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>> Live from San Francisco.
It's theCUBE.
Covering IBM Think 2019.
Brought to you by IBM.
>> Welcome to theCUBE,
I'm Lisa Martin.
We are at day one of IBM Think 2019,
I'm with Dave Vellante.
Hey Dave!
Hey Lisa, good to see you.
The new improved Moscone.
>> Exactly, and Stu Miniman, yeah.
>> Shiny.
>> Yeah, this is the new, it is shiny,
The carpets smells new.
This is the second annual IBM Think, gentleman
where there's this
conglomeration of five to six previous events.
Doesn't really kick off yet today.
I think Partner World starts today
but here we are in San Francisco.
Moscone North, I think south, and west they have here
expecting about 25,000 people.
No news yet today, Dave, so let's kind of talk about
where IBM is right now
with the early part of Q1 of 2019.
Red Hat acquisition just approved
by shareholders last month.
What are your thoughts on the status of Big Blue?
>> Well, I think you're right, Lisa,
that the Red Hat news is the big news for IBM.
We're now entering the next chapter
but if you look back for the last five years
IBM had to go out and pay two billion dollars
for a soft layer to get into the cloud business.
That was precipitated by the big, high profile loss
of the CIA deal against Amazon.
So that was a wake up call for IBM.
So they got into the public cloud game.
So that's the good news.
The bad news is the public cloud's not easy
when you're going up against the likes of Google
and Microsoft and of course, Amazon.
But the linchpin of IBM's cloud strategy
is it's SAS portfolio.
Over the last 20 years Steve Mills
and his organization built a very large software business
which they now have migrated into their cloud
and so they've got that advantage much like Oracle.
They're not a big, dominant cloud infrastructure
as a service player
but they have a platform
where they can put things like Cognitive Solutions
and Watson
and offer those SAS services to clients.
So you'll check on that
but when you'll peel through the numbers
IBM beat it's numbers last quarter.
Stock was up.
You know, when it announced the Red Hat acquisition
the stock actually got crushed
because when you spend 34 billion dollars
on a company,
you know the shareholders don't necessarily love that
but we'll talk about the merits of that move.
But they beat in the fourth quarter.
They beat on the strength of services.
So IBM remains largely a services company,
about 60% plus of it's revenues comes from services.
It's a somewhat lower margin business,
even though IBM margins have been ticking up.
As I say, you go back the last five, six years
IBM Genesys did Mike's it's microelectronics business,
which was a, you know, lost business.
It got rid of it's x86 business
which is a x86 server business,
which is a low margin business.
So again, like Oracle, it's focusing
on high margin software and services
and now we enter the era, Stu,
of hybrid cloud with the Red Hat acquisition.
A lot of money to pay, but it gets IBM
into the next generation of multi cloud.
>> Yeah, Dave, the knock I've had against IBM
is in many ways they always try
to be all things to all people
and of course we know you can be good at some things
but, you know, it's really tough
to be great at everything.
And, you know, you talked about cloud, Dave,
you know, the SoftLayer acquisition
to kind of get into public cloud
but, you know,
IBM is not one of the big players in public cloud.
It's easy.
It's Amazon and then followed by you know,
Azure, Google,
and let's talk Alibaba if we're talking globally.
In a multi cloud world IBM has a strong play.
As you said, they've got a lot of application assets,
they have public cloud,
they partner with
a lot of the different cloud players out there
and with Red Hat they get a key asset
to be able to play across
all of these multi cloud environments
whether we're talking public cloud, private cloud,
across all these environments.
IBM's been pushing hard into the Kubernetes space,
doing a lot with Istio.
You know, where they play there,
in Red Hat is a key piece of this puzzle.
Red Hat running at about three billion dollars
of revenue and paying 34 billion dollars
but, you know, this is a linchpin as to say
how does IBM stay relevant
in this cloud world going forward?
It's really a you know, a key moment
for IBM as to what this means.
A lot of discussion as to you know,
it's not just the revenue piece
but what will Red Hat do to the culture of IBM?
IBM has a strong history in open source
but you know, you got to,
you have a large bench of Red Hat's strong executive team.
We're going to see some of them here at the show.
We're even going to have one Red Hat executive
on our program here
and so what will happen once this deal finally closes,
which is expected later this year,
probably October if you read, you know everything right.
But what will it look like as to how will, you know,
relatively small Red Hat
impact the larger IBM going forward?
>> Well, I think it's a big lever, right?
I mean we were, Lisa,
we were at Cisco Live in Barcelona last week
kind of laying out the horses on the track
for this multi cloud.
Cisco doesn't own it's own public cloud.
VMware and Dell don't own it's own public cloud.
They both tried to get into the public cloud
in the early days
and IBM does own it's own public cloud
as does Oracle
but they're also going hard after this notion of multi cloud
as is Cisco, as is VMware.
