Strategic Directions for VMware, Dell and Teradata – Infrastructure Matters, Episode 31

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:

Krista Macomber: Hello, everyone. And welcome to this next episode of Infrastructure Matters. I’m Krista Macomber and I’m joined by both of my co-hosts this week, both Camberley Bates and Steve Dickens. Welcome, Camberley and Steven.

Steven Dickens: Hey, two-thirds of us got the memo about what to wear.

Krista Macomber: I know we’ll have to coordinate next week.

Steven Dickens: I’ve even got my Futurum mug this week in front of me.

Camberley Bates: There you go. Totally.

Krista Macomber: Yeah, I have VMware this week.

Steven Dickens: That’s probably going to be worthwhile given the topics this week. We are going to talk about VMware a lot.

Camberley Bates: Totally.

Krista Macomber: Definitely.

Camberley Bates: Totally.

Krista Macomber: They’ll be upcoming attractions for sure. Steven, I know we missed you last week because you were sick. Hopefully you’re starting to feel a little better.

Steven Dickens: I sounded a little bit like Barry White. The voice is coming back.

Krista Macomber: It’s not a bad thing. Right.

Steven Dickens: I mean coming back, maybe that’s a good thing. Maybe that’s a bad thing. I mean, I don’t know.

Krista Macomber: Right. Well, just to jump into it, I know we alluded to it a little bit when I brought up my VMware bottle here, but I know this week we did have a couple of pretty big sessions with Broadcom, some touching on regarding the VMware acquisition and just a number of topics coming out of that announcement. I guess maybe, Camberley, do you want to kick us off with some of your impressions? And I’m sure Steven and myself will have color to add too.

Camberley Bates: We’ve got a couple of pieces coming out on it as well, but I’ll highlight what it talked about. What happened this week is Broadcom hosted a virtual analyst meeting. It was keynoted by Hock Tan. Excellent job by him in terms of two things. One is his very directness about where he’s going and the strategic initiatives that they’re really focused on. And secondly was also his Q&A. I think it was almost a 45-minute Q&A. Probably not quite that long, but he was just taking whatever we were throwing at him and it was complete open mic. And when that happens, the companies that do that, you know that they’re not hiding. They’re saying, “Here we are. This is what we’re doing, this is our strategy and we’re going for it.” And the thing that I was most impressed by with him is the focus that they have.

My compatriot here has worked with Broadcom for a long time. I have less. I was extremely impressed and I know there’s a lot of consternation about him, Hock Tan coming in and cutting costs, et cetera. But here’s what he said. He said that super engineering, super technology not organized. And that they had all these subdivisions going after all these other pieces of it, and it was not with any single place. And what he looked at, he said the strategy idea of this virtualizing the stack basically brings out so much cost benefits to the market space and it needs to stay focused within that space. And that’s why you’ve seen them come together and put VCF and say, “Here’s the full stack. Buy into it.”

It’s also simplifies how they go to market. It significantly reduces the work that has to happen both from an engineering standpoint, when you’ve got a full stack that you’re going to test there, that ends up reducing your cost over there in terms of your support cycle as well as it reduces the level of effort and all the negotiations that have to happen if you have 10,000 SKUs to put a deal together for a customer. It just makes it simpler. And especially for a product that is considered a very, very mature product in the market space and work space. And I’ll stop there because I’ve just been chatting for two minutes straight.

Steven Dickens: Yeah. I echo your comments 100%. I mean, I think what we’re going to… We’ve been tracking VMA for a while, pre acquisition and post. We went and did a fantastic analyst session whilst you guys were coming on board as evaluator group, what was that, 12 months ago maybe even? And it was just hard to get the vision. We sit here, we get briefed, we have the opportunity to read a lot and get access to product management. And if the analysts are confused, then customers are going to be confused.

I think what I took away from this is radical simplicity is going to be the new Broadcom VMware structure. A lot of middle management have gone, as Camberley mentioned, we tracked large parts of the VMware and Broadcom software business. It’s a very, very flat structure. Not a lot of VPs with titles that you don’t know what they do. Very structured, very direct. Hock is very, very, very hands-on and engaged. I think you’re going to see a simplicity of the management structure. You’re going to see a lot of that middle management bloat removed that was there. I mean, VMware was a 38,000 person organization.

