Michael Dell tells IT leaders all they need to know about the new Dell Technologies

After largest-ever tech merger, CEO talks product integration, strategy, the battle v. HPE – and why protectionism is a really bad idea for the tech industry.

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I wanted to spend time talking with you about how your competitive approach, how the path you've taken, differs and offers benefit to customers compared to some of their other strategic providers today. I had the opportunity to talk to Hewlett Packard Enterprise CEO Meg Whitman some time ago about their very different approach with HP splitting apart. And Meg's comment was, and this is a direct quote from her, "Dell EMC has taken an entirely different strategy than we have. We decided to get smaller, they decided to get bigger. We decided to de-lever the company, they've chosen to lever up. We've chosen to lean into new technology like 3Par all-flash storage, our next generation of servers, high-performance compute, hyperconverged Composable infrastructure and our Helion OpenStack cloud offerings. I think they are about to double down on old technology and run a cost take-out play. . . One of us will be right." So, Michael, why will you be right?

Well, let's talk about all-flash first, because that's an interesting area where the market is growing quite fast. We have 40% {market share} in all-flash. We're bigger than number two (which is not HP, by the way), number three and number four combined, and we're growing faster than each of them individually and then the total.

What HP is essentially saying is they're going to shrink their way to success. I don't think that's actually a real thing, but OK, I understand what they're saying. If we look at how they're getting smaller, in their last quarter their server business was down 6% {Ed. Note: Per HPE, server revenue was down 4%.}, their storage business was down 8% and their networking business was down 22%. I think those are all businesses they're staying in, so how you shrink your way to success, I don't understand. Their operating income was down 17% over the last 12 months and they're spending far less than we are in research and development.

I think at the end of the day this comes down to innovation, and we've spent $12.7 billion in the last three years, we're spending about $4.5 billion a year - again, more than twice HPE. This is before their software divestiture, so it will be even greater. She's right in the sense that we'll see how customers respond to this. They've also written off, I think, $12 billion or more on investments that didn't really work so well for them, but that's all information you can find on your own.

As it relates to our financial structure, I actually think this is an enormous advantage, being a private company and not being beholden to the 90-day shot clock and the cycles of the financial markets. We can take a long-term perspective as to the future of our business, thinking about three, five, 10 years. But just to put some context on it, if one adds up the cash flows of Dell, EMC, VMware and all of our Dell Technologies family, during the last reported quarter, the 90-day period for all those businesses, what you see is that the cash flows of the combined company was $3.6 billion. Our interest expense would be on the order of $550 million. So to say that the leverage ratios are high would be just completely incorrect.

I think, Michael, at the heart of her comments was this idea of being nimble right now, that where EMC and Dell will be working through a lot of the issues of a merger, at a scale no one's ever seen before, they're going to be "nimble."

I think the beauty of our structure is we can have both scale and speed. Think about startups within Dell Technologies, like Pivotal or Boomi, that we are running flat out, growing as fast as possible. Meanwhile, we're consolidating servers.

On the day we closed the combination of Dell, EMC and VMware, IDC and Gartner also announced that we had surpassed HP in server units. So we don't seem to be slowing down at all. In fact, we're not. We just had our 15th quarter in a row of gaining share in PCs. And look, if this were a combination where there was tremendous overlap and you were combining two like businesses and there were enormous cost synergies or something like that, that's a different story. That's not what this is. This is about revenue growth.

This is also very different in the sense that it's a family-controlled business. It's a private company. So our time horizon is very, very different than a company that has quarterly reporting to shareholders and thinking about dividends and spinoffs. We'll see where HP goes. What I would tell you is that I believe their strategy is not deterministic by itself. I actually think their strategy is a reaction to the formation of Dell Technologies.

Analyze the various options that HP has, once we combined with EMC and we are the controlling shareholder of VMware. The options for an HP are basically either to challenge us and to bulk up in these areas where we're very strong. It's hard to do, by the way, because there are no scale assets that you could actually do that with, and the ones that are small and growing fast are generally losing a lot of money and very expensive. It's hard to move the needle that way.

Or you go into a sort of retreat mode, where you sell off assets and dividend out various interests; customers see that as a stepping back from innovation and driving forward and providing less. This goes back to my construct earlier where no customer has ever come to us and said: Would you please divide your company up into multiple pieces so you can serve us better? I've never heard a customer say that, and I would challenge you to find some that would think that's a good idea. Especially during this period of converged, hyperconverged, we've all seen the value of engineered, integrated solutions. EMC's had this Cisco alliance for 20 years, it's working very well and continues now with the Vblock product. So yeah, we have different approaches, customers will ultimately be the deciders.

