From theCUBE Studios in Palo Alto in Boston, bringing you data-driven insights from theCUBE and ETR. This is "Breaking Analysis" with Dave Vellante. On Tuesday this past week, HPE invited a number of industry analysts to participate in HPE GreenLake Storage Day. Notably, HPE declared 2023 the year of storage. While the company made several storage related announcements, perhaps even more interesting was what the event tells us about HPE's culture, its strategy, and the future direction of the company. Hello and welcome to this week's Wikibon CUBE Insights powered by ETR. In this "Breaking Analysis," we'll share our takeaways from HPE's event, which was held in Houston, Texas, and included attendance at Antonio Neri's quarterly all-hands meeting, they'll let us listen in. We're going to try to emphasize areas that have not necessarily been the focus of most press and industry analyst write-ups so far. We'll also take a look at the latest ETR data to put HPE's market position in context across several of its major segments.

HPE's Houston headquarters were a pleasant surprise for someone who's never visited the facility. Remember, after the split from HPE Inc, the company I think did a brief stint in San Jose at their headquarters, but then moved HQ to Houston. Oh, so let's start in the upper left of this photo collage. You enter the building and you see this raised stage, there's a band there, you have bright colors behind them, which by the way doubled as a big screen. You can squint through that shaded area behind the band, those windows, and there's a huge stadium size screen outside, which also carried the event live. And then we were taken up to the second floor and greeted by a Mercedes Formula 1 car. And then we went back down to the main stage.

It was a full house with mostly HPE employees and there was seating for around, I don't know, 25 or 30 analysts. Now on the lower right is Bobby Ford. He's at the news desk and he's interviewing Antonio Neri. Before Antonio came out, Ford warmed up the audience. He's the CSO by the way of HPE. He warmed up the audience with a comedy routine that was actually pretty hilarious. Antonio then came on, he reviewed some milestones, got interviewed by Bobby Ford for the, you know, milestones for the quarter, emphasizing of course, again, the focus strategy of edge to cloud and everything-as-a-service and GreenLake, and then the financial performance. They had some outside guests come in or inside guests come in from remote. And then when you move to the bottom middle, that's Casey Taylor, she's the COO of HPE Storage and she's interviewing Tom Black.

Tom Black is the EVP and GM of HPE Storage. They're talking about the announcement. And on the bottom left is Casey interviewing the CIO of the Dallas Cowboys who said some very nice things about HPE. So this was a highly produced event and evidently is like a quarterly occurrence at the company. The audience of mostly employees was very much engaged and a lot of 'em were beaming with pride. You know, but just to punctuate the vibe, Alex play this clip. (upbeat music) ♪ South side, south side, yeah ♪ ♪ South side, south side ♪ ♪ Everybody, this is south side, south side ♪ I dunno if you happen to notice, I just noticed it, did you see the applause sign? Anyway, the whole thing was pretty cool, not something that you'd expect from HPE. We were also told that Antonio Neri had a heavy hand in the design of the building, really down to the smallest detail. Now, why did we start here today? Because we've been witnessing a new excitement from HPE employees in sort of our post-COVID face-to-face interactions and we weren't sure how genuine it was, but this sort of beat the skeptic out of me. You know, culture, it starts at the top and Antonio Neri has been transforming HPE and it really showed this week. So let's get into some of the storage announcements later on in our take. But honestly, it's been really widely covered in the press. So we're going to put some links into our post and in the podcast show notes.

And if you want to dig into the speeds and feeds, there's plenty of information there. You know, Chris Miller and others have written that up in quite a bit of detail. Rather, what we want to do today is to zoom out and take a broader look at HPE. Here's a chart from HPE's quarterly investor deck that breaks down the business. HPE does about $30 billion in revenue annually, it's got about a $20 billion market cap, and it's most often compared to Dell Technologies, which is $100 billion revenue company with a $30 billion valuation, so a little different revenue multiple there. Of course, Dell competes with both parts of the old HP, HP Inc. and HPE. As you see in the left, compute comprises by far the largest portion of HPE's business, storage around 15% of revenue, intelligent edge, which is powered by the Aruba acquisition, has been a home run for HPE, and interestingly is a fundamental part of its storage offering, which we'll talk about in a moment.

