go to market now just for comparison purposes for kicks we include Nutanix nifty annex is a much smaller company but it's one that's fairly mature and you can see at 52% its net scores much higher than the big whales now we've been reporting for months on high fliers like automation anywhere CrowdStrike octa rubric snowflake uipath these emerging companies have net scores you know north of 60% and even in the 70% range but of course they're growing from a much smaller base so you would expect that now let's put this into context with a two-dimensional view that we'd like to show now as you know in addition to net score that metric we like to use so-called market share market share is a measure of pervasiveness in the data set or essentially market share in the survey and it's a proxy for a real market share so what this chart here does it plots several companies with their net scores on the y-axis and market share on the x-axis and you can see that we combine Dell and VMware together and we plotted them in that red highlighted box just for comparison purposes so what does this tell you about the competitive landscape well first everyone would love to be AWS Microsoft - we didn't plot Microsoft because they're so bloody dominant they skew the chart somewhat but they would be way way out to the right on the x-axis because they have such a huge number of products and mentions in the data set so we left them out now you can see vmware and cisco are kind of right on top of each other which is sort of ironic as they're you know kind of increasingly overlapping with their offerings in the marketplace particularly nsx and you can see the other companies and for context we've added a few more competitors like theme and CommVault and you know they're in a pretty strong position as well as the combination of Dell and VMware so let's start there Steve Phil analyst Brad Reebok was quoted in the market watch publication is saying the following we have long believed Dell would ultimately buy in the approximately 19% our 12 and a half billion of VMware that it does not own in order to gain full control over VMware's substantial free cash flow which is about four billion dollars annually and we still expect this to be the ultimate outcome huh you know I don't know I'm not sure about this on the one hand you can see from the previous chart this would be a better outcome for Dell from a competitive standpoint what it did is it pulls Dell up and to the right yeah but perhaps not so much for VMware as it went down and to the left adèle would have to raise a bunch more cash to do this transaction and what take on even more debt you know maybe it could get Silverlake to finance the deal you know then essentially Dell would become the Oracle of infrastructure you know it certainly would make Dell even more strategic to CIOs would that be good for customers well on the one hand I guess it would bring better integration between Dell and VMware yeah but I wonder if that's the critical issue for customers yeah and nearly and I think it would stifle VMware's innovation engine and a little bit further and I wonder how Pat Yeltsin here would react I mean my guess is he would call it a day and what about Sanjay Putin who was the obvious next in line for the CEO job at VMware what he becomes the president of Dells software division and what about the rest of the team at VMware yes they're a Silicon Valley stalwart and that would slowly morph into austin-based Dell with the debt burden growing you know it's gonna mean more of VMware's cash would go to paying down the debt meaning less for R&D or even stock buybacks what you know I'm not a huge fan of and I'm not a huge fan of this scenario for sure the the technology park partner ecosystem would be ice cold on such a deal although you know you could argue there are already less than lukewarm but here I want to explore some other options so the next on the list is Dell could sell VMware to a private equity firm mmm or a strategic it could basically wipe out its debt and have some cash left over to sail into the sunset that would be a big pill for someone to swallow even though Michael Dell has 97 percent voting power I think there's fine print that says he has a responsibility to protect the interest of the minority shareholders so to get approval it would have to sell at a premium you know that could be as high as you know almost seventy billion dollars Microsoft has the cash but they don't need VMware and Amazon I guess could pull it off but that certainly is not likely even if Google who has the cash we're interested in buying VMware Google be the most likely candidate you know it would give Google Cloud instant access to the coveted enterprise but it's really hard to conceive I mean same for a PE company 65 to 70 billion you know they get their money out in 15 to 20 years so I I just I just don't see that as viable all right what's next how about this scenario of spinning off VMware that the Journal reported so in this transaction Dell shareholders would get a bunch of vmware stock now there may be some financial wizardry that tom sweet dell CFCF owned his band of financial geniuses could swing I can't even begin to speculate what that would be but but I've heard there's some magic that they could pull off to maybe pull some cash out of such a transaction and this would unlock the value of both Dell and VMware by removing the