So it sort of sets up the sort of Cisco,
IBM Red Hat, VMware, Dell,
sort of competing to get after that multi cloud revenue
and then HPE fits in there somewhere.
We can talk about that.
>> So I saw a stat the other day that said
in 2018, 80% of companies moved data or apps
from public cloud.
Reasons being security, control, cost, performance.
So to some of the things I've read, Dave,
that you've covered recently,
if IBM isn't able to really go head to head
against the Azures and the AWS,
what is their differentiator
in this new, hybrid multi cloud world?
Is it being able to bring AI, Watson, Cognitive Solutions,
better than their competitors in that space
that you just mentioned?
>> Yeah, IBM does complicate it.
You know and cloud and hybrid cloud is complicated
and so that's IBM's wheelhouse.
And so it tends not to do commodity.
So if it's complicated and sophisticated
and requires a lot of services
and a lot of business processing happening
and things like that, IBM tends to excel.
So, you know, if you do the SWOT analysis
it's big opportunity is to be that multi-cloud provider
for it's largest customers.
And the larger customers are running, you know,
transaction systems on mainframe.
They're running cognitive systems on things like power.
They've got a giant portfolio, at IBM that is,
and they can cobble things together
with their services and solve problems
and that's kind of how IBM approaches the marketplace.
Much different than say, Stu, Cisco or VMware.
>> Yeah, Dave, you're absolutely right.
You know one of the things I look at is you know,
in this multi-cloud space we've see the SI's
that are very important there.
Companies like Accenture and KPMG and the like.
IBM partners with them
but IBM also has a large services business.
So, you know who's going to be able to help customers
get in there and figure out this
rather complicated environment.
So we are definitely one of the things I want to dig into
this week is understand where IBM is at the Cisco Show,
Dave.
We've talked about their messaging was
the bridge to you know what's possible.
You know meet the customers where they are,
show them how to reach into the future
and from Cisco's standpoint,
it's strong partnerships with AWS and Google
at the forefront.
So IBM has just one of the broadest portfolios
in the industry.
They absolutely play in every single piece
but you know customers need good consulting as to
Okay, what's going to be the fit for my business.
How do I modernize, how do I go forward?
And IBM's been down this
trip for a number of years.
>> Well the in the legacy of Ginni Rometty,
in my opinion is going to be determined by
the pace at which it can integrate Red Hat
and use Red Hat as a lever.
Ginni Rometty, when she was doing the roadshow
with Jim Whitehurst kept saying it's not a backend
loaded deal,
and the reason it's not a backend loaded deal is because
IBM is a 20 plus billion dollar outsourcing business and
they're going to plug Red Hat right into that business
to modernize applications.
So there's a captive revenue source for IBM.
In my view they have to really move fast,
faster than typically IBM moves.
We've been hearing about strategic initiatives and cloud,
and Watson and it's been moving too slow in my opinion.
The Red Hat acquisition has to move very very quickly.
It's got to move at the speed of cloud and that's going to
determine in my opinion--
>> So, actually, so a couple of weeks after the acquisition
Red Hat had brought in an analyst to hear what was going on,
and while the discussion is Red Hat will stay a distinct
brand, there's going to be no lay offs were
>> Yeah absolutely.
>> Going to keep them separate, what they will get is IBM
can really help them scale so
>> Yep.
Red Hat is getting into some new environments,
you know that whole services organization, Red Hat doesn't
have that.
So IBM absolutely can plug in there and we think really
accelerate, the old goal for Red Hat was okay how do we
get from that three billion dollars to five billion dollars
in the next couple of years.
IBM thinks that they can accelerate that even faster.
>> And Lisa I think the good news is IBM has always had
an affinity toward open source.
IBM was really the first, really to make a big investment
you know they poured a billion dollars into Linux as a
means of competing with Microsoft back in the day,
and so they've got open source chops.
So for those large IBM customers that might not want to go it
alone on open source and you know Red Hat's kind of the
cool kid on the block.
But at the same time, you know there's some risks there.
Now IBM can take that big blue blanket wrap it around it's
largest customers and say okay, we've got you covered in
open source, we've got the Red Hat asset, and we've got the
services organization to help you modernize your
application portfolio.
>> One of the things too that Stu, you brought up a couple
minutes ago is culture.
And so looking at what, Red Hat estimates that it's got
about eight million developers world wide using their
technologies and this is an area that IBM had historically
not been really focused on.
What are some of the things that you're expecting to hear
this week or see this week with respect to the developer
community embracing IMB?
>> Yeah and Lisa it's not like IBM hasn't been trying to get
into the developer community.
I remember back at some of the previous shows Edge and Pulse
and the like, they would have you know Dev at and try
to do a nice little piece of it but it really didn't gain
as much traction as you might like.
Compare and contrast that with cisco, we've been watching
over the last five years the DevNet community.
They've got over half a million developers on that platform.
So you know, developer engagement usually requires that
ground level activity where I've seen good work from IBM
has been getting into that cloud native space.
