Talking Cybersecurity Research, IBM Earnings and VMware/Broadcom – Infrastructure Matters, Episode 28

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 Infrastructure Matters, I think we’re on number 28, and we’re into 2024. I have my co-hosts with me, Krista Macomber and Steven Dickens, and we have been joined by the illustrious Paul Nashawaty, who has joined The Futurum group to cover the big area of DevOps and everything that’s going around there. So we’ve asked him to join us today. Welcome!

Paul Nashawaty: Thank you, Camberley. Excellent to be here, happy to be here today. Paul Nashawaty, really excited to join the practice here at The Futurum Group and taking off with DevOps.

Camberley Bates: Cool. So as usual, we have to rip on anybody, so I asked him to bring his favorite coffee cup, and he didn’t have a coffee cup. So I’ve got my left-hand coffee cup, he’s got his drink, he’s got his glass. What do you have this morning?

Steven Dickens: I’ve got my bucket of teas as always.

Camberley Bates: A bucket of tea. And then Krista’s got whatever she’s… Okay, there you go. Okay guys. So we’ve got a great-

Steven Dickens: This is an opportunity for any of the vendors to send us Yetis, Stanleys, this is your free advertising opportunity.

Camberley Bates: Let’s keep on going. Okay, so we’ve got three big topics today that we are going to cover. We will talk about IBM earnings at the very end. We will talk about VMware and all the stuff that’s going around there. And we want to talk about something that just released yesterday that Krista has been working on very diligently for quite some time, which is the Commvault research work on cybersecurity and cyber data protection. So Krista, take it away. Tell us what that was all about and what you found out, and give us the highlights.

Krista Macomber: Sounds like a plan. Yep, so Commvault came to us, and really they wanted to understand senior level IT decision making and how this group of decision makers are thinking about data protection, and in particular how it relates to cyber resiliency. So what we did was we crafted a survey with them. We actually surveyed just over 200, again, senior level IT decision makers. So we had CIOs, CSOs, CSOs, and we did have a global presence in this survey. And we’ll link to the 4 parts of the survey, because we actually packed a lot into a pretty efficient questionnaire. But the two key topics that I wanted to dig into that we really wanted to explore in the survey and that we found some interesting things around, the first is looking at the relationship between the security teams and IT operations. So I’ll touch on that first, and then secondly is this concept of fragmentation of data and data protection tools.

Camberley Bates: If I’m not mistaken, that’s the big title that we put it out under, was the data fragmentation.

Krista Macomber: Yes. Yep. The title is Overcoming Data Protection Fragmentation for Cyber Resiliency. And we’ll make sure to link to the study and the press release as well in the show notes.

Camberley Bates: Yeah, we just recently had… Randy Kerns and I were just on the call with a company. I won’t say their name, but that was the big issue, is that they are a regulated company, they are moving more and more to the cloud. They’re trying to figure out… He got moved over into the security group and he’s going, “What the heck am I over in that group?”

Krista Macomber: Yeah.

Camberley Bates: And I wanted to say, “This is where the trend is, so go ahead and talk about it.”

Krista Macomber: Yeah, yeah. I guess just pulling on that thread a little bit, so what we found in the survey, and I have a couple of data points here I’m referencing on my screen if you’re watching on video, 99% of respondents, they indicated that the relationship between IT operations and security teams have become more connected, excuse me, over the last 12 months.So this is definitely, I think number one, a very powerful stat. And number two, I think it’s definitely heartening and optimistic. I would say we should take that a little bit with a grain of salt, just due to how disconnected these teams have been in the past. But I certainly think it shows pretty overwhelmingly that there is a recognition that these two teams need to be on the same page and working together for cyber resiliency, and that they have started at least doing things like setting common goals and objectives and communicating with each other on a regular basis.

Camberley Bates: Yeah. And Steve, you were going to say?

Steven Dickens: That’s really optimistic. I mean, 99% in a survey is about as slam dunk a percentage as you’re going to get. We still hear about the silos and we still hear about these teams not talking to each other. That data point just doesn’t back that up at all, and says that these teams are collaborating, which is fantastic to hear.

Krista Macomber: Right.

