CRN Exclusive: HPE CEO Meg Whitman On The Spin-Off Software Merger, Dell's Debt Burden And Cisco's Storage Problem

More Blockbuster Moves By HPE

Hewlett Packard Enterprise CEO Meg Whitman spoke with CRN after the company announced it was spinning off and merging its non-core software assets, including its big data and security software, to British multinational software maker Micro Focus in a deal valued at $8.8 billion.

Under the terms of the deal, Palo Alto, Calif.-based HPE will spin off its big data, enterprise security, application delivery management, IT governance and IT operations management software for a 50.1 percent stake in the new company plus a $2.5 billion cash payment prior to the completion of the merger.

Whitman spoke with CRN about the spin-off software merger, Dell's debt burden and Cisco's storage problem.

What impact will the Micro Focus deal have on HPE and partners?

I think it is the right thing for the employees, customers and partners. I think they'll do a really good job with some of the mature software assets and some of the growth assets like Vertica.

I think this portfolio will be stronger with Micro Focus owning it. I think it is an opportunity for partners to get into the software business with a company that is going to make the investments in the business and has some really nice growth assets like Suse. So I think it is a really good opportunity for the partners. Obviously, we'll have a very close relationship with the software company. When we have customers that want an IT operations management offering, obviously it will be the Micro Focus offering. I would encourage partners to take another look at this portfolio.

How difficult was it having the software business and the next-generation infrastructure business under the same roof?

I am a big believer in focus. We are not getting out of the software business nor are we getting out of the services business. We are doubling down on a different kind of software.

I would argue that this software portfolio that we are merging with Micro Focus is largely an applications software portfolio: Vertica, Fortify, ITOM [IT Operations Management], ADM [Application Delivery Management].

Our area of expertise in the core of the company is systems software – OneView, Synergy. We still want to be the leader in the traditional data center, which the channel partners are super interested in because it is still 85 percent of the market. And then as we move into software-defined, whether that is Synergy, the partners come along there. And then, ultimately, campus, branch and edge, which is a real opportunity for the partners.

It is just about focus. It is doing a smaller number of things really, really well. If I am a partner and I want to do applications software, I am actually pretty happy about this deal.

How is HPE positioned against Dell, which just acquired EMC in the largest acquisition in IT history?

If you look at the enterprise side of Dell it is actually about the same size [as HPE] because the [Dell] PC business is such a giant business. The PC business at HP Inc. is like a $35 billion business.

We are getting more nimble and faster and more responsive to partners. We are doubling down on new technology whether through acquisition like Aruba or SGI or through partnerships like Chef, Docker, Mesosphere, Turbonomic, which the partners can take advantage of.

And we are de-leveraging the company. We went from $12.5 billion of net debt on the operating company to $5.3 billion of net cash. And Dell is leveraging up. They are going to have $60 [billion to] $70 billion of debt on the company, which gives them less degrees of freedom in terms of doubling down on new technology. It is going to be a cost take-out play.

It is two completely different strategies, and I think the partners have to evaluate what do they think will be better for their business. Partners may come to different conclusions. I would argue that as the partners try to adapt to this new world order, a faster, nimbler company doubling down on new technology and deeply, deeply, deeply committed to the reseller and partner ecosystem is better for them. I would advise Dell partners to at least think about HPE and do you at least want to spread out your bets given what is going on over there.

How much success is HPE having recruiting EMC and Dell partners?

We continue to welcome new EMC partners and new Dell partners. I get a report every couple of weeks and we continue to sign new partners.

How is HPE's networking portfolio, particularly Aruba, and how that is a differentiator versus Dell?

Aruba is on fire. We are seeing 20 percent growth -- a big opportunity for the partners and Dell doesn't have anything like that.

In our data center networking, because we have made an investment in Aruba, people recognize we are serious about networking so it is lifting the whole portfolio. Frankly, I think we have a better data center networking offering than Dell. I don't even think people really think about Dell offering a networking alternative. It must be a small fraction of the size of our Aruba and our data center networking.

Explain the HPE infrastructure portfolio and how that stacks up against competitors.

It's a differentiator because we have networking, storage and a great compute franchise. As that market is converging, I think we are really positioned well versus Dell and Cisco.

Each of our major competitors is missing a piece of the puzzle. Cisco is missing storage and Dell is missing networking. In the past they have sort of had these alliances to try to fill in the holes there, but as these companies sort of solidify I think it is going to be harder to do that than it was in the past.

So I think we are really well positioned. What I know is sometimes it is hard enough to make server, storage and networking play together within HPE – let alone trying to get two companies to dance together.

With the Micro Focus spin-off merger are we done with divestitures within HPE?

I would certainly say that within the context of [the HPE] Enterprise Group. We believe server, storage and networking needs to be together and we think it needs to be together with our Technology Services and consulting operation. The world is converging. So we like having all three of those. And then Technology Services is absolutely linked and joined at the hip within our infrastructure business. So I can't imagine that there is an economic way that anyone would ever want to separate that business.

How important is HPE Financial Services for the enterprise business?

HPE FS [Financial Services] is very central to this because it can help the partners provide a consumption-based model to their customers.

What people like about the cloud is sometimes the technology, but they also like that they can pay for compute, storage and networking as they use it. And HPE FS allows the partners to offer that to their customers. So it is an important part of what they do.

Where's the ability to move faster and the potential for acquisitions going forward?

The good news about having now a very focused company is all resources are now focused on our strategy of being the leading provider of hybrid IT both for the traditional data center, the software-defined data center and then the campus, branch and edge. That is who we are as a company.

So we will be building up quite significant cash balances. We'll use a returns-based approach but, listen, if there are acquisitions that are dead on to this strategy we will make them and I would point to SGI and Aruba as two good examples.

What is the opportunity to continue to streamline and be more efficient?

The opportunity to improve is endless. We have got to keep moving. We have got to continue to be easier to do business with, we have to continue the innovation we have had over the last five years.

I don't think we can be any more partner-friendly than we are. We are widely acknowledged now as the most partner-friendly company and that will continue. Partners are absolutely critical to our future. They enable us to serve segments of the market that we would never get to. They know verticals really well. I continue to be impressed with the partners I meet. You meet partners in Minneapolis -- they know everything there is to know about health care. We will never know as much about health care as some of the VARs that service the Mayo [Clinic] and other hospitals. Other VARs know everything about manufacturing. They complement our skills and innovation with deep, deep, deep local knowledge and deep, deep, deep vertical knowledge. We love the partners.