conglomerate and liquidity hangover for Dell and it were to definitely attract more sideline investors into VMware stock and Michael Dell would still own a boatload of VMware stock personally so there's an incentive there so this is interesting and certainly possible you know I think in a way it would be good for VMware customers VMware we get full autonomy and control over its destiny without Delvaux guarding its cash so it could freely innovate Dell would become probably less strategic for customers so I don't think that for Dell EMC buyers you know the technology ecosystem partners like HPE IBM Napa cetera would would would they would like it more but they were already kind of down the path of looking to optimize VMware alternatives so you know think about Cisco but you know I think for VMware customers okay I think for for daily MC customers not so much now what about the do-nothing scenario you know I think this is as possible as any outcome Dell keep chipping away at its debt using VMware as a strategic linchpin with customers sure they continue to pay the liquidity overhang tax and they'll frustrate some shareholders who we're going to remain on the sidelines but you know that's been the pattern anyway now what about delivering some of the VMware ownership so the more I think about it the more I like this scenario what if del sold 20% of its VMware stake and let's say raised ten twelve billion dollars in cash that it could use to really eat into its debt burden a move like this combined with its historical debt pay down could cut its death debt in half by say 2021 and get the company back to investment grade rating something that Tom sweet has aspired towards this one dropped hundreds of millions if not a billion dollars to the bottom line and it would allow Dell to continue to control VMware what I don't know I don't know if there are nuances to this scenario in other words does this dropping ownership from roughly eighty percent to about sixty percent trigger some loss of control or some reporting issue I'm sure it's buried somewhere in the public filings or acquisition Docs but this option to me makes some sense it doesn't really radically alter their relationships with customers or partners so it's kind of stable with VMware maintains its existing autonomy and even somewhat lessens Dale's perceived control over VMware in an attacks Dells debt burden yeah it's still a bit of a halfway house but I think it's a more attractive and as I said stable option in my view okay let's talk about what to look for next you know it looks like the stock market is coming to the reality that we are actually in a recession although it appears that Nasdaq is trying to ignore this or maybe the the markets a little bit off because they're afraid Joe Biden is gonna win the election he's not gonna be good for the for the economy we'll see we'll see what the economic shutdown means for tech companies in this earnings season etrs next survey is in the field and they're gonna have fresh data on the impact of kovat going into the dog days of summer here's what I think let me give you my preview and you'll see in a few weeks you know how accurate is I believe that tech spending is going to be soft broadly I think it's gonna especially be the case for legacy on-prem providers and expect their traditional businesses to to deteriorate somewhat I think there's gonna be bright spots in text protect for sure the ones we've reported on cloud yes absolutely automation you know I'm really looking closely at the battle between the two top our PA vendors automation anywhere in uipath I think there's a really interesting story brewing there and the names that we've been pounding like snowflake the security guys like CrowdStrike and octa and Z scalar I think they're gonna continue to do very well with this work from home pivot we also expect Microsoft to continue to show staying power but because of their size you know they're exposed to soft demand pockets but I think that continue to be very very strong and threatening to a lot of segments in the market now for Dell I think the data center businesses continue to be a tough one despite some of the new product cycles especially in storage but I think dal is gonna continue to benefit from the work from home pivot as I believe there's still some unmet demand and laptops we're gonna see that I believe show up in Dells income statement in the form of their their client revenue I'd love to know what you think you could tweet me at Devante or you can always email me at david dot Volante at Silicon angle com please comment on my LinkedIn post always appreciate I post weekly on silicon angle calm and on wiki bond calm so check out those properties and of course go to e TR dot plus for all the survey action as I say e TR is in the field with the current survey they got fresh Cova data so we're excited the report on that in the coming weeks remember these episodes are all available as podcast wherever you listen this is Dave Volante for the cube insights powered by ETR thanks for watching everyone we'll see you next time [Music]