Steven Dickens: I wonder whether there’s a bit more to it than that when you get into the nuance. But…

Krista Macomber: There definitely is, Steven, and for example, when we asked about, and again I have a couple of stats here, the joint processes and procedures that are in place to address incidents and have incident resolution, for example, and when we asked about even just daily joint processes and procedures, this is where I would say we’ll see the rubber hit the road a little bit this year. And this is where the survey showed that yes, when we get a little bit more tactical and peel back the first couple layers of that onion and get to some of the meat, that’s where I think some of that work is going to be that we’re going to see some of that work be executed this year in 2024. And I think that’s a lot of the times where when we do hear about still some of this disjointed relationship, I think that’s really what we’re seeing here.

Paul Nashawaty: Yeah, Krista, that’s exciting. I mean to hear about the news and the information, the data points, really to Steven’s point and to your point, that data is really interesting. I’m also seeing from the DevOps perspective that the shift left moving in the CSD pipeline of security, moving it closer to the release and the build side of the house, it’s really about moving faster and slowing down to move faster. And having that security element in the DevSecOps space and the dev space is absolutely something that we’re seeing in our research as well. So, love to hear your perspective on that.

Camberley Bates: Great. And the other big point you brought up was the data fragmentation. That was the second big gig on there.

Krista Macomber: Yes. Yeah, so this is something that we’ve already seen, so it’s already very common that enterprises are going to be using multiple data protection tools. And what we’re seeing is that as companies are using more SaaS applications, they’re adding yet another tool to protect those SaaS applications, so it’s further fragmenting this landscape from a tools perspective. And then of course we’re seeing that data itself is fragmented across these multi- and hybrid cloud environments.

Steven Dickens: Yeah, and it’s interesting, the hybrid cloud point you make there. That’s the other big theme. I know Commvault’s on the journey to move to a more cloud platform. We’re seeing that with some of the others as well. I think Commvault’s got some really strong strategic moves there in what they’re doing. Did that come through in the research, the move from on-prem to cloud as where the platform sits?

Krista Macomber: Yes, yeah. So I think we asked a little bit about the tools. It was a little bit more where data itself is living as opposed to how tools are being hosted, but we are seeing that demand for cloud hosting for data protection tools, and that is largely to be able to make the job for IT operations just that much easier and streamline some of these processes as they’re trying to protect across these environments.

Camberley Bates: Yeah, and I’ll go back to some of the Commvault stuff. Commvault was a early leader as one of the big data protection providers of coming out into the market like Metallic. I think you track this. So maybe do a couple comments on where that’s at, Krista, with them, where they’re at with that progression.

Krista Macomber: Yep, yep. So for Commvault in particular, what they’re doing is they have launched a centralized cloud console to manage both their more traditional on-prem deployments of Commvault Complete, as well as the SaaS-hosted Metallic offering as well, to provide more cohesive capabilities and a more cohesive vision there.

Camberley Bates: So we will put a link into for where that study is. There’s whole lots of nuggets, and if you guys… shoot us some emails if you’re interested in digging in some more.
Second big topic. Do we want to go into IBM or VMware?

Steven Dickens: Yeah, we can go into IBM and then go and do the VMware stuff. So I covered IBM earnings, top line growth positive across the business, 3.3%. That’s not stellar in the terms of a series B software company posting 30, 40, 50 percent growth. But when you look at the size and scale of IBM and the law of large numbers and where that business has been and the journey that Arvind’s got it on, the market reacted really positively. This is probably as big an inflection point in IBM stock as we’ve seen in the last 20 years. I think they were up eight percent overnight after the earnings was announced after the bell.

So just a huge pivot. I tweeted on this, is Arvind becoming the new Satya Nadella? Maybe that’s a little bit hyperbolic, but I do think some of the strategic bets that Arvind has made… He was instrumental in the Red Hat acquisition and that was kind of his ticket to becoming CEO. I think what they’re doing now is making Watsonx part of everything that they talk about on every platform in every solution. IBM’s been in this game of the AI space for probably two, three decades. It’s baked into their cultural DNA, it’s baked into the R&D organization led by Dari­o Gil.

What they’re doing with Watsonx, I think perfectly positions them to be… I almost don’t want to say it, but be a grownup in the room when topics like responsible AI get kicked around. I think whatever you think about IBM, and all opinions are probably valid, I think one thing that’s absolutely foundational in their brand is they’re trusted. And I think they’re seen as a steward of some of these things that are going to be really important as we look at diversity, we look at bias, we look at hallucinations, we look at all the things that are the knocks for the trend on AI. I think IBM’s going to be seen as a respected grownup in the room. Just to pick at the infrastructure numbers, because I track those pretty carefully, up two percent overall.

