Earnings, Insights, and Innovation: Palo Alto, IBM, Lenovo, and Hammerspace – Infrastructure Matters, Episode 32

Disclosure: The Futurum Group is a research and advisory firm that engages or has engaged in research, analysis, and advisory services with many technology companies, including those mentioned in this webcast. The author does not hold any equity positions with any company mentioned in this webcast.

Analysis and opinions expressed herein are specific to the analyst individually and data and other information that might have been provided for validation, not those of The Futurum Group as a whole.

Transcript:

Camberley Bates: Good morning, everyone. It is another session of Infrastructure Matters. Is it 31? 32? I don’t know…ok.

Steven Dickens: It’s 32.

Camberley Bates: Okay. You’re amazing that you keep track of this thing. So as you saw they were pointing at their shirts with the picture there. I didn’t have my vest on. I’m getting grief on it because… But I am. See, I’m beating you to it. So I’ve got my nice warm sweater here because we got kind of cool weather here in Colorado. Anyway, there we go. So I’m Camberley Bates and I’m hosting–

Steven Dickens: Two weeks running, Camberley. We’ve not worn the merch. We’re going to have to tell Daniel and dub you in I think.

Camberley Bates: I wear it occasionally. There we go. Okay. So anyway, moving on. They don’t want to hear about this. I’m Camberley Bates. You guys know me. You know Krista. You know my compatriot Steve, who’s just ratting on me today. Anyway, so we’ve got some great stuff to talk about today, Lenovo, bit of IBM, some Palo Alto, a little bit of Hammerspace and I’m missing Acronis.

There we go. There is the other one that was on the list that we’ve got going. So with that, I’m going to turn it over to Ms. Krista, because one of the things I shot over to her, I said, “Okay. What the heck happened to Palo Alto?” Because it was not only just all over our news, the tech news, but it was all over the press news as well. So what’s going on with Palo Alto? And does this mean cybersecurity is all fixed?

Krista Macomber: Yep. We can all go home.

Steven Dickens: Yeah. I think the podcast is done. Security is fixed. AT&T network didn’t have a cyber attack. All everything’s good.

Krista Macomber: Everything is copacetic.

Camberley Bates: Okay. AT&T wasn’t cyber. It was a bug when they loaded the software up.

Steven Dickens: Oh, was it?

Krista Macomber: Yep. That’s true. That’s true.

Steven Dickens: Yeah. That’s the likely story we’re being told, but it wasn’t the Chinese or the Russians. But yeah. Great.

Camberley Bates: All right. No politics. Go.

Krista Macomber: Yeah. So what I see happening with Palo Alto, so they announced their earnings this week and kind of the big hubbub was that they did revise down both their expectations for their earnings for the coming quarter and also for the full year. And they had really… Especially from kind of a stock and evaluation perspective, they have really been a darling over the last four years, really since COVID. So I have in my notes here that their stock actually increased about 400% since January, 2020. And that is largely because… So Palo Alto has always been focused on firewalls and they’ve been over the last several years really investing to evolve their capabilities to be able to piggyback closely on, as you were alluding to, Camberley, cybersecurity requirements and the huge rise in cybercrime.

So that’s really I would say part of why we have seen this kind of tremendous growth in their stock and their valuation over the last several years, especially when you think about the network and how we’re all operating very remotely and in a distributed fashion. Also, as we’re moving to the cloud, this has really kind of changed the game away from the traditional firewall. And I really think Palo Alto is able to capitalize on that. Now what they’re doing from the perspective of Palo Alto is they are moving more towards what they’re calling a platform as opposed to sort of a point product approach. So when we think about valuation and how investors are looking at this, I think they’re kind of reading between the lines and they’re hearing bundling and price discounts and things like that.

So I think that has been a little bit of kind of maybe the fear, so to speak, that we’ve been seeing. But I think it is probably going to be a little bit of kind of some short-term sacrifice from the standpoint of pricing. But from a longer-term perspective for Palo Alto, I do think it’s a smart move. I know we’ve talked on this podcast just the vast number of security tools that customers are using today. And I think there’s only going to be so much tolerance for that from the standpoint of the practitioner for all of the complexity that adds, from the standpoint of the purchase decision maker, whoever’s having to shell out for all of these point products. So I see it as kind of a longer-term move for Palo Alto to be able to better align with I think how customers are looking to buy.