from the silicon angle media office in Boston Massachusetts it's the queue now here's your host David on tape hi everybody welcome to this breaking analysis this is Dave Volante and VMware announced yesterday its quarterly results and it also announced the acquisition of two companies pivotal which was the news was broken before of the earnings announcement but also carbon black a Walton Massachusetts based security company and you may be wondering what the hell is VM we are up to what are they doing and I want to sort of unpack that and explain it to you from my perspective so pivotal and carbon black are getting paid 2.7 billion and 2.1 billion dollar respectively is the value of those deals so VMware is paying an enterprise value to sales ratio of 3.8 and 7x respectively for pivotal and carbon black the motivation here in my view is really to clean up pivotal I'm going to explain that in a second and also to increase VMware's cloud multi cloud and recurring revenue contributions today the SAS business of VMware is only about 12% of the company's revenue so they want to increase that because they want to have a cloud like model and recurring revenue the challenge for a company like VMware who's largely based on perpetual license models upfront get paid for the whole license and then you do some maintenance is it's like a heroin injection you get the big rush of cash whereas with the recurring revenue model you're streaming out over and deferring it over a twelve or thirty six month or 24 month period and so the revenue impact is somewhat negative on the income statement and that's putting a little bit pressure on the stock but VMware management understands that that long term it's a much more predictable and attractive business model to be a SAS company than it is to be a traditional license based perpetual license based software company now the pivotal deal is somewhat complicated and of course when Michael Dell's involved we tend to have these complicated transactions as organization is very savvy in terms of from a financial standpoint we saw that remember when Michael Dell and Silverlake bought a EMC for 67 billion dollars they shelled out only only four billion dollars of their own cash now they took out a lot of debt but it was a very interesting and complicated financial transaction so part of this is cleaning up some of that transaction that all I'll explain in my opinion VMware is getting a pretty good deal for both pivotal and a decent deal for carbon black so so let me explain first of all Alex if you would bring up the the chart on pivotal let's take a look at it now you can see here you know pivotal did its IPO you know last year a when IPO is I think that we know close to a four billion dollar valuation and you can see the stock is not performed well subsequent to that it you know it was never able to get back to its IPO price it had a you know decent uptick you know in in March of this year as the market was running up and you can see the earnings miss in in the late spring early summer back in the June announcement date big hit there the company's been struggling in the marketplace you know it's got a lot of assets remember pivotal was originally put together as a collection of what I used to call misfit toys some of the EMC assets some of the VMware assets they put together at Palmer its you know created this entity to try to create a platform for application development Michael Dell saw this as an opportunity to take it public and actually you know create another asset in part of the Dell family but you can see here post June you know the the decline in the stock price and then you see the announcement from VMware or the rumor that came out actually was an announcement that came out in the press this week and the stock jumped over 70% on a day when the Dow dropped 800 points but you can see now the the today's price it was fourteen eighty eight when I took this snapshot about 50 cents on the dollar from the IPO price and so you can see that that VMware and Michael Dell are kind of doing the top cat they did the IP that pulled the coin back and now they're gonna repurchase the stock so kind of interesting but here's what the interesting part is VMware is only paying nine hundred million dollars in cash to the public shareholders how can that be so here's the deal vmware already owns about 15% of pivotal where dell owns about 70 percent of the company so what's happened l controls 95 percent of the voting shares which is why you know one of the reasons why this stock really never took off it's one of those one of those ownership structures and governance structures where you know a single individual really controls the stock so that often times keeps stock prices down but nonetheless Dells 70% is being exchanged for VMware stock for pivotal stocks that are owned by Dell so let me read you the statement Alex if you could bring up that statement from the earnings call this is from the VMware a CFO explaining the mechanics with regards to pivotal VMware has agreed to acquire a pivotal at a blended price per share of eleven dollars and 71 cents comprised of $15 per share in cash to public stockholders that's why the stock is trading at 14 dollars and 88 cents today and a little bit of arbitrage flowed in there and VMware's Class B common shares exchange for pivotal Class B common shares held by Dell technologies in an exchange rate of point zero five five VMware shares for each pivotal share the transaction has an excuse me enterprise value of 2.7 billion Dell technologies will receive approximately 7.2 million shares of VMware Class B common stock and now drew aggregate this results in an expected net cash payout for VMware of 0.8 billion