One thing that stood out for me was the Zed Systems number up 8%. We are long, long, long into an extended cycle for the Zed-16. They’re not going to launch a box this year. That means they are well and truly into the back end of the cycle. Normally what we see is an eight to 10 quarter refresh, and those numbers go down as they go through. There’s about 5,000 mainframes globally. IBM will do a fantastic job of knowing where everyone is, and does a great job at getting customers to refresh early in the cycle. Jose Castano and Ross Mauri over there are continuing to do a great job, going deep into that base and driving renewals.

Camberley Bates: Well, and there were some really big technology announcements with the latest release, so there was some really good drivers about why…Well, especially for the security issues, and with the world’s financial transactions running on IBM’s mainframes, it makes a whole lot of sense that you would move as rapidly as you could to the newer version because of what they have built into those systems.

Steven Dickens: Another little highlight, not something that IBM talks about on earnings, but just from some of the interactions, the LinuxONE business, that’s a really fast-growing business. I think they’ve doubled that in the last three or four years.

Camberley Bates: You just kind of like that, don’t you?

Steven Dickens: Yeah, maybe I’ve got some affinity to that particular technology. But all joking aside, as Linux moves more and more into the mission-critical space, people look to move transactional systems and infrastructure onto Linux platforms. I think the LinuxONE message is resonating.

Camberley Bates: Yeah. I didn’t look at the numbers for the storage, I haven’t had a chance to look at it, but I know that their Flash system continues to do extremely well. Partially because of how they’re able to price it based upon the bomb that they have.

Steven Dickens: Yeah.

Camberley Bates: So they’ve been very aggressive and done decently.

Steven Dickens: Yeah, they don’t split it out in… And I’m looking at the numbers now.

Camberley Bates: No, they don’t.

Steven Dickens: They roll it into distributed infrastructure, and that was up seven percent.

Camberley Bates: Yeah.

Steven Dickens: When you combine that with Power being, again, long in the refresh cycle? We’ve had Power 10 in market for a long time now. I know there’s some stuff coming from the Power team that’s going to do something to refresh how they engage with clients. But these are solid numbers long in the product cycles of typically very cyclical products.

Camberley Bates: So it’s really good to see… I’m encouraged to see where we’re going to see all the other earnings coming out and consistently doing well with the rest of them, with-

Steven Dickens: The only thing I would say, the one thing that just made me pause, was Red Hat was seven percent growth. We’ve seen that up in the 19s, 20s. I don’t know whether that’s a blip, whether that’s where they are in product cycle. Paul, I know you track the OpenShift stuff with me pretty closely. That was the one bit of the numbers that made me go… We’ve got some briefings set up with Red Hat to dig into that type of stuff. But what was your perspective there?

Paul Nashawaty: There’s a couple of items that you touched on with the IBM release announcements that I thought were interesting, specific to the modernization play. The LinuxONE approach, the automation and the Watsonx piece, specifically tied directly into that next generation of modernization and application perspective right? So the underlying infrastructure, whether it’s mainframe or moving to whatever it may be on a hybrid cloud or a public cloud or different environments, it really doesn’t matter to the applications above, right? So having that transparency and having the ability to work with those different technologies, keeping your existing systems of record in place and having new systems of engagement built, that’s where the OpenShift plate comes into play really, right? When you build a React application that attaches to a new system or an existing system of record, that’s where you have those things tied together. I think that’s where the growth is, that’s where it’s moving forward, and that’s why you see that little bit of cart for the horse, so to speak, with IBM versus some of the OpenShift numbers, or I should say the Red Hat numbers, that you’re seeing.

Camberley Bates: So let’s shift to the next topic, which is related to a little bit on the Red Hat piece of it, and that is the VMware and some of the actions that are taken. There’s been some big shifts in terms of products over at VMware. There is more consternation, I would say, coming out, if we want to use that term. I know I’ve had a few conversations just recently with some of the partners out there with how this new partner program is rolling out and what that’s going to look like, which is very different than where it’s been with VMware, and there’s definitely going to be some winners and losers in the partner market. So with that, I will turn it over to Paul to give us the highlights of what just shifted.