Camberley Bates: That’s an interesting thing because… And I’m not sure if this is changing at all, but it used to be that from the security standpoint, you would buy the best of breed for some obvious reasons. You buy the best lock, you buy the best whatever to protect your house. And so the bundling didn’t work in past lives and we saw that happening. But with the issue that you’re talking about with so many tools, and some of the stuff is shelf-ware because they’re not using it, but they’ve bought it and they’ve invested in it, and the IT organizations are having to rationalize what they have done. It’ll be interesting to see how this plays out over time.

Steven Dickens: Yeah. I think exactly the same. I listened to a podcast with the CEO of Palo Alto, obviously one of their big competitors. And I think it was really interesting for me. I can’t remember the number. I’d have to dig it back out, but… And you’ll see this. I know you’re out at RSA in a few weeks time. Just the sheer exhibited list and the number of vendors. There’s nobody that’s got big market share, double digit market share, in the security space. And as you mentioned really rightly, that’s a nightmare from a practitioner point of view. If you’re in the CISO team and you’ve got 40 tools to manage, 40 different consoles, 40 different UIs, each tool does something slightly differently in a slightly different, that’s just friction and wasted time.

Camberley Bates: What that reminds me of? Is a woman’s shoe closet.

Steven Dickens: I have no frame of reference there, Camberley, but I’ll take your insights on face value. Let me, let me–.

Camberley Bates: This is like sicko, the way my brain is working this morning. I’m sorry. Sorry, listeners. Apologies to you out there.

Steven Dickens: This is why we like wearing these outfits on a Friday. We don’t have to think about it.

Krista Macomber: I said that, yes. Yep.

Steven Dickens: But no, the platform plays a great insight, I think, into the market. So it’s a point well made, Krista, joking aside.

Krista Macomber: Yeah. And I think it’s… There’s never going to be, I would say, one silver bullet security tool just because there are so many different angles that need to be perspective. You have your application development security. You have, like we’re discussing here, your network security. You have… We’ll touch on this in a few minutes in our conversation. You have endpoint security for the actual devices themselves.

And I think to the point of the best of breed, absolutely, I think we’re going to continue to see certain companies that play in each of these areas and do it well, but I think the more they can bring a more comprehensive bundle to the table that doesn’t offer multiple points of management control that especially as we maybe start moving towards kind of a SaaS model too, it’s easy to figure out what your charges are going to be every month. I think that’s all going to help.

Camberley Bates: Yeah. I know recently we took some briefings, and they’re NDA right now, but you’ll hear about it coming up in the months to come, of companies looking at the systems approach to cybersecurity and protecting the environment and how the pieces start to work together. So maybe we will get to a more streamlined, I won’t call it simplified, streamlined kind of approach to selecting shoes. No. I mean, security. Okay. I’ll stop on that now.

So the second one on here, and I’m going to go back to Ms. Krista again here, on the same line is that IBM released a security report. I got a chance to kind of glance at it. This is a really long report. I mean, it’s like 60 pages or something. And it’s a repeating report that they do every year. So there’s really some big trending here. And I started pulling out some pieces out of there and I said, “Wow. There is some real big pieces of data here that they’re getting from their clients in terms of both how much they’re paying out by industry.” And the big guys that are paying out big money for ransomware stuff is healthcare.

Steven Dickens: Did they drop that report this week? I’ve been tracking that report-

Krista Macomber: They did.

Steven Dickens: For the last few years. It’s literally one of the best research reports. Is that the Ponemon Institute stuff on the cost of a cyber breach? Is it that one?

Camberley Bates: Yes. It’s got some of the cost of the cyber breach by industry, by how many have been hit. But Krista, I know you tore through that thing and probably will give us a couple of highlights out of it.

Krista Macomber: Yeah. I mean, I’ll admit, I’m still combing through the entire thing just because as you mentioned, Camberley, it is a very long report, but just I would say my high level, I think number one, so it’s called IBM, their X-Force Threat Intelligence Report. And I think one thing just to kind of set the stage that I see as interesting is that it really kind of pulls from the entire IBM umbrella. So for example, what I mean by that is I mean it’s IBM’s visibility into monitoring security incidents for their customers. I’m referring to my notes again. The staff that they had was over 150 billion, with a B, security events every day across more than 130 countries. They also tap other arms like Red Hat for example. They have Red Hat insights. So that is one of… I know Steven, you were very positive on this report. I think that’s one of the things that really makes it unique and invaluable.