And given their revenue and their portfolio, you could argue that they were running a little hot on the headcount. I think radical simplicity, I think you’re going to see that go to market structure. Broadcom does a really good job of focusing on its top 600 clients and building deep and meaningful relationships with them. You’re going to see that. One thing that came away from me was that all of the current VMware partners have been invited to be part of the program. Now the tiers and how that rolls out over time and how they re-certify, a lot simplicity has come through. I think the way I’d summarize it, all of the bad news has been put out into the market all in one go, which I think is a good strategy. They’ve decided to rip the Band-Aid off.

Camberley Bates: Rip the Bandaid off, I was going to say.

Krista Macomber: Totally.

Steven Dickens: Rip the Band-Aid off, be completely transparent, get all of the messaging product, go to market, headcount reductions, get it all out into the market. I expect we’ll see a bit more communication from Broadcom over the next two or three months and then it’ll just be ruthless execution from here on in.

Camberley Bates: To the IT end user or the CIOs I should say, Hock Tan is basically saying he’s focused on three areas that they have told him they’re keenly focused on, resiliency and security. How that will translate out in the systems will be some looking at where the exposures are and all that kind of stuff, but also how the full stack is developed. And releasing the full stack together as opposed to having VCN come out one month and vSphere another month and NSX another month. There’s this full stack integration as well as getting a life cycle management capability within that full stack.Developer efficiency, which is going to talk into more of what’s going on with the Tanzu side and focusing on that area. Expect to see the focus on Kubernetes.

We talked here on the podcast for the last year saying it’s highly likely that Tanzu would’ve gotten jettisoned because of its immaturity two years ago because it’s taken so long to buy the company. Tanzu has had an opportunity to mature. And so potentially it’s going to be a strong viable player behind Red Hat and SUSE. We’ll see if he puts all that engineering in there to make that happen.The third area is infrastructure efficiency. And that’s getting back to the life cycle management and all the pieces that he’s trying to do in terms of bring offerings to the market, which is that’s the next thing actually, there was another announcement this week that was with Google that has to do with their subscription licensing. It’s cool. You want to take that off one of you guys?

Steven Dickens: Well, yeah, I mean it’s everybody’s gone up in arms around a change to the licensing model. To me that’s a complete nothing burger. Everybody’s got subscription licensing models and has had for years. I mean the way that they positioned it, I agree with. We’re the last people to make this shift. Yes, it’s a change. Yes, it’s a change to a licensing model that’s going to impact tens of thousands of clients, but they’re not going first. Microsoft’s been there, IBM’s been there, Oracle’s been there, everybody’s decided to go to these subscription type models rather than perpetual licensing. I think it’s generally a nothing burger. It’s just people reacting to change.

Camberley Bates: And I think that there’s some reality to it though. I think when you had 10,000 SKUs or how many SKUs they had, you have the ability to pick and choose and figure out how to game the system if you will. And not that they’re gaming the system, but you look at how do you optimize your licensing process in there. And that no longer is going to play out. Here you got two SKUs, you probably have a few more than that, but you more or less have two SKUs and a few more on top of it. And it’s like, okay, so all that licensing manipulation goes away. And so, those… And this is what I suspect because I haven’t gone through a licensing process as it’s happening.

But the other thing that they did announce, which will be a great advantage to the companies is portability. And that is going to be, so they had their first cloud announce it with them, which is Google. So license portability, wherever your license is. It’s just basically they’re taking the right thought process like NetApp has. We don’t care where you reside as long as you reside on us. And the cloud and Google’s got a real purpose to be able to do that because they’re the third cloud. Of course they’re going to be the first ones out because I’d love for people to port their stuff to them. I’ll stop there.

Steven Dickens: Yeah. What’s your perspective, Krista? I mean you track these guys slightly differently. What’s your angle on it?

Krista Macomber: I do. Yeah, I think circling back to the Broadcom AR Summit, I think just my commentary is just going to be, I’m certainly excited to see what they do with, as Camberley mentioned, one of the key pillars of focus being cyber resiliency. I know we’ve done some work with them regarding their cloud DR offering. I think there’s some really great opportunity there because I think that’s just a big use case for the cloud in general. I think it’s going to be something that customers are looking to continue to expand across their workloads is to have flexible, cost-efficient DR. And we just think about that customer base that VMware has.

