HPE CEO Meg Whitman On The CSC Deal, Beating Cisco, Recruiting Dell-EMC Partners And Why VMware Becomes 'Almost Irrelevant'

Whitman: 'It Was A Great Quarter'

Hewlett Packard Enterprise CEO Meg Whitman spoke with CRN Wednesday about the impact of the blockbuster deal to merge its $20 billion HPE Enterprise Services (ES) business with systems integration giant CSC, the future of a standalone HPE competing against Cisco and Dell-EMC and about HPE's relationship with VMware in light of the impending Dell-EMC merger.

Whitman's discussion with CRN came the morning after the company posted its first growth in year-over-year quarterly sales in five years for its second fiscal quarter ended April 30.

For the quarter, HPE posted earnings of 42 cents per share on sales of $12.7 billion, up one percent from $12.54 billion in the year ago quarter. Shares of HPE climbed nearly 7 percent to $17.31, while CSC shares rose nearly 38 percent to $49.06 in afternoon trading

"It was a great quarter for the company as a whole," Whitman said. "I think we can safely say the turnaround is working. We are pleased. And I do think we are going to unlock some real value by merging our enterprise services business with CSC."

Your view is that the CSC-HPE Enterprise Services merger was sparked in part by the IT outsourcing market consolidation trend?

I was referring basically to the IT services market -- BPO [business process outsourcing], ITO [information technology outsourcing] and some of the work the big India players do and IBM, ATOS and others. That market has changed dramatically. You go back five or six years ago, IT spending was still up and to the right, and a lot of players were getting into that market. It was a very fragmented market then, and it is still quite a fragmented market. So I think it will consolidate.

I also think, as the market changes, having a pure play global IT services company that can innovate faster, that has got a stronger balance sheet and a broader array of services will be helpful to that company. I think it is actually going to be great for customers as well. That customer base is the top couple of hundred big companies globally.

Does this CSC-HPE Enterprise Services deal help you with your partnering strategy with the broader channel?

I think it does. If you define the channel broadly -- our VARs and [distributors] -- if they had any concern we were competing against them for the services business, that goes away. Obviously we are going to have to rely on them even more to help grow the business.

Sometimes in the industry people include what I call channel partners alliances like Accenture, Deloitte, Capgemini. Obviously they are going to help us grow our business. Before they were thinking there was a competitor in-house. They looked at ES as a competitor. Now that this is a separate company we'll be able to do more business with those companies including the India outsourcers, Deloitte, etc.

Does this change the partnering strategy for the standalone HPE?

I don't think it changes the partner strategy. It accelerates the partner strategy: I would say more, better, faster. To your point we'll be even more focused on the channel. Obviously we want to continue to grow the company based on the excellent technology that we have invested in over the last four years. What I will tell you is there is also real benefit to focus.

I have noticed this since the HP Inc. and HPE split: I spend more time on a smaller number of businesses with the channel and customers. Now I will be spending even more time with the channel because it will be basically 80 percent of our go-to-market. So I think the channel will see even more of me and my senior leaders, which I think will be good for the channel.

Why does the scale up strategy work in the services business with a combined CSC-HPE Enterprise Services and not in the HPE standalone software-defined infrastructure business?

In part you have got basically an older industry and a brand new industry. Typically what you see is as industries start to mature and slow their growth down, often that is when you see consolidation.

If you think about software defined infrastructure, our Helion cloud platform, our new stack of the next generation of IT -- security, big data -- these are really growth industries. My view is there is opportunity to define some of these industries.

How does the HPE software-defined infrastructure strategy and the assets you have compare to Cisco's portfolio?

I think the good news is our investments in R & D are paying off. You saw that we grew 18 percent in networking, and Cisco shrunk by three points. We have done a good job. Our Aruba product just got into the Gartner Magic Quadrant as the leader for the first time. That is the first time Cisco hasn’t been the leader there in I don't know how many years. That is very good for us.

We also have got the full data center portfolio -- servers, storage, networking, plus converged and our new hyper-converged,our DL380 -- which is off to a good start as well as our Helion cloud which has a very good presence in private cloud.

And Cisco has no storage business right now so they are reliant on other storage [companies] to provide that. I think the strategy we have embarked on is the right one.

I would tell you the investment we have made in R&D has made a big difference and also, frankly, the investment that we have made in marketing.

Dell is scaling up with the EMC-VMware acquisition later this year. Do you get a speed advantage from being smaller going up against them?

