CRN Exclusive: Meg Whitman On The Price Dell Paid For EMC, Phone Calls With Dell-EMC-VMware CEOs And The Opportunity For HP Partners To Gain Share

Hewlett Packard Enterprise And The Dell-EMC Deal

With the launch of Hewlett Packard Enterprise on Nov. 1, CEO Meg Whitman is set to embark on the final leg of HP's five-year turnaround plan.

Whitman spoke with CRN about HP's decision to split into two new Fortune 50 companies as part of a plan to create a more focused, more nimble and more innovative enterprise company. The split comes with the $55 billion Hewlett Packard Enterprise setting its sights on growing sales as a separate company.

Whitman also spoke about the opportunity for HP partners to gain share in the wake of Dell's $67 billion acquisition of EMC and HP's strategic relationship with VMware. She also spoke about the phone calls from Dell CEO Michael Dell, EMC CEO Joe Tucci and VMware CEO Pat Gelsinger on the "alignment" of interest with regard to serving joint customers.

Here is an edited excerpt from the conversation.

What did you think of the price Dell paid for EMC?

It is hard for me to judge, because I am not sure exactly where this is all going to land relative to the current EMC stock price and the current VMware price.

My experience in M&A is there has to be a seller and there has to be a buyer, so it's a negotiated price. I think in another six months, I may be able to give you a better view on this. It is moving very fast here. I can't give you a perfect sage response to that right now given how much it is moving around.

HP is VMware's No. 1 partner. How will the Dell-EMC deal impact your partnership with VMware?

Certainly not in the near term. We do a lot of business with VMware. We have got a very good relationship with that company. We do a lot of good work for customers. And through all of this we have to stay focused on customers, on what is the right answer for the partners' customers. In the near term, I don't think there will be much change at all.

Over time, we'll see how they are managed by Dell. The deal won't even close for a year. My north star is what is good for our customers and what is good for our partners' customers. If we do what is right by them, we will do well as a company. In the near term, I don't think there will be much change. Over time, we'll have to see how Dell manages VMware.

With HP such a big VMware partner, did Michael Dell, Pat Gelsinger or Joe Tucci reach out to you?

I know these guys very well. We do a lot of business together. And all three of them actually talked to me, which I appreciated.

What is the takeaway from those conversations?

Particularly around VMware, that we have got alignment of interest and we have got shared customers that we have to do right by. So while we compete every day with EMC, we compete with Dell -- obviously we have been doing very well against both of them in the last several quarters and the last several years -- we need to make sure we take care of customers on the VMware side.

Do you think anyone will come in to make an opposing bid for EMC?

Honestly I don't know. It is just hard to tell. What happens and who does what to whom is impossible to predict.

What impact do you think the VMware tracking stock might have on Dell-EMC going forward?

Hard to know. Tracking stocks were very popular in the '80s and I think even some in the '90s. I haven't seen it used very much. John Malone's company [Liberty Media] does this all the time.

I haven't seen it recently. I come back to what I said before: I think this gives HP and HP partners a real opportunity to go out into the marketplace and be aggressive, show our great offerings and demonstrate the solutions that we have to make their customers' business lower cost and more agile. I actually view it as a big opportunity for us and our partners.

HP at one point was forced to put a major shareholder on the board. Talk about the pressure that EMC was feeling from Elliott Management.

It is hard for me to know, because I was not in the EMC boardroom. I will speak to Ralph Whitworth [who served on the HP board from April 2013 to July 2014] at Relational [Investors LLC], who was our "activist shareholder." He actually was very helpful to this company. He made us better. But he was a very different kind of an activist. He partnered very well with me. We got along fantastically. I think I taught him some things. He taught me some things. It was an incredible experience for us. In fact, our new treasurer at Hewlett Packard Enterprise -- a guy named Kirt Karros -- worked for Ralph at Relational. That just shows you how much we thought of him.

I am not confused. Had we not delivered the results, Ralph might not have been my BFF. In the end, you have got to deliver, and we did a good job of that.

What is your in-the-trenches sales strategy to battle the new Dell-EMC combination?