Paul Nashawaty: Absolutely. So there’s been a lot of change. What’s going on with the acquisition has to be expected, right? We see that there’s some optimization, some efficiencies moving in. We knew that was happening, we knew that from the start that Broadcom was going to do that, and now it’s coming to fruition. Right? We’re seeing that there’s a reduction in products that are being offered with VMware. We see that there’s just a consolidation of their go-to markets and their routes to market and what they’re doing. When I look at VMware, and I’ve always looked at VMware this way as an early employee of VMware back in the day, it grew to such a big business, and it really is a bifurcated business, right? You have the infrastructure side, which is the vSAN, the vSphere piece. Then you have the developer side, which is the Tanzu and the Aria piece of it.

So it’s really a split business, and when you look at it from that perspective, I think the partner ecosystem on the infrastructure side, it will probably be impacted the most on what you’re saying, Camberley. I think that that’s the piece that traditional models and traditional routes to market where they had what 50-plus, 56 products that they just decommissioned or end-of-lifed, individual part numbers, that will be a different sales motion for the partner community now. That’s going to be really a big impact for those partner routes to market.I think on the developer side, my projection here is that’s still going to evolve, that’s still going to grow, and it’s still going to have some groundswell. There’s definitely, I would say, I’ll call it blood in the water. The competitors are coming at VMware very, very strongly because they see it as Broadcom shutting down a lot of those developer ecosystems, not investing where they thought they traditionally would go in to invest. So-

Camberley Bates: Yeah. So Paul, let me ask a few questions for those people that haven’t been tracking all the information on the infrastructure side. And I agree with you on the partner piece of it, the partners have mostly dealt with the servers and the storage and the VMware and the traditional ESX environment, the vSAN. Last year they went through a lot of practice in terms of resolving their SKUs. They had way too many SKUs that they’re offering. But in this situation, it’s not just resolving SKUs, it’s eliminating offerings. And from what I understand, one of the biggest parts that they’re limiting is the kind of way you can purchase the product, not necessarily killing products. Is that correct?

Paul Nashawaty: Correct, correct. They’re bundling right now in solution selling, so they’re trying to have efficiencies of solution selling, so bigger deals. This is something that’s been going on since the announcement of the acquisition. So the last two explorers, we’ve seen that VMware has been saying, “Look, we’re going to reduce friction. We’re going to have reduced the number of part numbers.” And now what we’re seeing with the Broadcom acquisition is to really hone it in, really, and have that solution selling. But again, I think from a partner ecosystem and from a VAR ecosystem, it limits that uniqueness that some of those VARs could do. They could put those custom configurations together, and now they’re not going to be able to do moving forward.

Steven Dickens: I spent some time with a good friend of mine I’ve known for a couple of decades who runs one of the massive accounts at VMware. I won’t say his name because he’ll probably get in trouble with the AR team, but I had a long chat with him at the weekend. I think the mainstream LinkedIn universe and everybody on Twitter and Keith Townsend and I and Paul were going at it in the week on Twitter talking about this. I think there’s some contextualizing that needs to be done for this. VMware is 38,000 people, or was, and when we went, Camberley, to their briefing, I don’t know whether you were at that Paul, I can’t remember, but they told us they had a hundred and twenty thousand SKUs.

Chatting to my friend over the weekend, layers and layers. He’s gone from being six layers away from the CEO to three layers away from the CEO. And this is a guy running what will be one of their top 600 accounts. So I think what you’re seeing is, Broadcom is a ridiculously well run, slimmed down, no-bloat operating machine coming into contact with VMware that was probably on the end of being bloated and late-stage software company. Last time I covered their earnings, they were at nine percent as a standalone company. That’s not ridiculous growth. So I think what you’re seeing is Hock Tan do what Hock Tan does best. Streamline the operation, cut out the layers of middle management, get that organization focused, get the product management organization focused on listening to customers. Slim down the portfolio. What we’re seeing in the channel, every reseller could sell Vmware.

Camberley Bates: And that’s, you know,

Steven Dickens: …dozen resellers selling VMware. You don’t need that to service their base. You can service it with a smaller number of more strategic resellers.

Camberley Bates: So I want to bring Krista in here, because this week we had a call with one of the companies that built their company on VMware, and that was one of the questions we brought up to them, is, “Have you seen any shift yet on this?” And I believe Krista, what they said, and you can pop in here, yeah, just like us, we’ve been having this conversation ever since the Broadcom-VMware, but the status of where they’re at right now is not necessarily yet moving. They’re evaluating, they’re looking at things. Correct, Krista?