I think so. Obviously the proof will be in the pudding once their acquisition of EMC is complete. But what we have done is taken advantage in the market of the uncertainty around the Dell-EMC deal.

A lot of partners are asking -- "How is this exactly going to work?" "Is EMC going to get the right amount of R&D?," "What is coverage model going to look like?" We have taken advantage of that opportunity in the last six to nine months. After the deal is closed they are going to be quite inwardly focused.

What cost-cutting will Dell-EMC face as two companies are combined?

They have got a lot of sorting out to do and a lot of cost to take out. You have to think of them I think in many ways as being owned by private equity, so it is a cost takeout play. That actually may be good from a financial perspective. We'll see how good it is for partners.

So we are just going to be small and nimble. I say small, but even after ES is gone we are a $33 billion company which is the same size as Nike, McDonalds and Oracle. Some people say you are getting so small, but it's not that small.

Our advertising says the future belongs to the fast. And it is easier to be faster when you are simpler with a smaller number of businesses.

What's HPE's plan to aggressively recruit the Dell-EMC partners at the HPE Discover conference next month?

It follows the playbook that we ran for the IBM partners when IBM sold their server business to Lenovo. We were very successful bringing on board a lot of the Big Blue partners, so we just pulled out the playbook and are running it again for the EMC partners as well as the Dell partners. Dell, of course, is trying to become more of a channel company. They have always been more of a direct [sales] internet company.

We have been working on those EMC partners. We have a very good program at Discover [June 7-9 in Las Vegas] where we are welcoming all those partners, and we'll tell them the benefits of partnering with us.

Those EMC partners are worried about how much R&D EMC is going to get in the future. And EMC has grown through acquisitions. Trust me, there is not going to be any capital available for acquisitions for a while.

What level of R&D investments will HPE be making as a standalone company versus Dell-EMC?

We have increased R&D spending every single year as a percentage of revenue and in absolute dollars. And we want to continue to do that. I say to Tim Stonesifer-- our CFO -- that the best dollar we spend is on R&D inside HPE. It is a fantastic execution machine.

[HPE Executive Vice President and General Manager] Antonio [Neri] has done a very good job of getting the R&D really humming in EG (Enterprise Group) and [Executive Vice President and General Manager] Robert Youngjohns in software. So we are going to continue to invest.

Think of high-performance compute. We are the only ones left standing there. There is Cray and SGI, but we have a big commitment to high-performance compute. We have got a big commitment to next-generation infrastructure beyond converged and hyper-converged with composable [infrastructure]. That's a big investment for us. We are doing a lot of work in storage and a lot of work in the next generation of wireless LANs. Aruba has been a great acquisition for this company and great for partners. And then of course all-flash is outgrowing the market by two times -- nearly triple-digit growth rates. So onward and upward for that business.

Does the VMware partnership change and become less strategic as you build out the software-defined strategy?

I think at least for the foreseeable future the VMware partnership is really important to us. We are about 36 percent of VMware's go-to-market. So they care a lot about us, and we care a lot about them. It is a really important relationship. [VMware CEO] Pat Gelsinger has reached out. Everyone at VMware has reached out to tell us, "We need you guys from a VMware perspective." I believe that.

How do containers change the VMware market dynamics?

There are some interesting things that will happen in the future -- this is in the next five years, not next week. With the advent of containers, VMware becomes almost irrelevant. And so as containers grow in importance I think the VMware asset will be not as strategic an asset, and it may actually shrink over time.

This business is Darwinian. I think containers make VMware less relevant -- not next week, not next month, but over time.

Will you look at acquiring a container company?

We might, but we are also working very hard on our container strategy. In fact, we booted HP-UX [HP's Integrity high-performance computer operating system] to a container last week, which is actually enormous. That is a huge thing. More work to come.

What can partners expect to see at the Discover conference?

At Discover, you are going to see some amazing new technology for cloud, composable infrastructure and more on our strategy for [the Internet of Things], which I think will be of great interest to partners in general.

Two years ago, we began inviting partners to Discover. It used to be direct customers only. When I first got here I said, "Why are we not inviting partners to Discover? It is the greatest exhibition of HPE technology." Increasingly every Discover we have gotten more and more partners coming.

Why was it important to you to have Discover become a more partner-oriented show?

I love the notion of partners bringing their customers to Discover. We pioneered this a couple of years ago. I have done a number of events where the partner will bring their customers and I will come to that event. I think it's a great way for the partners to be more relevant to their customers and sort of be their eyes and ears and a guide through Discover. I think it is a really great thing for partners.