HPC and AI make up about 13% of revenue, but they don't throw off any meaningful operating profit as you can see in the middle portion of this chart. Now look at compute, it accounts for 59% of HPE's operating profit. The operating profit contribution from storage is less than the revenue contribution, which is absolutely not the case for Dell. And if you can see, as you can see rather, the intelligent edge, AKA networking, has a greater contribution to operating profit, significantly greater than it does to revenue. Here's what's happening, and this started back when Meg Whitman was CEO even, HPE is a server centric company. And if you're in servers, you're not only battling Dell, you're fighting the ODMs, the original design manufacturers like Quanta, and of course the cloud is sucking up a lot of compute demand and budget, and of course you're paying Intel and Nvidia.

So what are you doing an environment where Intel, AMD, and Nvidia are, you know, they have gross margins that are significantly higher than the likes of HPE and Dell? Well, this is something that, you know, Antonio Neri picked up from Meg Whitman and actually, you know, had to really force on his GMs and put into practice. What you do is you create a set of standard and common components across the product lines to lower your cost and accelerate your time to market and you add software content on top with value added features to get margins up and you effectively create a cost effective set of horizontal capabilities and you drive that throughout your product portfolio. Look, it's not rocket science to come up with this idea and it's not unique in the industry, everyone is sort of headed in this direction or actually doing it, but it's culturally very hard to do, because look, a P&L leader might see an opportunity, you know, based on being close to customers and getting customer feedback that, "Wow, if we did this purpose-built capability that's unique, you know, maybe it requires some kind of custom hardware, we can add some special value and differentiate in the sector." And so the allure of doing so to compete is very high.

And you know, this became clear in HPE's Storage announcement this week in terms of them sort of breaking that habit. If you remember the 3PAR, you know, was renowned for its ASICs. Well, the new storage, the new Electra storage is, you know, no custom components. So two things we want to emphasize in this sort of next segment here. First, HPE's strategies to create commonality across its product lines as we just said, leveraging Aruba by the way, extensively. And two, it has a unique opportunity in high performance computing and AI, but it's very unclear where they're headed here. You know, it has to do something though to get that business up to profitability levels. Now here are a couple of tells that we uncovered from recent HPE executive statements.

HPE's top server dog, CUBE alum Neil MacDonald, had this to say at Investor Day last year, quote, "We've done phenomenally well with compute. If you look at the profitability of our compute business and our nearest competitor, Dell, we from a margin standpoint make more money in compute than they do across compute, storage, and networking taken all together." Now what Neil says is true, HPE's operating profit in compute is in the high teens, let's call it 19%, Dell's operating profit in its ISG segment, which comprises servers, networking, and storage is around 12 to 13%. But Dell's absolute operating profits in the segment are more than double HPE's combined compute, networking, and storage operating profits.

So which is the better business? Would you rather have a smaller higher margin business or a bigger lower margin business that throws off more cash? You tell me. Coming back to the quotes, on the last earnings call, Antonio Neri dropped this nugget around HPC and AI. "We are assessing the type of business model we can deploy as part of our as-a-service model by offering what I call a cloud supercomputing IaaS layer with a platform as a service," unquote. Now he said on that call that while he couldn't mention the cloud company, but he said one of the clouds is using HPE's Cray products for their HPC offering and he allows us to infer it's one of the hyperscalers. Now I hope he's not talking about, you know, non-hyperscalers.

You know, I don't think it would be IBM, HPE licenses GPFS from IBM, and IBM of course has Power and, you know, doing quantum, so my guess is this would be Microsoft, but I don't know. So maybe there's something in the works there. That's something to watch, this supercomputing IaaS layer. You know, HPE already has HPC running in GreenLake, so maybe it's an enhancement there. Who knows? Maybe we'll find out at HPE Discover in June. Antonio talks quite a bit about generative AI. In fact, let's face it, 2023, even though HPE declared it the year of storage, sorry, is the year of GPT and foundational models. Sorry, storage people, but anyway, I digress. Let's move on, take a look at how HPE views its TAM. We love TAM charts because it quantifies the opportunity.