Krista Macomber: Yes, that’s the understanding that I got based on the call, and the sentiment was if the customer is already considering migrating to another hypervisor or migrating to a containerized or cloud-based environment or something like that, those plans were, to your point, being formulated and still in consideration phases.

Camberley Bates: Yeah, yeah. So Paul, back to you. You were going through there, and I’m sure you’ve got a couple more points that you want to bring up on this.

Paul Nashawaty: Yeah, I really think that everything that we’ve talked about, whether it’s the partner ecosystem, the companies that build their companies on top of VMware, or the VARs that work with it, the thing that we have to understand, and I know it’s a different perspective, but when you thin down… and what Broadcom is doing is thinning down the portfolio, it’s making it far less customizable for those organizations that are trying to be more agile and dynamic. So if they’re looking for those smaller chunks or smaller pieces, it’s really opening up opportunity for a competitive landscape to come in and take over that market space.

So there’s this emerging space, especially on the developer side, that’s going to come in and take over where maybe Broadcom, when you turn a blind eye to it and say, “Look, this is too big or too bloated of an offering. I don’t need a big old solution for this. All I need is a small piece…” Now they’re not offering that small piece anymore, maybe an emerging company will come in and take over that space. I think that there’s a lot of risk there for Broadcom to lose that developer community that VMware and the Tanzu side was actively growing, and struggling, honestly, with the competition in the market. So I think that that’s a risk that we’ll have to watch as the market evolves as well.

Camberley Bates: Yeah, absolutely. So, any more comments on that one? The one thing I will say is that from what I understand from the partners, where they’ve called it, there’s going to be a hard deck, much like we’ve seen in other companies done, which there hadn’t been before. So there is an absolute hard deck saying, “Don’t play at our big companies, go play down below.” So we’ve been through that before. We have been through, what they’re saying is they’re ticking out the lower level guys that are just dropping it in. I’m kind of wondering where that’s going, because VMware seemed to be everywhere, even in the small business market. And so when you balance that thousand dollar transaction versus that $500,000 transaction or million dollar transaction or multimillion dollar transaction, those are different markets completely. And how do you get to market, and how that gets bought, is very, very different. So we’ll see how that plays out, especially with people like CEW and those kinds of folks, as we go.

Paul Nashawaty: Yeah.

Camberley Bates: And the other thing on it, it’s not going to move that fast because you can’t get off of it. Right?

Steven Dickens: That was the point I was going to make. All of this noise on LinkedIn and Twitter of people thinking this is a dumpster fire and everybody’s going to move? It’s going to take you 12 to 18 months to move, and any CIO is going to look at this and go, “I’m going to track it. I’m going to watch it. I’m going to turn up my dial on my listening. I’m going to get my VMware account manager in. I’m going to get them to give me the spiel.” But nobody’s going to make a handbrake turn and turn their entire infrastructure on a dime and go, “Hey, we’re ditching VMware and we’re going to go all in on…” That would be a two or three year migration, and we are days into this.

Camberley Bates: Well, but here’s one of the issues that we’re hearing, and my ear has not been down to the ground as much as yours has, and Paul’s, that kind of stuff is the pricing. I’ve heard that in some instances, you’re looking at pricings that are jumping up anywhere from two times to four times the numbers. That is enough to somebody to say, “I have to do something now.”

Paul Nashawaty: Yeah. So Camberley, absolutely. And the thing about that, and when I talk to these CIOs and they’re talking about their number one concern is to modernize applications and they don’t have resources to do that work, price is key because they work with service delivery partners to get it done because they don’t have those resources on their bench. That cost impact really increases when you start saying, “The licensing cost is doubling. Now I have to outsource. And by the way, my value-added reseller doesn’t have the ability to do what they need to do.” So it’s a challenge.

Steven Dickens: I think we’ve got to look at this over a six to nine month time horizon, not a six to nine day time horizon. The Twittersphere’s very good at creating noise now on the back of announcements. IT strategy, as we all know, takes a lot longer to roll through than that, so.

Camberley Bates: I just want to figure out if VMware ESX is going to be as sticky as data protection. Wrap it all together.

Steven Dickens: You don’t throw your hypervisor out overnight.

Camberley Bates: There we go. So guys, thank you very much. Thank you to all my co-hosts here. Don’t forget to follow us. Link, whatever, download. And we will see you next time. Take care.

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Overcoming Data Protection Fragmentation for Cyber-Resiliency – The Futurum Group

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