>> From the SiliconANGLE Media office
in Boston, Massachusetts, it's theCUBE.
Now, here's your host, Dave Vellante.
(upbeat music)
>> Hello, everyone, and welcome to this week's episode
of theCUBE Insights, powered by ETR.
You know, this past week, we attended
the Dell Technologies' industry analyst event.
And, in this Breaking Analysis, I want to summarize
the key takeaways and discuss some of the macro trends
in the industry that are affecting Dell.
I'll also discuss some of the fundamental assumptions
that Dell is making in its operating model, and I'll talk
about some of the challenges that I see for the company
going forward in, hopefully, what is a frank manner.
Now, let me start with the event itself.
It was held in Austin, Texas, and it's clear
that Austin, Texas is becoming the epicenter
of Dell post acquisition of EMC.
It's shifting strongly back to Texas while the legacy
of EMC remains what is the most critical part
of Dell's portfolio thanks to VMware.
The energy of Dell emanates from its founder, Michael Dell.
The event was attended by about 250 press
and analysts over a two day period.
It was very well run with strong levels of executive access,
which is always very important to the analysts,
and lots of transparency and, I thought, clarity of message.
Now, the number one takeaway on this is Dell,
in four years, the company has gone from irrelevance
to a dominant and highly relevant player
in the enterprise tech, especially the CIOs.
And it's one of the most amazing transformations
of a company that, personally,
I've ever seen, and I've seen several.
Now, there were four other key takeaways
for me that I'll show on this first slide,
Alex, if you bring it up.
>> First, Michael Dell has put forth a set
of moon shot goals for 2030.
Let me give you some examples.
By 2030, Dell says that for every product that they sell,
they're going to recycle an equivalent product.
By 2030, 50% of the global workforce of Dell will be women,
and 40% of the managers of people will be women.
25% of the US workforce will be either Hispanic or African.
Now, most tech stories today are negative,
and this is a great positive message.
I'm not going to spend a lot of time on this,
and there's much more that Dell laid out.
But, kudos for Dell for making these initiatives a priority,
you know, particularly the women in tech
and the diversity in the minorities.
I think it's excellent.
The second takeaway for Dell is Dell is being driven
by Jeff Clarke, and this guy is on a mission
to simplify the portfolio.
Dell claims it's reduced its product portfolio
from 88 platforms down to 20 of that Power platforms,
that Power is a new brand.
Now, the reality is Dell
really hasn't deprecated 68 products.
Many, if not most, are still around,
but the R and D energy is all going into the new stuff.
Now, the third takeaway
was a big announcement around PowerOne.
PowerOne is Dell's new platform
for the next generation of converged infrastructure.
Now, a lot of people might look at this and say,
"Well, this is converged infrastructure without Cisco."
Well, it is, actually.
And, while that's true, PowerOne, according to Dell,
is much more of a developer friendly API
and microservices based platform
with a lot of automation in the software built in.
It's, essentially, going to be Dell's go forward platform
for customers that don't want
to roll their own infrastructure.
The expectation, or inference, that we took away
was that PowerOne will integrate most, if not all,
future storage, networking, and server products.
And, Dell is positioning this as a complement to HCI,
or hyper converged infrastructure,
which comprises VxRail, VxFlex, which is the ScaleIO,
and, of course, the OEM Nutanix.
So, you can see Dell has still got some work to do
in terms of streamlining its portfolio.
And, here's my lock of the day is
that they'll be phasing out the Nutanix OEM relationship.
You could take that one to the bank.
Now, the fourth takeaway was
that Dell's cloud strategy is really coming into focus.
Is it a winning strategy?
I honestly can't say at this point.
But, in my view, it's the only option that Dell has.
And, because of VMware, they have a fighting chance.
Dell is in a much better position than other suppliers
that rely on on prem install bases because of VMware.
VMware is not only Dell's piggy bank.
It is, but it also gives Dell strategic levers
with CIOs and partners like, for instance, AWS.
Now, a little later on, I'm going to share some ETR data
that will give you some context,
but the bottom line is the cloud is having an impact
on everyone's business, including Dell's.
Now, let me add that Dell's cloud strategy,
in addition to relying on VMware, is completely dependent
on the assumptions that the world is going to be hybrid,
which is a good assumption, and that multi cloud is going
to evolve from what, today I've said, is a symptom
of multi vendor to fundamental priority for CIOs.
Again, not a bad assumption.
But, because of VMware, Dell has
more than a fighting chance to compete for share.
Now, finally, Dell is going to be able
to capitalize on the Edge.
Personally, I think this is the biggest wildcard.
What I do think is that developers
are going to be a crucial part of the Edge.
And, at this point in time, Dell and VMware
are not really top of mind in the developer community.
Now, the event involved keynotes from Michael Dell
and other execs including the CFO, who is Tom Sweet,
and many other breakout sessions, you know,
the normal one on ones as well.
Now, I don't have time to go into all of this,
but there are some things that I want to share
about Jeff Clarke's presentations specifically.
He's the person that took over
from David Goulden a couple years ago.
He's been at Dell for more than 30 years, and he was there
when, I think, it was called PCs Limited, so a long time.
