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Breaking Analysis: The Transformation of Dell Technologies

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>> 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, ie 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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