But for me, a couple of things that kind of jumped out, especially thinking about kind of infrastructure, which is kind of what we do focus on for this podcast, so this concept of cyber-criminals really doubling down on exploding user identities. So they kind of talked about it as it’s kind of a login philosophy versus a hacking philosophy. And I thought that was something really powerful. I know the work that I do with data protection vendors, there’s been a lot of precedents placed over the last probably 12 to 18 months on role-based access control and things like that and dual authorization for potentially destructive actions for example.

So that to me was just interesting and really validating to see based on what we’ve been seeing come out from kind of more technology perspective to really protect these user identities and make sure that it is not a malicious user that is going in and looking to do certain commands. So that was one of the things that really jumped out to me. And a couple other things. So they said certainly attacks on critical infrastructure and critical sectors remain a big focus. And what I thought was interesting was there was this theme of doubling down on the fundamentals, especially when we think about critical infrastructure, so things like patching, things like what we were just talking about, these privileged principles, so making sure that as a user, you only have the access to do specifically what your job requires, the multifactor authentication.

This is really another key way that the attackers are gaining access to these systems beyond AI, which is kind of something that we have been looking at and we have been tracking the impact on AI in security. And I think it’s starting and I think it’s going to grow, but I think the message to me was we can’t lose sight of maintaining these fundamentals in that process, especially because another point in the report was that kind of just the ROI from these attacks, attacks on AI and using generative AI, just aren’t there yet, because we’re just not at that scale yet.

So those were really, from my perspective, the big things that kind of jumped out. I’m not sure, Camberley and Steven, if either one of you based on what you saw, if you had anything else, but I thought those were some interesting points.

Camberley Bates: The biggest one I was looking at is the industries that are getting hit. And I was just very, very surprised to see not only… I wasn’t surprised to see how many there were. That wasn’t surprising. It was surprising to see in terms of the bar chart how much more significant their hits were than in any other industry, which if I go back to 2020, when we first started really tracking this. In March of 2020, we had a minor little incident that happened in the world and our clients that we went out and started talking to were just getting… The ones that were in the healthcare were getting hammered, absolutely completely hammered. And so beyond whatever… Because they’re pretty much the only ones still kind of really… They were the ones that couldn’t be shut down. And I think that to me personally as a person of the world, I think that is just… They should not be. I mean, that’s evil. That’s pure evil when you start shutting down hospitals.

Krista Macomber: It is.

Steven Dickens: Yeah. I mean, the interesting thing for me, and I’ve not dug into the reports, I’m looking forward to your analysis of it and maybe I’ll get the link and spend some time on the flight to Barcelona on Sunday reading it, but I think the interesting thing for me having tracked that report over the last few years is the directional kind of data that they’ve now got. This is not a one, two, once report. You can go back and track this over a number of years. So kudos to IBM for sort of continuing to invest in what’s not cheap research to go get and data points to go get and work to do. And I think I see that cited in a lot of other vendor’s work because it’s such a good data source. So I’m looking forward to digging in.

Camberley Bates: Yeah. So let’s move on to the next big topic. We’re always looking at people in the earnings and looking at it from a different angle than our friends on the financial side. Steven’s dug into the Lenovo earnings, so we’ve got an update from Steven on that. Kind of fresh off the conversation with Kirk Skaugen over there and the crew about kind of what were the results of here, what happened and what can we expect.

Steven Dickens: Yeah. So Lenovo announced earnings this week. I wasn’t covering the actual earnings call. One of our colleagues, Olivier Glanchard’s doing that, but I have the pleasure of spending time with Kirk Skaugen who is the SVP for the ISG Group over there at Lenovo the day after earnings. He always does a call with a few of us and gives some fantastic insight. If you’ve not spent time with Kirk, check this guy out. Literally one of the most knowledgeable execs. So literally I spent time with him an hour ago, so I’m kind of hot off the press here. Record PC market share at 24%. Other key takeaway and obviously a lot of people think Lenovo think PC.

Camberley Bates: Wait a second. That was record PC market share or record PC growth?

Steven Dickens: Record PC market share at 24%. Year-on-year growth for the overall business, which is a return to year-on-year growth. They’ve been having quarter-on-quarter growth, but tough compare back to year-on-year growth. The other key data point, and this is something that Kirk tracks, 42% of revenue was non-PC. So I think a lot of people think Lenovo think PC and-

Camberley Bates: But actually I’ll give you a stat. I’m not sure if you’re going to say this or not. But they’re number one in the entry level storage market.