I mean these are critical workloads that customers are going to be looking to try to make sure that they have that cyber resiliency. I would say I’m really looking forward to building on some of that work that we’ve done and really seeing what they do with, like we’ve been talking about this focus on both efficiency and execution. And seeing how that translates into the R&D front, seeing how it possibly translates hopefully into some cost savings for customers.

And really also, I know I you, Steven, touched on just those customer relationships. And looking at how… Because when we think about cybersecurity and cyber resiliency, I would say more and more we are needing a bit of a higher touch model just because attack factors are changing, each industry, each company is a little bit unique in terms of what they really need. I think that’s really going to be needed from that standpoint. A little bit of a few thoughts there, but those are some of my takeaways.

Steven Dickens: I mean maybe just to bring it home, we had a briefing with one of the vendors. I won’t mention their name, but positioning some alternatives. This was around the core virtualization stack. I came away from that briefing thinking VMware’s had a lock on this market for 20 years and really people haven’t innovated. There’s KVM out there, there’s some of the stuff that the Linux lenders do. Yes, obviously Microsoft’s got Hyper-V, but if you are looking at that virtualization stack and the tooling that goes around it, largely VMware’s had this market to themselves. Whilst some of these vendors smell blood in the water and see an inflection point and see a lot of clickbait from the mainstream tech media in negative attack headlines, I think if we take a six to nine month view of this, not a six to nine day view of this.

I think CIOs are going to look at the alternatives and they’re going to be, “Okay, this is a massive undertaking for me to retool a foundational layer of my technology stack. What do I really get at the end? Yeah, I changed the vendor and I maybe got a worse outcome. Do I need to do that when I’ve got to roll out AI and I’ve got cyber and I’ve got line of business applications and I’ve got 100 other things to do as a CIO? Do I want to get into the guts of my virtualization and management stack?” I don’t see it. I don’t see it.

Camberley Bates: What I do see them doing is they’ll stand up their Kubernetes stack separately, that the new-

Steven Dickens: That’s a risk for sure.

Camberley Bates: The new ones are being developed over there on an independent bare metal stack, and we are seeing those offerings coming out into the market more so than they were before. It was easier to put Red Hat, OpenShift on VMware, it’s getting still a little difficult, but it’s gotten a whole lot better. It’s gotten a whole lot better.

Steven Dickens: That’s the opportunity and the risk for VMware for sure that a new stack gets created alongside.

Camberley Bates: Which brings to another topic that we had, which is Dell focusing on the APEX offerings and the cloud platform offerings, which is what’s that bringing is bringing that simplistic simplicity to the integrated stacks. And if with others doing the same thing, they’ll be offerings that potentially are better, a lower level cost point, then installing a tensile environment on VMware and continuing that environment.

Steven Dickens: Yeah, it’s going to be interesting with the likes of the TruScales, the APEXs, the GreenLakes, what VMware does from a partnership strategy perspective. I think there is, this came through in Hock Tan’s comments as well, a huge focus on private cloud. We’re starting to see the workload placement decisions be more thought out and more thoughtful by enterprise architects.

I think that’s an opportunity for them to lean into their partnerships with some of those on-prem providers and be able to sort of build out. I mean we saw the cloud field day stuff from Dell around APEX from a storage point of view, and there was pretty much holistic thoughts around how they’re going to partner with VMware but also with Red Hat as well. It’s going to be the tension that you talked about of do you build your new on-premise infrastructure as a service stack with VMware? Do you build it with Red Hat? Those are some of the tension points I think going forward.

Krista Macomber: Yeah, yeah. Absolutely. Yeah. Camberley, I know you covered the Dell announcement pretty closely. Just shifting gears a little bit, was there anything further that you wanted to add there? I know this really plays to your wheelhouse being very partner centric looking at the channel.

Camberley Bates: This week Dell had an analyst briefing on their new partner program. They started their fiscal year February 1. As you typically see February, that first month is when we start seeing all the partner programs updated and the new terms and conditions and what they’re doing. As most good partner programs do, it’s not an overhaul. It’s a tweak because you’ve made, as a partner of which I have been one of those in my past lives and owned the company that was a key partner. You live and breathe on how those, if you will, compensation plans operate from your major vendors. And so what they did is a few tweaks, which were good ones. And had to do around their… The major ones were around APEX. And the APEX being the as-a-service.