He's a trusted operational executive of Michael Dell's.
I'm very impressed with this guy.
He doesn't use a cheat prompter when he talks.
And, in fact, he has some notes,
but he's got these facts and figures in his head
that he rattles off like a staccato pace.
He's a no BS exec, and so let me summarize his discussion.
Alex, bring up this slide.
The big picture is the data sphere is going to grow
to 175 zettabytes, and half of that
is going to be created at the Edge.
Of that, 30% is going to require real time processing.
Now, he talked about the mandate for simplification,
and he called this thing the easy button.
Now, in Q and A, I asked him, "Why did it take you guys
"so long to figure out something so obvious?"
Which is kind of a snarky analyst question.
Now, to his credit, he didn't throw
his predecessors under the bus.
Rather, what he did is he focused on the future,
and, you know, he shared the figures that I stated earlier
about taking 88 platforms down to 20.
And, he focused on the priorities of the future.
So, he didn't say it, but I'm going to say it for him.
He inherited a very messy portfolio,
and he had to clean up the crime scene.
Let me tell you what a buyer said about EMC back in 2018.
This is from the ETR VENN survey where they go out,
and they probe, you know, specific customers.
And, they talk to them.
This guy says NetApp has done a really good job
of advertising and positioning itself
within the cloud and within data centers themselves.
They've got a broad portfolio,
and I don't want to make comments about NetApp.
And so, I'm not sure I agree with all of this, but okay.
Come back to his statement,
and they've integrated fairly well.
Here's what's relevant.
What he said was EMC, on the other hand,
is not as well integrated.
They've got broad portfolio, but it's not necessarily easy
to pick and choose from the different categories, okay.
So, I agree with that, you know.
Look, the mega launch product du jour worked for EMC.
It allowed them to carry on for another five
or six years after the downturn,
but the lack of integration eventually caught up to them.
And, it will always catch up to large companies
who rely on either lots of M and A
or spinning out new products with lots of overlap.
But, anyway, I digress.
The third thing that Clarke talked
about was the big market size and the share gains.
PCs are a $200 billion market.
Servers are $80 billion market,
and external storage is $26 billion market.
Dell has gained 600 basis points, according to Clarke,
in PCs over the last six years.
400 came in the last three years.
375 basis points in storage in the past two years.
Now, of course, what he didn't mention is that was
after a dismal performance a few years earlier,
so they had a pretty easy compare.
But, my point is this.
When you talk to Michael Dell, you talk to Tom Sweet,
you talk to Jeff Clarke and all the folks in the company,
share gains are critical to Dell's strategy,
especially because the cloud is taking
so much share of wallet in the enterprise,
and I'll make some other comments on that.
Now, finally, there are two fundamental beliefs
that Dell has that I want to share with you.
One is that they can be a consolidator
of these core markets.
In a downturn, Dell thinks they can hold their breath,
you know, so to speak, longer than the competitors.
And, of course, in an up market,
they think they can accelerate their leverage points,
which leads to the second belief
that Jeff Clarke talked about, which is
how Dell will deliver differentiation and value.
So, he had four items there.
One is they got 40 thousand direct sellers,
so they got a big go to market presence.
So, they got 35 thousand service professionals,
a $66 billion supply chain,
and then Dell Financial Services arm which, you know,
forces Dell to carry a lot of debt.
But, that debt throws off cash, and it's not really part
of Dell's core debt from EMC acquisition.
Now, others have that too,
but Dell's got, you know, a big presence there.
Right, so I want to pivot to the ETR data,
and let's see how Dell looks in the spending survey.
And, since market share is so important to Dell,
why don't we take a look at how they're doing?
So, Alex, this slide that I'm showing here, what ETR refers
to as market share, market share is defined by ETR
as vendor citations in the survey, excluding replacements.
So, customers that are adding, spending the same,
or spending more or spending less,
divided by the total number of respondents in the survey.
So, it's a measure of how pervasive
the vendor is in the dataset.
What I'm showing in this slide is Dell's market share
and its three most important business lines,
namely VMware, Dell EMC, and Dell's laptop business.
And, I'm showing this
from the January '17 survey to October '19.
Now, notice the survey sample, overall,
is 964 respondents, and the three brands they show,
817, 622, and 302, shared ends within that 964.
So, there's two points.
One, you know, Dell's doing pretty well.
I mean, I'd say it's better than holding serve.
And, as you can see, it's steadily gaining.
Now, the second point is that, really,
the net scores here, you know, they're okay,
especially for VMware and Dell's laptop.
But, Dell EMC, for instance, specifically their server
and storage and networking business, you know, not so much.
So, there's a mixed story there.
So, let me make some comments on the macro
and things that I've discussed with ETR
and my narrative on demand overall,
some things that I've shared with you before.
As we've discussed in past Breaking Analysis,
spending is reverting back to pre '18 levels,
but it's not falling off a cliff.
We're seeing fewer adoptions of new tech
and more replacements of old tech, so combine this
with lower levels of spending and more citations overall.
We're seeing net score go down relative to previous surveys.
So, here's what we think is happening.