I said I said point nine billion the impact of the equity issue to Dell technologies would increase its ownership stake in VMware by approximately 0.34 percentage points to a total of 81 0.09 percent based on the shares currently outstanding as it said VMware currently holds 15 percent of outstanding shares pivotal ones clothes will update blahblahblah so Michael Dell's buying VMware stock he's increasing his share of VMware which is also a kind of an interesting side note but now let's look at the pivotal fundamentals does this make strategic sense yes in my opinion why is that this is all about containers and it's all about next-generation application development for cloud it's also a hedge for VMware everybody said containers are gonna kill VMware well it's it's a hedge in the instance that that that containers start to impact VMware's traditional virtualization business now as I showed yesterday on the video where I was looking at ETR research there's no evidence today that it containers are slowing down the spending on VMware you deploy containers in many many ways certainly they're deployed in in bare metal and that's somewhat of a risk to a VMware but they're also they're also deployed on top of virtual machines on top of VMware so you know right now it's not been a negative for for VMware and by acquiring pivotal it can bring those synergies into the VMware mothership which is Dells a software mothership I call it and there's also synergies in sales and marketing and R&D and it kind of cleans up pivotal and consolidates the assets now let's look at carbon black this is a security play and it's really a different story than pivotal first you got to remember the Pat Gallagher told John Fourier in me several years ago in the cube that security is a do-over and I'll tell you right now Pat Gail singer and VMware are architecting a security do-over you've got on pram you've got hybrid you've got cloud you've got multi ply cloud traditional security models aren't gonna cut it so let's look at this clip by pat gyal singer and he'll it'll give you a sense of how he and VMware are thinking about the future watch this and we'll come back and talk about it Steve Herod on our Crouch at pre game on Friday with the hot opportunities are for startups he said security or mainly not getting caught at this perimeter basically what's your view on that well you know the krusty you know the hard crust the exterior and the soft gooey inside as I described it this morning my morning breakfast every day and you know with it right this whole idea of micro segmentation and nsx really redefines how you build networks and that's gonna allow us to refactor every aspect of security every aspect of routing and load balancing etc okay so what Pat was saying is he's talking about micro segmentation nsx the critical acquisition from nice Syrah refactoring security and everything security is a do-over okay Alex let's bring up the chart of carbon black I wanna I want to look at that and explain to our audience kind of what's going on there so you can see it's a it's a little bit of a different picture from from pivotal you've got that kind of bathtub look to it so you see at the IPO it was a hot company but it underperformed and and it was struggling there you know coming into at the end of last year and then into 2019 you could see it was kind of bouncing around at its lows and then what happened was you saw it earlier this year the company guided down so you can see that you know big drop after into February announced you big spike downwards they guided down the CFO resigned and there were several down grades from Wall Street analysts and that really crushed the stock but then you sort of bouncing back through May and then what happened is you know you had this growth company they've grown at 25 to 30% a year and they beat earnings estimates in May so they guide it down in in February but then they beat and you had a new CFO you just kind of had this new renewed emphasis on on the company and then this summer they hired morgan stanley and so the acquisition rumors started and that you can see you know into august it starts to pick up again so i have no doubt that this was a competitive bid of vmware wanted it so so here's another comment that i want to share with you from last year at VMworld and again it'll give you an additional insight as to how Pat Gallagher is thinking about the future go ahead and play the clip and then we'll come back what together into my application and in that sense the application is a network of these different services data sources etc and we believe in that you're bridging across silos isn't important it is essential to do that yeah because as you say security models across that you know how does the you know when that application isn't performing like I expect it to how do I go even debug it so think about what Pat said the application is a network of services services it's not as such it's not important it's essential that we deliver that in a consolidated model including security models okay so you got VMware looking to make its platform the place to run modern apps you got carbon black at 250 million dollar company trading at a discount of about 5.5 X revenue they got strong growth at the time but 25 to 30 percent of years it's consistent and then nearly 40 percent of its business is coming from the cloud and the cloud business is growing