For those who understand the partners, a partner moving from a CapEx to an as-a-service mode is difficult to do. It’s a cash flow situation. And those companies are heavy duty cash flow. If you go from a point where you’re getting your payment upfront for a CapEx, your 20% payment or 15% payment for that CapEx as opposed to having that spread out over three years or however that works is very difficult. Most companies have shifted to the point that when you sign a contract, the total contract value is paid out upfront. And basically what they did is they’re still doing that, but they also are recognizing that there’s other bonus points and rebates and all that kind of stuff that go into cut. Sounds like the wind is picking up for both of you guys. It just blows through.

Steven Dickens: It’s brutal up here in the North East right now.

Krista Macomber: It really, it’s that time of the year.

Steven Dickens: Yeah.

Camberley Bates: I heard that that was not a howling dog, listeners.

Krista Macomber: No.

Steven Dickens: That’s a howling wind.

Camberley Bates: Anyway, so what they did is they tweaked that so it plays in the same way. And if you’re a partner, you’re making money on not only the margin that you’re getting, but also any new business that you bring in, you get bonus points on that, rebates on total contract values, et cetera. I think the other thing that they did with the partner program that or they’re going to be rolling out is competencies for AI performance and skills. They’re going to help, which is really needed. I mean I’ve worked with these partners, they’re trying to hire people that have got AI skills and there’s just not enough people out there. How do you raise your competency level?

Especially on what they’re selling is that infrastructure size of the house and get their skills up to the point that they can advise. And that gives them, and I’m sure the other companies are doing this as well, but once they get those guys skills up, then all of a sudden they’re going to see movement of technology into those markets that they play in. It’s all goodness, the program, nothing radical, just good execution on Dell’s part.

Krista Macomber: Yeah, and I think just looking at the channel in particular, I mean the last several years with the shift to cloud to as a service like we’re talking about here and now, the introduction of AI as well and figuring out some of those new business models, it has not been an easy go. And again, Camberley, I know you tried that space really closely, but I think like you mentioned, it’s good to see that additional support from one of these very large, very influential vendors in the space.

Camberley Bates: Yeah, right.

Krista Macomber: Yeah. I know another announcement that we wanted to touch on was regarding Teradata. Yeah. Steven, did you want to kick us off with that?

Steven Dickens: Yeah, so I’ve been tracking these guys for a while and get briefed by the team there. They announced Q4 and fall year 2023 earnings earlier this week. Stock market gave them a battering after the earnings because guidance wasn’t where they wanted it to be. But I think I mean we are not equities analysts, we’re tech analysts. Teradata is making a pivot, you could argue a little late, but they’re making a pivot to the cloud with their vantage offering. And they were talking about, the particular highlight that stood out for me was cloud annual recurring revenue up at 528 million for the fourth quarter.

Now, if you took that as a standalone startup and said, “Hey, there’s an analytics and AI company that’s posting 528 million of ARR for a cloud-based workload,” they’d get a fantastic valuation and everybody would think that was fantastic. Half a billion dollars of ARR, growing at 48%. That’s the new story here for me. Cloud net expansion rate of 124%, they’re making the pivot. Yes, they were later with Vantage than the Databricks and the Snowflakes that are the darlings of the industry, but revenue up 4% in constant currency to just over 1.8 billion. These are more solid numbers. A lot of big Fortune 500 companies use Teradata and have been using it as part of their analytics stack for decades.

Yes, that’s an on-premise model predominantly, but I think there’s a pivot that they can make. And I think if they can make that transition and keep that customer base as they make the pivot to vantage, I see Teradata coming out of this very well. Now early days with the vantage piece, we’re talking maybe 12 months, 18 months worth of migration over. But this, based on what they’re saying at that 48% increase in their cloud ARR, I think the market gave them an unnecessary whipping after the close. 20% drop is a big drop. I mean every time Tesla announces earnings, their stock drops between nine and 12%. I often don’t understand the stock market. Maybe that’s a good thing that I don’t.

Krista Macomber: Are you a financial advisor?

Steven Dickens: This is certainly not financial advice.