There's less experimentation going on
with the digital initiatives,
which started, you know, back in 2016.
So, you're seeing fewer adoptions of new tech
as customers start placing their bets, and they're retiring
legacy systems that they were keeping on as a hedge.
And, they're narrowing their spend on the new stuff
and unplugging the stuff they don't need anymore.
And, they go in at the serious production mode
with the POCs, so that means overall spending is softer.
It's not a disaster, but it's lower
than expected, than coming into this year.
Storage is on the back burner in a lot of accounts
because of cloud and the big flash injection
that I've talked about giving it more headroom.
Servers are really soft for Dell, especially
because they have a tough compare with last year.
PC is actually pretty good, all things being considered.
So, where is the spending action?
Well, it's in the cloud.
And, I don't care how many vendors tell me
that there's a big repatriation trend happening,
i.e. people have cloud remorse,
and they're all moving back on prem, not all but many.
And, I'm not saying it doesn't happen.
But, at the macro level, it's noise compared to the spending
that's happening in the cloud, just due to math.
All you've got to do is look at AWS and Microsoft
and what they report and compare it
to any enterprise company that on on prem selling.
I mean, I don't even want to argue about it.
I mean, believe what you want,
but I would much prefer to look at the data.
So, let's do that, so here's a slide
that shows ETR data on customer spending on the cloud.
So, you got AWS, Azure, and Google spenders
and how their spending patterns have changed
over time for Dell EMC servers.
So, you got 636 cloud accounts, 175 to 200 shared
Dell EMC server accounts over the past three periods,
and you got net scores of 24% down to 16%.
So, look at the gray bar versus the yellow bar.
Gray is October '18, yellow is October '19.
Okay, you get the picture.
The next slide is the same view for Dell EMC storage.
The gray bar is last year.
Yellow bar is this year's survey, so look at it.
22% down to 5%, you know.
That's not good, so storage is getting hit by cloud.
And, that's going to continue, all right.
So, let me conclude with some comments in general.
Overall, I like Dell's strategy, you know.
Honestly, without VMware, I'm probably
not going to fly to Austin this week.
Just being honest.
But, with VMware, Dell is far more important
to our community, so I paid more attention to it.
I haven't shared many thoughts on Dell's financials,
but I think they have some upside here.
As they continue to pay down their debt.
By the way, every $5 billion that they retire in debt,
it drops 25 cents right to earnings per share.
Dell throws off a lot of cash.
It's a very well run company.
They got an excellent management team.
We talked about their share gain lever.
They don't have a public cloud,
so they got to make on prem as simple as possible
and, ideally, as cloud like as they can.
You know, the on prem experience, frankly,
is well behind that of the cloud.
But, cloud, you know, it's getting less simple,
and it's not cheap.
So, on prem, in my view, doesn't have to be exactly cloud.
It's just got to be good enough.
Now, Dell, this week, also refreshed
its on demand pricing, and it's good.
It's obviously relevant to cloud,
and I don't have time to go into all of the detail.
But, suffice is to say that, near term,
their on demand stuff, it's going to be
a small factor in their business.
But, longer term, I think it's going to play in,
particularly to the cloud model.
Dell is also betting on hybrid and multi cloud.
They have to, but they're up against several competitors.
Microsoft is really strong in this space.
Microsoft's also a partner, of course,
but you've got IBM and Red Hat,
Cisco, Google sort of, and some others.
But, VMware gives Dell an advantage, and that is the key.
The big hole that I see in Dell,
I'm going to come back to innovation, you know.
Dell spends billions of dollars on R and D.
I think the number's 20 billion
over the last four years, so that's good.
But, you know, innovation in this industry
is being delivered by developers.
Those are the drivers, and they're taking advantage of data,
applying machine intelligence, and cloud for scale,
and Dell is clearly well positioned
for the data trend, you know.
It could partner for cloud.
It can certainly play in AI, but what it lacks,
in my opinion, is appeal to the developer community.
Now, just as Dell has become relevant to CIOs,
it needs a similar type of relevance with the devs,
and that's a different ballgame.
So, its hopes are leaning on VMware and,
of course, its acquisition of Pivotal.
But, if I were Dell, I would not sit back
and wait for Pivotal and VMware to figure it out.
Here's what I would do if I were Dell.
I would deploy at least a thousand engineers,
and they got 20 thousand engineers.
Take a thousand or 1500 of them,
and point them toward developing open source tools.
And, build applications and tools
around all these hot emerging trends that we hear about.
Multi cloud, multi cloud management,
Edge, all the innovations going on at Edge,
you know, autonomous vehicles, etc.
AI workloads, machine intelligence, machine learning.
I would open source that work and make a big commitment
to developer community, big contributions,
and that would build hooks in from my hardware
into these tools to make my hardware run better,
faster, cheaper on these systems.
I want to thank my friend Peter Burroughs
for giving me that idea because I think it's a great idea.
I think it's radical, but it makes sense
in this world that is really being driven by developers.
Okay, this is Dave Vellante signing out
from this episode of CUBE Insights powered by ETR.
Thanks for watching.
We'll see you next time.
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