We love big numbers and we love the big numbers here. Edge and its granular areas like networking and security, future telco opportunities, we saw HPE at MWC23 this year. Of course, you know, Dell was also there in force. You're seeing the traditional, you know, IT stacks, you know, move into the telco stacks as those get disaggregated. HPE made, you know, an acquisition with a company, made a couple acquisitions. One example is Athonet and private wireless, you know, then you got cloud, it's all about hybrid for HPE, we'll see if HPE takes the leap into what we call supercloud, really that cross-cloud focus. You know, right now, it's very much focused on hybrid and on-prem versus sort of multi-cloud and cross-cloud. Again, what we call supercloud at least.

You know, that's what I'm hearing from HPE. And of course, in that third area is data. Now data's super interesting because you got storage and you got HPC there, you know, HPC, AI, data, it's all sort of together, you got Zerto and data protection, HPE acquired Zerto, but then you move up the stack, and it's not shown here, HPE has Ezmeral. And you know, Patrick Moorehead and I both asked Antonio in a separate analyst breakout, is the strategy really to try to build unique IP? You know, Patrick used the example of Cloudera. I'm not sure that's the best example, but yeah, okay, it's Cloudera, big data stack, or go more toward an ecosystem play or both. I mean, I think Databricks and Snowflake are really the sort of, you know, poster children for the modern data stack.

You know, we've written a lot about that and we're doing a lot of research on that. So we won't go, you know, too much into that. But anyway, Antonio definitely said that HPE's interest is more around building unique IP. And I don't see data management specifically in this chart. So not sure where Ezmeral fits or if HPE is contemplating more acquisitions on top of its MapR and other data players like BlueData. And look, GreenLake encompasses or will encompass all of these areas. So we see GreenLake as HPE's cloud and marketplaces and ecosystems are a hallmark of clouds, but maybe they're not when it comes to on-prem or hybrid clouds. As John Furias says, "As-a-service offerings, like GreenLake and Dell's Apex, are better versions of outposts." So maybe that's the play, just give existing customers an as-a-service offering and migrate them.

But personally I think there has to be more, especially with the distribution channel that HPE has or Dell has, they could definitely bring more into the ecosystem beyond sort of infrastructure players up the data stack. But you know, Neri did stress that the strategy is to build organically, acquire and partner as they've done, you know, this past week with Vast. So we'll see if that bubbles up to that data management stack. And Vast, we're going to come back to and talk more about that. But before we do, let's take a look at the ETR data and see where HPE sits relative to its competitors in four key segments: networks, servers, storage, and cloud. So we've purposely made this small, because the data's still not finalized, but each chart it follows a breaking analysis.

Know we use this XY graph all the time. Each chart has two axes, net score on the vertical axis, that's a measure of spending momentum using ETR's proprietary methodology, and on the X axis is pervasiveness in the data set, that's sort of an indicator of presence in the market. That red dotted line at 40% on the vertical axis, that indicates a highly elevated spending level for a particular platform. This is a survey of 1500 IT decision makers across virtually all industries. It is North America heavy and it's big company heavy, but it does have small and medium sized businesses, it's got overseas input. We've also noted the minimum number of vendor mentions that we cut in order to make the charts less busy or the n, if you will, within each chart that we use as a cutoff point.

Okay, the bottom line is one, upper left, HPE is killing it in networking from a momentum standpoint, it's got tons of room to grow to the right. That's Cisco over there. And you know, the big whale in the business. Two, second chart, top right in servers. Servers is a mature business, but it's driving software content as we talked about into its server platforms across its entire line. You go down bottom left, HPE storage business is fragmented, it's got a lot of lines and many partners. The most recent Electra announcement is designed to bring those lines together. HPE says it's the fastest growing product in the history of the company. And then in the bottom right in cloud, HPE and Dell are just starting to hit the radar of customer surveys. So, you know, they're not that big in cloud and just doesn't seem to have a lot of momentum even though we know their businesses are growing quite rapidly.

It's just when you talk to customers about whose cloud you're using, they're just starting to figure out and associate the likes of HPE and GreenLake, you know, with cloud. Again, we're talking across the board. I'm sure there's plenty of HPE GreenLake customers that, you know, would disagree with that statement, but we're talking about a relatively small base, a billion dollar ARR. So a lot of upside there, but a lot of catching up to do to the big cloud players. So look, this HPE business, it's a mature business, but you know, it's got growth levers, particularly with Aruba. Aruba Central, for example, is the underpinning of GreenLake. HPE is bringing its Aruba and networking expertise across the portfolio in a much bigger way than it has done, you know, similar but even more so than what it's done with the Nimble acquisition with InfoSight, the sort of AI ops piece of it.