Steven Dickens: Number three, overall in storage.

Camberley Bates: I’m sorry. Yeah. Number three overall in storage. Number one in entry level storage.

Steven Dickens: Yeah. And I don’t think people give them kudos for that. They don’t see that. 32 internal records. Can’t say what they were because they’re internal, but Kirk made that point. Interesting point for Lenovo, they’re not only a supplier to enterprise or a supplier to the hyperscalers. They grew in cloud by 34%. Some details there and some stuff under NDA that I can’t talk about.

Camberley Bates: What are they selling in the cloud?

Steven Dickens: They sell storage and infrastructure, particularly into-

Camberley Bates: To the cloud providers? You’re saying to the cloud providers? Okay. Got it.

Steven Dickens: Yeah. Particularly into… I can’t share the numbers here, but Kirk gave us some really good details into what they do with Azure in particular. So a big provider into Azure for compute and for storage. Nine HPC awards.

Camberley Bates: Big time.

Steven Dickens: Lots of folks on Neptune. Really strong… Kirk also shared some insights around the collaboration they’ve got with Digital Realty as AI starts to come into the data center. That’s just blowing the power and calling sort of envelope for enterprise data centers. So a strong collaboration with Digital Realty. Lots of growth in TruScale. Interesting that… And I don’t track piece-

Camberley Bates: And for people that don’t know, TruScale is their consumption model. So it’s you install whether it’s storage or servers or whatever and you pay by the drink or by the CPU or by the drive.

Steven Dickens: Also includes Motorola. One thing that maybe not us that we don’t focus on, you can get Motorola deployments and all the services. He mentioned that-

Camberley Bates: We don’t? What kind of phones?

Steven Dickens: Yeah. I mean, phones. Motorola’s a star part of their business and is now the fastest growing Android device. I’m not a devices guy, but there was that. Transition to DDR5, from your perspective, Camberley, was a strong thing that Kirk spoke about. I know you’re going to get a briefing with him. So I think that will be a big part from a storage point of view. They see that as a tailwind for the business. What else did I get? 19 of the top 25 universities globally use Lenovo HPC. So-

Camberley Bates: If you know the heritage of their HPC, this is coming from when IBM had owned the server business, whatever, and they spun it off to these guys and that big division of HPC spun off over to them on the server PC. And that is long-term historical, really strong, super smart guys that are over there.

Steven Dickens: The other key pieces were AI. They’ve got an AI innovators program, which is kind of pre-packaged, pre-tested, not pre-configured, but kind of services wrapped, fast starter kit models, 165 solutions now in that portfolio. So he was talking about Kmart as an example in… Not Kmart in the US. Kmart in Australia where it means a different thing. So don’t worry. He joked about that. But I think it was a package solution that had come from another retailer engagement. They’d bundled it up, packaged it up, kind of templated it, came out, deployed that in Australia. So that’s kind of… I see a lot of customers not knowing where to start when it comes to AI and having a portfolio of, “Here’s 165 things you can get started on.”

Camberley Bates: Well, and that’s why I also bring the heritage of where their HPC came from, because when you think of Lenovo and you’re only thinking of them as a PC company, you don’t think of them as the enterprise company. However, IBM has been a dominant player and still is dominant player in that HPC space. So they took that knowledge base that moved over. That is the knowledge base that they’re tapping into, I’m sure, for anything that’s going into HPC and AI. And now they’re moving from where they very strongly where HPC was primarily the research center, the big research labs, the universities. And now since we’re moving into the enterprise, they have the knowledge base to understand, “How do I scope and design products to go into that market.” So they should do very, very well.

Steven Dickens: The other piece that was key there is a technology piece, and again it comes from the IBM heritage and it’s been built on over the last… What is it? 10 years is Neptune and water cooling. Obviously, mainframes have done water cooling forever, and that copper sort of wiring that looks so cool when you open up the back of a server. I’m a geek. I love copper wiring. Copper sort of heat sink types. I’m a nerd. But-

Camberley Bates: Well, the first time I saw that, it made my skin crawl because they walked us into the Whisper Suite at one of the conferences, and what you saw, they had the server open and you could look down on the server. Now some of them have the copper going in, but this particular server that I was looking at had the liquid running around on top of all the silicon and you’re like going, “Oh, my God.”

Steven Dickens: “It’s going to break. It’s going to break.”

Camberley Bates: “Oh my God, Oh my God. This is wrong.”