I want to come back to the competitive landscape, but since you were talking about structures of companies, I talked to Joe Tucci about EMC's 'federation' of companies and what the market did or didn't understand about the federation model. How does this merger build or improve upon that? I understand now it's called a family of companies versus a federation, but will that structure change? Would customers expect to see more integration among these companies?

Yes. We refer to VMware, Pivotal and SecureWorks as strategically aligned businesses. The idea here is that these are businesses that have independent ecosystems, yet we want to be partnered incredibly closely with them. So take the case of VMware. VMware has 500,000 customers around the world. You really can't find a bank or a large company that's not using VMware, at least it's pretty hard to do. It's very important that that ecosystem continue.

So if you've been to VMworld and you look around, you see all of the industry. All of our competitors, all the companies we're cooperating with. You see all the networking companies, all the security companies, all the server and storage companies, all the application companies. That's the VMware ecosystem, and we're not going to interrupt that in any way. However, VMware has all this great technology. We're going to work extremely closely with VMware. That's one side of our brain. The other side of our brain hopes that all of our competitors do the same, because 81% of the capital stock of VMware sits on Dell Technologies' balance sheet. So if VMware does well, that's great for us. That's what we think of as the strategically aligned businesses, different from a holding company or something like that.

Going back to the competitive side, IBM has taken a completely different approach, moving away from hardware assets with a big and somewhat difficult transition to cloud going on right now. We talked recently with their cloud chief, Robert LeBlanc, about IBM's goals in terms of putting increasing value on their cloud offerings, like their cognitive computing capabilities with Watson. Can you compare that approach versus the Dell EMC approach and why you're better positioned to help customers as they try to move forward in this cloud world?

IBM is more of a partner than a competitor. They're partnered quite heavily with VMware, with their cloud offerings and I think you might have seen Robert at VMworld on stage talking about how they're using the VMware software-defined data center inside the IBM cloud. Look, I think with what customers are doing, there is going to be a wide set of partners that customers need, so IBM's not a competitor to us as much anymore.

What about Cisco, Michael? Where do you view them in this competitive context? Do you see them as a competitor or a partner these days?

They're a partner. With the Vblock alliance, with VCE, we now call it the converged platform or systems division of Dell EMC. EMC and Cisco had a 20-year partnership and customers derive a lot of value from the Vblock product line. Just to review, that's a unique product that is being created with EMC storage technology, Cisco blades and networking and VMware software, and we continue to develop new versions of that, support all of the installed base and it's a growth business. It grew 26% last quarter. So Cisco is absolutely a partner.

I wanted to also focus on your software strategy and help readers understand that. You did sell off some software assets as part of this new structure, but where will Dell focus in software and where won't you?

We're very focused on VMware. VMware is one of the largest software companies in the world, very focused on infrastructure and moving increasingly into applications and helping customers build out their cloud environments. Pivotal is a big focus for us, with Pivotal Cloud Foundry, the Pivotal Big Data Suite and Pivotal Labs, helping customers transform the way they build their software.

We have a variety of other capabilities that help customers modernize their environments for this digital transformation, like building out data lakes to be able to handle the incredible deluge of data. Think about going from 8 billion connected devices to 200 billion connected devices, the amount of data that customers are dealing with is tremendous. We have unique offerings like Boomi that allow for the connection of any piece of software in the cloud to any other piece of software in the cloud or on-premise.

As it relates to applications, we're closely partnered with SAP, with Microsoft, with Oracle. We work with all the companies in the industry ecosystem around applications and we're quite focused on the data and the infrastructure and how we help companies build out this new infrastructure required for digital business.

Think about a company like Ford Motor, it's got competitive threats on three sides. It's got Apple and Google saying: Hey, we're your pals, just let us control your car with our smartphone and everything will be great. And we'll just suck all the value out of the car and you guys just keep making cars. They've got Tesla, who is building computers with wheels, and they're collecting all this telemetry data and it's getting smarter and smarter. Customers are seeing a better experience because other users experienced something and they're able to use artificial intelligence, deep learning, machine learning to improve the experience in real time.