So absolutely seen them at the Kubernetes shows working in
the container space very heavily and of course that's an
area that Red Hat exceeds.
So the Linux developers are absolutely there.
Now you mentioned how many developers Red Hat has and in
that multi cloud, cloud native space, you know Red Hat
one of the leaders if not kind of the leader in that space
and therefore it should help super charge what IBM is doing,
give them some credibility.
I'd love to see how many developers
we see at this show, you know, you've been to this show Dave
and you've been to this show before, it looked more
enterprisey to me from the outside--
>> Well, I'm glad you brought up developers because that is
the lynch pin of the Red Hat acquisition.
If you look at the companies that actually have
in the cloud that have a strong developer affinity
obviously Microsoft does and always had AWS clearly does
Google has you know it's developer community.
Stu you mentioned Sisco.
Sisco came at it from a networking standpoint
and opened up it's network for infrastructure's code.
One of the few legacy hardware companies that's done a good
job there.
VMware, you know not so much.
Right?
Not really a big developer world and IBM has tried
as you pointed out.
When they announced Bluemix
but that really didn't take off in the developer world.
Now with Red Hat IBM, it's your point eight million
developers.
That is a huge asset for IBM and one that as I said before
it absolutely has to leverage and leverage fast.
>> And what are you expectations in terms of any sort of
industry deeper penetration?
There's been some big cloud deals, cloud wins that IBM has
made is recent history.
One of them being really big
in the energy sector.
Are you guys kind of expecting to see any sort of industry
deeper penetration as a result of what the
Red Hat Acquisition will bring?
>> Well thats IBM's strength.
Stu you pointed out before, it's Accenture,
you know Ernie Young, to a lesser extend maybe KPNG but
those big SI's and IBM.
When IBM bought PWC Gerstner transformed the company and it
became a global leader with deep deep industry expertise.
That is IBM's you know, savior frankly over these past
many many years.
So it can compete with virtually anybody on that front and
so yes absolutely every industry is being transformed
because of digital transformation.
IBM understands this
as well as anybody.
It's a boon for services, it's a good
margin business and so that's their competitive advantage.
>> Yeah I mean it ties back into their services.
I think back when I lived on the vendor side I learned
a lot of the industry off of watching IBM.
I see how many
companies are talking about smarter cities.
IBM had you know a long history of
working In those environment's.
Energy, industrial, IBM is very good at digging into the
needed requirements of specific industries and driving
that forward.
>> So we're going to be here for four days as we mentioned,
today is day one.
We're going to be talking a lot
about this hybrid multi-cloud world.
But some of the double clicks we're going to do is talking
about data protection, modern data protection, you know
a lot of the statistics say that there's
eighty percent of the worlds data isn't searchable yet.
We all hear every event we do guys, data is the new oil.
If companies can actually harness that, extract insights
faster than their competition.
Create new business models, new services, new products.
What are your expectations about how, I hear a lot get
your data AI ready.
As a marketer I go, what does that mean?
What are your thoughts Stu on, and we're sitting in
a lot of signage here.
How is IBM going to help companies get AI, Data rather
AI ready and what does that actually mean?
>> So IBM really educated a lot of the world and the broader
world as to what some of this AI is.
I mean I know we all watched many years ago when Watson was
on Jeopardy and we kind of hit through the past the peak and
have been trying to sort out okay well how can
IBM monetize this?
They're taking Watson and getting it into healthcare,
they're getting it into all these other environments.
So IBM is well known in the AI space.
Really well known in the data space but there's a lot of
competition and we're still relatively early in the sorting
how this new machine learning and AI are going to
fit in there.
You know we spent a lot of time looking at things like RPA
was kind of the gateway drug of AI if you will robotic
process automation.
And I'm not sure where IBM fit's into that environment.
So once again IBM has always had a broad portfolio
they do a lot of acquisitions in the space.
So you know how can they take all those pieces, pull them
together, get after the multicloud world, enable developers
to be able to really leverage data even more that's possible
and as you said you know more than eighty percent of data
today isn't used, you know from an infrastructure stand
point I'm looking at how do things like edge computing all
get pulled into this environment and lot of questions still.
>> IBM is going after hard problems like I said before.
You don't expect IBM to be doing things like ad serving
with Alexa.
You know that's not IBM's game, they're not
going to appropriate to sell ad's they're going to take really
hard complex problems and charge a lot of money for big
services engagements to transform companies.
That's their game and that's a data game for sure.
>> It's a data game and one of the pieces too that I'm
excited to learn about this week is what they're doing
about security.
We all know you can throw a ton of technology at security
and infrastructure but there's the people piece.
So we're going to be having a lot of conversations about
that as well.
Alright guys looking forward to a full week with you and
with John joining us at IBM Think I'm Lisa Martin
for Dave Vellante and Stu Miniman.
You're watching theCUBE live day one IBM Think 2019.
Stick around we'll be right back with our next guest.
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