Steven Dickens: Yeah. I have the same reaction when… I have exactly the same when… Water-cooled servers just sounds counterintuitive, especially with AI, I think. Those GPUs burn kilowatts like nothing else.

Camberley Bates: Absolutely.

Steven Dickens: And they push out so much heat. So as you start to see these AI-dense kind of GPU-focused servers, heat envelope, power and cooling in a data center, all that stuff is vital. And this goes back to the Digital Realty. You’re not going to put a water-cooled data center in if your data center doesn’t already handle water. It’s a huge retrofit. So it’s a nerdy trend of you’re going to need water-cooled because you’re going to need AI, you’re not going to put that in your data center, so therefore you’re going to go to Digital Realty or Equinix for that matter.

Camberley Bates: And we’re going to look at new… They’re looking at new ways to do it. You got things like JetCool and there’s a couple of others that are out there that we’ve seen playing into this space-

Steven Dickens: You just can’t move air across the GPU fast enough to get it… The other one that he mentioned, and maybe this comes to you, is the strong partnership with Veeam, given some of the dynamic with maybe some of the other hardware vendors and them having a backup portfolio. Mention no names. But you can figure it out if you know anything about the industry. Strong relationship with Veeam and Lenovo. So Kirk spends half an hour dropping data point after data point, and I’ve got two pages of notes, but those were the highlights.

Camberley Bates: That sounds fabulous. So we had a couple of other items I think, or actually one more item that I wanted to bring out, and we did write a research note on this. It was Hammerspace had a rollout yesterday. Small company but very significant about what’s going on here. And the significant here is the data requirements for AI as I keep talking about. And as we’re starting to see more image and more come into the generative AI space, as well as the other, that amount of data will expand, but one of the things that’s happening is that traditional NAS hits the wall in many, many cases in terms of supporting these very large petabytes and going into the exabytes environment.

And in the past, what has been used there is a parallel file system. And parallel file systems have been not for the faint of heart. Traditionally, they’ve gone to the universities where you’ve got a bunch of free labor called graduate students to go and implement and you do it…. Sorry, IBM. GPFS and Lustre and all those guys are still somewhat complicated to use to a certain extent plus in terms of the integration with the systems and what you have to do with the servers and the clients. So what they’ve been able to do with this new release is called Hyperscale NAS, they are leveraging one of the new releases from Linux, the 4.2 release, that enables them to take a traditional NAS box and turn it into a parallel file system. Very, very slick.

So what we’re going to see, I expect to see, partnerships with lots of different companies that are out there that are NAS boxes and where customers need to bring in, need to have that higher level performance so they can take any box, whether it’s a pure box, it’s an OEM box, it’s probably a VAS box, I would suspect, or even Isilon boxes and stick a layer on top of that, it’s actually out of band, and taking advantage, as I said, of the current Linux 4.2 that’s… I think it’s 4.2 NFS flex files is what it’s called. Capabilities that’s already in the operating system and just turning into a high-performance environment. So…

Steven Dickens: Is that building off the SEF stuff that’s built into… Or am I-

Camberley Bates: No. No. It has nothing to do with SEF.

Steven Dickens: Okay.

Camberley Bates: It’s NFS.

Steven Dickens: Okay.

Camberley Bates: Very cool. So wow. We just burned through a half an hour almost. So there we go.

Steven Dickens: It’s goes so quick once we dive in-

Camberley Bates: We had such important things to talk about. We talked about Palo Alto. We talked about shoes. We talked about shirts. We talked about Lenovo. We talked about HPC, talked about AI. Talked about… Anyway. So, guys-

Steven Dickens: The merch.

Camberley Bates: So guys, thank you for watching. This has been great. And thank you for your notes. I’ve been getting emails from folks just saying or telling me actually that you really enjoy listening to our crazy banter that we have but is also mixed with some real knowledge base because they’re all super smart people. And with that we’ll say goodbye. We’ll catch you next week. And don’t forget to follow us, retweet us, relinked us, whatever you do to make sure everybody listens to us and I guess their greatest news coming out of us. Thank you very much, and have a great week.

Other Insights from The Futurum Group:

Lenovo Q3 Earnings: AI-Accelerated Tech Sector Recovery Is Here – The Futurum Group

Hammerspace Unveils Hyperscale NAS Addressing the AI/HPC Workloads

Palo Alto Networks Acquiring Tech Security Firms to Bolster Defenses