Then they've got Uber virtualizing the car. So they see these three competitive forces and say: Wow, we have to be a software company and we need all sorts of new skills and capabilities. So they got very interested in Pivotal to help them with their digital transformation. We've got a significant number of the car companies in the world using Pivotal Cloud Foundry as their operating system for the cloud, and so too an enormous number of industrial companies, GE, retailers, insurance, banking, on and on. So our role in the industry is quite evolved from what you would have thought of as Dell five or 10 years ago for sure.

I also wanted to ask about your services strategy. I want people to really understand from a services perspective where Dell will excel and how that approach will differ from what, say, IBM or Hewlett-Packard Enterprise will provide.

Our services business is about $12 billion, 32,000 people around the world, operating in 180 countries, 1,800 service centers and supporting all the mission critical infrastructure. We also have a set of professional services to help customers transform their infrastructure around everything we've been talking about in terms of converged, hyperconverged, digital transformation, that sort of thing. We work very closely with the leading systems integrators. So think about ATOS and Capgemini, Accenture, Infosys, CGI, etc., the federal integrators as well. We're focused on the infrastructure and the transformation of the infrastructure around digital business.

And the other key area, Michael, is security. What should people expect moving forward from a security perspective?

As you connect all these nodes up and think about the number of connections in a hospital or a smart building, as everything gets connected, it also becomes vulnerable. The attack surface is growing tremendously. Across RSA, SecureWorks, NSX and [VMware] AirWatch and our encryption platforms for client products, we have a broad set of capabilities to help customers deal with the cyber challenges that are out there. We're seeing about 200 billion attacks per day in SecureWorks. By seeing more of the problems, we know more about the attackers, we're able to proactively help our customers address that.

Michael, we have a presidential election that's in the news and lots of talk about...

Wow! What a mess.

Indeed it is. But one of the big issues in that is free trade versus a more protectionist approach. How concerned should the tech industry be about the potential for the U.S. to become more protectionist and to perhaps move away from these international trade agreements that we've had or are considering.

I don't think that would work very well. I think this political season is particularly disappointing as an American to watch. I think a lot of the things that the politicians are saying are not rooted in either fact or a good understanding of how the global economy works, and maybe they understand that and they're just saying one thing because it's what people want to hear, maybe they don't. I don't really know.

What I do know is that the economy of the United States is inextricably tied to global economies around the world. If you think about the United States, it has roughly 3.5% of the world's population. Something like that. Yet it has a much higher percentage of the global GDP, more than 10 times greater. So, in that sense, the economy of the United States has already won with respect to global trade. And the question is not [whether] global trade is bad or good. The question should be in 20 or 30 or 40 years, what portion of the global economy will the U.S. represent? Will it represent the same as it does today? Or more? Or less? Probably a little bit less because of the rise of the emerging market economies and their participation in the global economy.

But if you think about the drivers of a modern economy, whether it's in pharmaceuticals, telecommunications, computing, modern industries, these are all the industries where the United States has done extremely well. If an economy, let's say in Southern Asia, in Africa, in the Middle East, wants to modernize, it's going to require the technologies that we are developing here. To suggest somehow that global trade is a bad thing is just a complete misunderstanding of how the global economy actually works today. If you just take it down to the level of the U.S. and China - newsflash - these economies are inextricably tied. If there were a breakdown in the economic relations between the United States and China, it would be some kind of mutually assured destruction. That's my feeling on global trade.

Michael, what should people expect out of Dell World next week? What's coming up?

The first thing I'd say is it's no longer Dell World. It's now Dell EMC World. What people will see is the combined innovations of Dell, EMC, VMware and Pivotal together. We've been planning this for quite some time and we're already introducing lots of new products that bring together the combined innovations of Dell Technology's family. As always, these get-togethers are a great opportunity to highlight customer successes using our technology. There will be a lot of discussion, of course, about digital transformation and modernizing infrastructure, [as well as] converged, hyperconverged, security, the enormous amount of data that customers are dealing with now and how they can modernize their IT environments and, in fact, their businesses to take advantage of all that data.

What is the most important thing you want customers to understand about the new Dell Technologies, about this new merged company?

It's everything, number one, now all in one place. And we're open for business. This Dell, EMC, VMware combination actually started 15 years ago with an alliance and it has now led us to this stage. We look forward to seeing lots of customers next week at Dell EMC World. We're also having Dell EMC forums in cities all over the world. Here in the United States I think we've got 20 or 30 of them spread out across the whole country. Same in Europe and Asia as well.

Copyright © 2016 IDG Communications, Inc.

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