Camberley Bates: This is something that I have found curious and I probably need to sit down and talk to a financial person, somebody that watches the numbers. But it appears to me that as these companies go through this transition to ARR and increasing the ARR and they do talk about it. I mean I listened to Nutanix talk about it, Commvault talked about it, other companies have talked about it. And Pure talked about it. They have this period about three years where… Pure hasn’t, but they struggle with the financial guys loving them because their numbers don’t look good because you’re doing that transition that I talked about the channel partners making.

It’s a brutal time to do that change going from where I’m getting the money upfront versus when I’m getting the money dribbled out to me. And then eventually you get, you’ve got this incredible thing that you wake up in the morning and you don’t have to sell anything. Oh, yes you do. From an ARR standpoint because you have it coming in. And so, maybe they’re going through that same transition that you go through. And during that time, for some reason, Wall Street just doesn’t have the view on the three-year cycle that it takes to get there.

Steven Dickens: Yeah, I mean we’ve seen this with HPE, what are they, four years now into GreenLakes?

Camberley Bates: Yes. Yes.

Steven Dickens: They’re coming on the backside of that transition. You look at their Teradata, are they on the front side of that transition? I think just a 20% stock. I mean the market’s crazy right now. Well, what are we? Above a 5,000 for the first time with where we are. I mean, as I say, it’s maybe good for our 401(k)s, but maybe I don’t understand it. But as I say, I think posting a 48% ARR increase year-on-year is a good thing. How the market reacts negatively to that, maybe I don’t understand.

Camberley Bates: Okay.

Krista Macomber: Yeah, it’ll be interesting to see. And I think, so maybe starting with, Steven, from your perspective, I know we talked a little bit about this, but looking ahead over the next year and a half or so, two years, thinking about Teradata specifically, what are some of the things that we should really be looking for in terms of that execution? They are in this period of transition, but what would be some of the additional proof points, whether it be things to think about potentially adding to the portfolio, whether it be maybe moves from a go-to-market perspective. I’d love any thoughts from that perspective.

Steven Dickens: Yeah, I mean for me it’s really two things. It’s the execution around Vantage. That is their guiding star. That is where they’re moving with this cloud-based model, customer adoption, big logos, making the transition to Vantage. Teradata’s got a fantastic account base of Fortune 500 names. If we can see that those guys making the transition to Vantage, that’s good. The other key piece with how do they embrace AI? How is their, I don’t want to say classic analytics type of model, but the analytics machine learning largely data warehouse, that move into a Lakehouse AI style model and how are they put in large language model. And maybe some of the partnerships Hugging Face, Google with Vertex, maybe some of those partnerships to apply them to those data stores that they’ve got. Those are the two things I’ll be tracking. And then from an earnings point of view, is that Cloud ARR continuing to increase.

Krista Macomber: Right. That makes sense. All right. Well, I know we are already pushing the end of our time here. Steve and Camberley, anything else from this past week that jumped out to you that you wanted to add?

Camberley Bates: Did you go to the doctor and get the drugs, Steve, to get better?

Steven Dickens: I did. I went to the doctor’s Wednesday.

Camberley Bates: Good, good, good.

Steven Dickens: Hopefully the long weekend and resting up, I’ll be back and fully firing. But yeah.

Camberley Bates: We got to get the Infrastructure Matters team back healthy.

Krista Macomber: I know.

Camberley Bates: We keep doing these Zooms every Friday morning.

Krista Macomber: I know. I said it last week, Steven, I said we’re all virtual but we all seem to be spreading this illness and I don’t know how. Everybody needs-

Steven Dickens: There needs to be a Zoom patch for that so that you can’t catch a virus down in Zoom.

Camberley Bates: Cyber problem. You take care of it, girl.

Krista Macomber: I’ll work on it

Steven Dickens: That’s our new one from you catching viruses down a Zoom.

Krista Macomber: Fair enough. Yeah. I will work on that. All right. Well, Camberley, Steven, a pleasure as always. Thank you so much and thank you to everybody who joined us. Please make sure that you like and subscribe and all of those good things so that you don’t miss any future updates. We’re here recording every Friday. And with that again, thank you and we’ll see you on the next episode.

Camberley Bates: Great. Thank you, guys.

Other Insights from The Futurum Group:

VMware VCF and Tanzu Post Broadcom: Lessons and Evolution

Teradata’s Q4 and FY 2023 Financial Results

VMware Acquisition Close: Q&A with Hock Tan, President and CEO, Broadcom – Six Five Insider