at 70 percent a year so VMware remember jettisoned its cloud business vCloud air but it still has a desire it covets participating in cloud at least in the form of multi cloud and on-prem cloud like experiences Carbon Black is a modern endpoint security company you heard John's question about the perimeter and you know you can't build moats anymore you you really endpoints are really the the new vulnerability especially when you start thinking about IOT so VMware is desirous of cloud revenue multi cloud and recurring revenue you got a growth company that's looking to sell they've got leading technology as I said this it was a competitive bid and VMware wanted it so now the other thing is VMware knows carbon black they've they've integrated carbon black into its app defense offering and VMware has been expanding its portfolio not so quietly lately app defense NSX has a you know with its micro segmentation is really a security use case AirWatch has a security component cloud choreo ee8 security was another acquisition bracket intrinsic was you know these little tuck-ins you sort of draw a picture of how Dell senior and VMware are starting to build out its portfolio again making vmware the software mothership security is a critical component of that it also gives VMware much more of a strategic entrance into the c-suite particularly with the chief information security officer we've talked many times on the cube that security is now a board level discussion to the extent that VMware can be the platform for multi cloud security and of course you know that's not assured right there battling cisco who's coming at it from a network position they're battling google who's coming you know announced anthos they're certainly battling Microsoft certainly IBM and Red Hat have similar designs and as we've said watch this space Amazon ultimately we think is going to get into this area but any rate VMware's making security a fundamental part of its platform it's bridging those silos is what what Pat Gayle singer talked about in the video and giving you access to sets of infrastructure so with pivotal it's building out you know in cloud native application development and and tooling container technology and that's clearly strategic to its multi cloud strategy helps VMware stay relevant VMware doesn't own a cloud so it's got to move fast and be first in this multi cloud space ok so let me summarize VMware's gonna spend 2.7 billion on two key acquisitions they're gonna add it's gonna add a billion dollars in two points of revenue growth that's largely in SAS and hybrid cloud and recurring revenue for VMware and three billion dollars in year two now let me do some Volante math for you VMware trades at about five to six times revenue so essentially they just added five to six billion dollars in market value in year one and by the way the stock is off eight percent today so because of these acquisitions so and it's got upside in my view assuming that you know there's not some big economic downturn but we're talking about 15 to 18 billion in market cap in year two so this acceleration VMware's transition to SATs ass it's a cash flow positive and the creative acquisitions in year two according to vmware vmware throws off nearly four billion dollars in annual and operating annually and operating cash flow to me this is a good use of cash balancing acquisitions and to continue growth and tuck in your ability to be that platform for cloud and multi cloud services and hybrid cloud is a good use of cash I like it better than stock buybacks frankly so a combination of stock buybacks organic Rd which VM was very strong engineering culture and acquisitions in this case using your stock as currency I like the deals we're gonna watch him very closely and we're gonna be talking about this this next week at vmworld so watch the cube at vmworld the cube net will be there myself john fourier stu minimun Jeff Rick the entire team celebrating our 10th year at vmworld if you have any questions on this or comments please tweet me at diva want a thanks for watching everybody we'll see you next week

lying from the austin convention center in austin texas it's the q @ l world 2014 here are your hosts dave vellante and Stu miniman hi we're back to wrap up 2l world's two minima and I have been here all day will be here tomorrow as well we're starting at eight thirty local time 930 east coast time tomorrow getting started early michael dell will be on tomorrow we'll have the keynotes again only bar broadcasting for a half day but so today's do i want to get your take on this a lot of talk of course initiated by me and others about dallas a private company I think it's a two-edged sword frankly because I think that when things are really good and you got a lot of momentum behind you you've got transparent confirmation or quasi transparent confirmation and that creates a lot of buzz and Busby gets buzzed and acted some good thing some flywheel effects can occur from being public at the same time when things aren't so great and the headlines are bad and the earnings aren't great you can go into this vortex this abyss which dealt was kind of there and I think as you were talking about with Matt Eastwood the timing of del going private couldn't have been better from a valuation standpoint for Michael Dell and Silver Lake I mean I I think they got a fantastic deal even though there's a lot of risk