Tom Black is the head of storage. He's a networking guy. I sat next to him at dinner on Monday night and got an education on the synergies between networking and storage. In fact, he used to work for Jayshree Ullal, one of my business heroes, when he was at Arista. So we had a great conversation there. And again, you're seeing a lot of networking content from Aruba get pushed into, whether it's GreenLake and the physical server infrastructure. Okay, but so this was storage day and we haven't really talked much about storage. Here's a mashup of some of the pictures that show what HPE calls the industry's first disaggregated scale-out block storage with 100% data availability guarantee. You know, a lot of points there. So I guess they're the only one. And I think they can say this is true, right?

HPE's got a lot of lawyers, so I'm sure it is true. You know, IBM has ScaleOut Flash, but it's not disaggregated, and Infinidat's got 100% data availability guarantees, it uses all standard components, but it's really scale up. Pure is block, but it's also scale up. So I don't know how important, you know, the scale-out is for block. You know, Pure's claim is they don't get really get a lot of demand for it. You know, we'll see if HPE can disrupt that. What is important however, is there's no proprietary hardware in these pictures. The lower left shows a picture of the Electra MP, that stands for multi-protocol, and that big hunk of metal in the top middle, that's the processor, which sucks up a lot of the margin, right? And it's surrounded by memory DIMMs. And then you see the fans are there, those blue things, and the blue card to the right is like a persona decoder, I'll call it, that can manage the block or file configurations, you know, how much memory and the like.

And then the Vast file system gets laid on top of all this, which is a huge win for Vast. And again, it's an example of HPE adding content, you know, through a partner, okay, in this case, Vast. But that's a way to get margins up. And by the way, storage margins, you know, we're talking historically, you know, 60% gross margins. Certainly, you know, at least 40 to 50% much higher than HP's average. Now, in fact, I mentioned Vast. Vast execs were at this event in force. Renen, the CEO, Jeff Denworth, one of the co-founders was there, there were a bunch of other folks from Vast. They were sitting right in the front row. No doubt they were very excited. And that company, I asked Renen, "Why did you start Vast?" And he said, "Because it's all about AI. We felt that AI was going to need new thinking and new capabilities.

And you know, that's what Vast is all about." And they seem to be doing very, very well. Now they have an object storage solution, but HPE is only for now taking advantage of the Vast file capability. Every analyst on the planet, including myself, asks, "Where's object?" And the answer is course, "No, stay tuned." So no doubt that's coming soon. Now the three stacked boxes that you see in the bottom middle are the Electra Storage MP. You know, there's compute, there's two Aruba switches, and they had a bunch of flash storage, it's like three sort of groups of eight that presumably connect out of the back end of that open box and the bottom left. But basically that open box is a controller or really a server that controls the storage and manages all the IO.

Now the one thing I didn't see get much coverage in the press is what we show on the right with my, you know, lameo pictures here that I took during the event, that's the GreenLake storage console. It's a cloud-like view of the storage lifecycle and workflow and you can click on each of these. It's just like you would see in an Amazon console if you've ever seen one of those. And the bottom right shows the GreenLake, like you can't really see it, but it's the GreenLake, you know, Zerto piece that reaches in and can protect data on AWS. Omar Assad was up on stage with Keith Townsend, the CTO advisor. He was demoing this. Keith played the skeptical analyst. Like, "Hold on, what about this, what about that?" And then of course at the end, Omar asked him if he was convinced. He said, "Yeah, I'm convinced, you've done a pretty good job." And Keith wouldn't say that unless he meant it.

You know, I know Keith well, he doesn't just pimp for companies even though they're paying him. And so Omer I think did a good job of addressing all of his questions. The point is, with all this GreenLake stuff that first was announced during COVID and by back then was a bunch of services and financial mumbo jumbo and you know, games, it's actually now becoming a real cloud operating model. And that's probably why HPE hasn't taken in yet the Vast object store because they have to certify it for GreenLake, they got to connect it to all the GreenLake APIs, they got to deal with all the backend integration, and all the service and that takes time. And we suspect that going forward, there won't be many or any partner products announced that don't integrate with GreenLake. So high marks for that discipline by HPE.