First of all, our sales teams are highly energized around this because it is an opportunity for HP partners to gain share. Now, many of our partners also sell EMC and Dell. But this is an opportunity to gain share at new customers and existing customers versus Dell and EMC, because this company is about to undergo one of the most complicated, disruptive mergers, which will take a year to close. And then by the time they end up locking down everyone in terms of sales and who is leading what, it is an opportunity for us.

How important is stability in the IT business?

One thing I have learned through hard experience, and I go back to the fall of 2011: Instability creates challenges with partners because partners are betting their company on you. So when you look somewhat unstable or there may be change with what product lines are going to be continued or not, [there is an impact on partners]. Think about it: We said back in the fall of 2011 that maybe we were thinking about selling the PC business. The next thing I knew, [people were saying] we were getting out of hardware. That is what everyone fed back to me. I had to pick up the pieces from that.

We now look like the paragon of stability in the industry. I have been in place for four years. We have got our senior leadership team in place. Virtually every partner knows who their [partner business manager] is. They know who their channel executives are. So I think it is a real opportunity to show the breadth and the depth and the innovation in the HP portfolio.

What kind of confusion is there regarding what businesses Dell will divest?

Even Michael [Dell] said there will be sales of assets here to pay down the debt. We are in the businesses we are in. We have made our big strategic move, which is a separation, so we are excited about the future.

What is the difference between the Hewlett Packard Enterprise financial position and Dell?

The new Dell-EMC before they shed any assets will probably have about $62 billion of debt, $12 billion from taking Dell private and then another $50 billion to do this acquisition, and we will have $5.5 billion of net cash on the operating company.

I just spent my last four years de-leveraging this company. It is honestly a very different strategy. My view is, given the changing nature of the business, you want some flexibility; you don't want to deploy a lot of your operating income into servicing debt. It is a very different strategy.

Just for perspective, we estimated about $2.5 billion worth of debt at a relatively low interest rate. The EMC total R&D budget is $2.7 billion. It sort of puts it in perspective. People say, "$2.5 billion? They'll be able to cover that." Well they will, but at what cost? What else has to give?

I like our financial position. I like the health of our balance sheet. I like the fact that we have de-leveraged. It is quite telling. These are two very different strategies.

How has the separation has gone with Hewlett Packard Enterprise and HP Inc.?

I don't think it could have gone any better for partners. I was at [the] Canalys [channel conference], and every single partner came up to me and said, "Congratulations on a seamless separation."

It was quite remarkable. We were obviously very, very focused on the partners, making sure this was seamless for the partners. We interacted with 3,500 of them to make sure their systems were able to handle our new systems. I think we did a really nice job on behalf of the partners. I am super proud of that.

What is the solution provider call to action with the start of the fiscal year and the official launch of Hewlett Packard Enterprise?

Obviously we have a lot of energy behind this new company, and we'd like the partners and solution providers to have a lot of energy behind this company. There is a lot of opportunity in the market. The business is changing as all the partners and [distributors] that I talk to know well. And so now is the opportunity to seize the moment.

I would encourage your constituents to go out to their customers, understand their customers' needs, and then marry the right solutions to those customers' needs. We think that HP has the best solutions across the most important categories for our partners' customers.

No time like the present to grow your business if you are a partner or a distributor, and no time to waste in terms of making more money.

What will be the impact from the split on partner profitability and the ability to grow and gain market share with Hewlett Packard Enterprise?

We think we are really well-positioned. We have got a great product lineup, whether it is 3Par or the 3Par all-flash storage array, whether it is Aruba HP networking. We have a killer line of servers, converged infrastructure, our hybrid cloud offering, of course TS [Technology Services], which partners can now resell. There is just tremendous opportunity to make money.

You think about security -- that threat is not going away. We have got Arcsight and Fortify and Atalla and Voltage. There is just tremendous opportunity. In some ways the sky is the limit. It is about energy and enthusiasm and staying close the partners' customers, our joint customers, because they are under a lot of challenges. They have got to reduce the cost of their IT. They have to become more agile and nimble. They have to secure their enterprise. They have got to enable their workforce. And we have solutions for all of those things.