in it that they're taking but the fact that Michael Dell's willing to step up and do that now on 75 percent of the company yes they have debt service what is it 18 billion dollars in debt so i think i think was the number but they'll pay that off over time because of the cash flow machine and they're going to be in a really good position when that happens yeah David's real interesting you know there's been a lot of change Adele there's been there's a lot of new faces here and some of the ones that we knew for many years are gone and you really are having that transformation inside I heard one person kind of overheard in the hallway type thing is you know there were certain antibodies in Dell and you know they're kind of sweeping through making changes and if there's some that aren't on board with where it's going you know well maybe they'll need to take I guess it was the voluntary exit type solution around and but they're hiring aggressively in other spaces because yeah I T is changing and for me the real striking thing dave is they'll talk a lot about choice and we say you know there's so many different markets out there there's you know VMware in their ecosystem that's what Microsoft's doing there's a public cloud and there's all of these little you know sub climates inside IT and devils playing a lot of bets which we talked about is how many bets can you place and actually make enough margin and win at what you're doing so since dell doesn't have to answer to Wall Street they can do what they think is best for the company and really for the customers it kept coming back to you know Michael and all the executive saying we're focused on what the customers are asking us to do we can move really fast we've definitely seen examples of Dell moving faster to deliver some of these solutions that then then they had when they were a public company things like a cloud marketplace things like the new tanukhs OEM you know a lot of interesting technologies here and there's still lots of hardware Dave you know i'm looking through the twitter stream and everybody snapping pictures of the new FX to kind of the next generation vertex it went from vertex really be in that remote office box to the FX to really being a data center you know nice hardware platform that you can build for a more scalable environment so you know interesting stuff happening always a good vibe here in Austin I think that one of the things that's interesting to me in a way when I think I think of I'm reminded of Luger stirs you know can who says elephants can't dance in a way Michael Dell is orchestrating a a different version with clear differences of that playbook and here's what I mean by that he took a company that was 100% essentially PCs and began a multi-billion dollar buying spree and transform this company into what is now the only end-to-end enterprise company now HP used to talk about that as a big deal they've given up on that now that they're going to split up what is the value to a customer in the end one this is supply chain why does the customer care about supply chain because gives you a dell pricing power so Dells got potentially one of the biggest supply chains now in the industry HP had a supply chain that was enormous but now when they split it up I don't know how they're going to continue to leverage that maybe they will maybe they won't that sounds like they won't be able to have that same leverage IBM when it sold its pc division to lenovo lost a lot of leverage gel is now able to sit claim number one in storage terabyte shipped why because it ships so many pcs it's not because of the server business it's because every PC goes out with a half a terabyte disk drive in it so add it up until kicks but all of a sudden boom number one that's interesting but from a customer standpoint you can buy virtually anything from the company now I talked about second elephants dancing you're seeing that transformation being led by a number of factors certainly servers is a big part of that and networking and storage with the big acquisitions that they've made and networking with the acquisitions that they made but also Perot gels got a big services organization that's very sticky and then the other thing which not a lot of people talk about is Dell software in fact I got a tweet earlier from somebody saying del I presume Dave I presume when you talk about Dell having one of everything you're not including software well as we know tells got a almost a two billion dollar software business now that's not ridiculously enormous but it's substantial how many how many multi-billion dollar software companies are out there so what I see is this big portfolio it's not i wouldn't say it's services lead it's not it's it's dell lead but there's a sticky services component with an increasing software component in growth areas like security like systems management like so quick tell calls information management which is a lot of the analytics and big data so jeal can continue if Dell can continue to make those acquisitions do the integrations it's got a pretty good story for customers don't you think yeah absolutely Dave and there's still it's that PC business in that server business that's generating the cash and allowing them to get into a lot of environments and trying out a lot of pieces you know the cloud broker models really interesting because we talked about it a couple of years ago and