You know, this thing is finally getting real after many analysts like myself have been calling for something like this since at least 2018 and even before. I know it's not easy to change the stripes like this, especially for a company like HPE when it was so distracted with, you know, the HP split. But this is going to be, GreenLake is going to be a primary platform for customers well into the next decade. So the last thing we want to hit on is some points and takeaways. You know, staying with, you know, storage a little bit, but also coming back to the culture. HPE's culture is forming. You know, think about it, the legacy of Bill and Dave, that lasted for 75 years, but Antonio has had to create a new HPE culture and he gets really high marks for his enthusiasm, his discipline, his clarity, he's building an execution ethos.

HPE, no question, is getting stronger, not weaker. You know, it beat its earnings, it raised its guidance in this macro environment despite FX headwinds, despite the economic uncertainty. So it's got momentum, it's got backlog, it's working through that backlog. So, you know, it's actually, you know, pretty, pretty bold to do a raise in that kind of climate 'cause you're not going to get rewarded necessarily by the street even though it did, you know, the stock popped a little bit, but again, market's tough right now. So they could have chosen to just, you know, stay conservative. They didn't. And so now they've sort of stuck their neck out and I have pretty high confidence they're going to hit their numbers. HP, not HPE, but HP used to be horrible at acquisitions.

I don't even want to go into some of the failed acquisitions and it hurt the company for years and years and years, years. HPE is getting really good and prudent at acquiring companies. A lot of really useful tuck-ins, look what it's done with Aruba, look what it's done in HPC, look what it's done in storage, and, you know, it's GreenLaking everything. That's not just words, it's really a ground up effort. Love the cloud console. Either tiptoeing with Zerto into supercloud. And it's all about, as you said, driving consistency across the lines, driving efficiency from a hardware perspective, and then adding value with software on top and creating unique IP where possible. HPC and AI, big area of potential growth.

Let's see if HPE can lead there. It actually does lead in supercomputing for sure. I want to spend the time, so a minute on silos. You always hear silos this, silos that. We're going to break down silos. If you look at HPE's line, we got Electra, which is becoming, you know, the go-to platform. There's the 4000, which I think used to be called Apollo, there's the 5000, which I think is this hybrid thing, there's the 6000, which is Nimble, there's the Electro 9000, which is 3PAR or I guess Primera. Now we have the MP with Vast. So this announcement can't be good news for Weka. You know, they got the whole MinIO kerfuffle. Qumulo is an HPE partner, they can't be all too happy with this with Vast becoming the anointed partner. And remember Scality?

Jerome Lecat's company? Didn't hear anything about them. You know, stay tuned was the word around object. So you got to believe that's going to be Vast and one would expect Vast is eventually going to pop weka out in HPC. You know, we'll see. The point I'll leave you with is silos are only partially a function of the storage platform. That's a problem. But it's much more a problem that stems from data being locked inside of SaaS platforms and applications. And to truly put data at the center of your business requires new thinking about the data stack, perhaps where logic is embedded in the data elements and not the other way around. You know, perhaps the modern data stack needs a facelift where we truly democratize data for lines of business. People talk about data mash and data fabric, but also there has to be this semantic layer to connect all these data elements and drive coherence across hundreds, thousands, or even hundreds of thousands of data elements.

That, however, is a topic for another day. For now, we'll leave it there. Many thanks to Alex Myerson who's on production and manages the podcast, Ken Shifman as well. Kristen Martin and Cheryl Knight help get the word out on social media for "Breaking Analysis" and in our newsletters. And Rob Hof is our editor-in-chief over at Silicon Angle, does some great editing. Thank you all. Remember all these episodes, they are available as podcasts wherever you listen. All you got to do is search "Breaking Analysis" podcast. I publish each week on wikibon.com, at siliconangle.com, all the videos are available from our events at thecube.net. You can email me if you want to reach out, David.Vellante@siliconangle.com or DM me at DVellante. If you have something interesting, I'll respond. If not, don't be offended. Or comment on my LinkedIn post. And please do check out etr.ai for the best survey data in the enterprise tech business. This is Dave Vellante for theCUBE Insights powered by ETR. Thanks for watching and we'll see you next time on "Breaking Analysis." (upbeat music)