clouds are not homogeneous and it's not you know until recently moving from one environment to another was going to be difficult enter things like docker and management tools like the Australia saquisili del made are enabling some of these multi cloud environments and so we're seeing customers you know from what we see aren't going all in with one environment you know we've got a survey going on right now and some of the data we've seen so far is that you know it's not like they're saying oh I've got amazon and i'm only doing amazon most customers they're doing amazon they've got VMware inside they might be doing something with a jour because everybody's got office 365 and of course they've got lots of SAS applications so you know where does dell fit into this environment and can they be you know a broker of supplier and arms dealer for a lot of these pieces and you know how do they tie them all together how do they grow those services how do they have their software you said you know there's pieces of software they don't have they don't have you know 200 SAS applications like IBM does they don't have the breath of the amazon marketplace today but you know Dell is in a lot of customer environments especially in that you know kind of sub 5000 user you know marketplace so you know there's a lot of opportunity for Delta add on to that and I said before they can craft a story because they're not a public company that is very positive you know every CEO that is of si of a public company when he or she comes on the earnings call even if they have a Miss even if they have a quarter that they're disappointed in they spin a story and and the street that starts opening up the books and parsing the numbers and doing the analysis and the street either buys it or they don't and so what Dell can do is they can craft any story that they want and make it sound great and and create their own momentum now it sounds like they're growing but you know even today in the keynotes you got a little mix of units and dollars and terabytes and geographies and in different segments and so forth but Michael Dell was able to very effectively put together a story of growth that's been mirrored by his executive management team I'm gonna have no doubt that there's this growth segments but you think about it if IBM we're a private company they could talk about cloud they could talk about their software to find stuff they can talk about you know the security businesses those businesses that are growing and not talk about the business that are shrinking and not talk about the top line that's flatted down or whatever it is so so dell has that advantage in that they can craft a story and and and use that in their marketing to be relevant and I think that's really what customers want to know they want to know that the company I'm doing business with is relevant so they got pcs is the tip of the spear everybody knows dell pc is easy to do business with no problem they've got the services piece that's sticky and they've got everything else in between which is this end end strategy for mid-sized and smaller enterprises which really everybody else kind of pooh-poohed enough poo-poos they all they give it lip service this is this is where del really shines and so I don't know still it's gonna be interesting to see yeah David's interesting i was just ruminating on the fact that you know when you think about the early PC days del just made it so easy to buy first with a catalog and then with a website i could go in and click and choose the environments that i wanted if we look at converged infrastructure and cloud which is where the growth really is you know candle take those same type of experiences and move those to the environments and make you know those choices you know the cloud marketplace reminds me a lot of the dell S&P which was really the offering that I could buy almost anything from dell and dell would take a you know i cut even if it's a small one they didn't necessarily have to support it hugely successful drove a ton of revenue for dell so you know lots of things that they can you know to take advantage of Wow and like I say when wouldn't tell was was public they were a roughly sixty billion dollar company with with trading at fifty to sixty cents on the dollar Michael Delta and silverlake having taken that private the ultimate measure yes customer value etc etc but the real leader board is going to be what if and when tell this hides to have another exit whether that's public offering whatever what the thing to watch is will del have been able to shift its business mix toward the enterprise so that it can even trade let's say it one to one if so it can it could it could create 30 billion dollars of value you know then that Michael the open 75% of saw to me it was just a brilliant move this company is still a cash flow machine you know these big companies that aren't growing that Wall Street seems to hate for some reason even Corey MC these are cash flow machines Oracle cash flow machine IBM HP cash flow machines that if they have good leadership they can transform their businesses into a success story alright well getting kicked out of here still look tomorrow we start at 830am the cube would be live SiliconANGLE TV check out Wikibon org check out SiliconANGLE calm for all the news we'll see you tomorrow this is the cubes two minima and Dave vellante we're out see you tomorrow