EMC's CEO Presents at Citi Global Technology Conference (Transcript)

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EMC Corporation (EMC) Citi Global Technology Conference Call September 4, 2013 1:35 PM ET


Katie Keita - Director, IR

John Roese - CTO


Jim Suva - Citigroup

Jim Suva - Citigroup

Thank you for joining us here at the Citi Technology Conference. In this fireside chat, we will be with EMC, and I am Jim Suva, the IT, Hardware and Technology Supply Chain analyst.

Before we kick things off with John Roese, the Chief Technology Officer, Katie has a couple of opening comments.

Katie Keita

Hi, thank you for your interest in EMC. I just want to let you all know that during our discussion today, John may make some forward-looking statements. These statements are subject to risks and uncertainties which we have listed in our filings with the Securities and Exchange Commission. You can find those there, thanks.

Jim Suva - Citigroup

Thank you, Katie. Joining me on stage is John Roese, who is the Chief Technology Officer at EMC, and I do want to start things off by kind of talking a little bit about his background and overview and his responsibilities at EMC, as I find his background quite fascinating. We had dinner last night, and it's kind of where to find someone who has actually had quite the path that he had.

So John, let's start things out; can you go ahead and talk a little bit about your background, your history, and what you are in charge of over at EMC?

John Roese

Sure. Thanks Jim. Thanks for joining us today. As said, I am John Roese, I am the Global Chief Technology Officer at EMC Corporation. I joined a little under a year ago, I will talk a little bit about roles and responsibility in a second.

But my history is a bit more diverse, than maybe to be expected for EMC, I have been somewhat of a serial CTO. I started my career with a little company called Cabletron Systems, ultimately became the Chief Technology Officer there, and then the CTO of Enterasys Networks, which is a computer security company; and then CTO of Broadcom, working for Henry Samueli in California. Then I moved to Canada, where I was the global CTO and Head of R&D for Nortel, then I took a little time off after that adventure, and then most recently before joining EMC, I was the Head of Advanced Technology for a small Chinese company, Huawei, where I built and operated effectively their Bell Labs out of Silicon Valley.

And then about last summer, I got a call from EMC as they were going through the management changes, where David Goulden was taking over EMC, and (inaudible) [2:12] was moving over to VMware and Paul Maritz was coming back to start this entity called Pivotal, where they made a decision to centrally expand the role of the CTO of the company, where historically the CTO was more of a research function, as opposed to the center of the technology ecosystem.

Interestingly after my call, my first comment to them was, you know I am not a storage guy, even though I have built lots of storage systems, given my background you might call me a carrier guy, enterprise guy, networking guy, a real time communication guy, a chip guy, storage would be in that list, but probably not the top of it. And their comment to me when I said that was, that's exactly why we are talking to you, because EMC is no longer just a storage company, it's actually much broader than storage. Storage is a core piece of the business, but even storage has to touch other ecosystems. Cloud is not just about storage, it's about the intersection of communications and application infrastructure and things like storage.

At EMC, my role is, I am responsible for the cross-company technology activities, which basically deal with anything that goes beyond a product line. So orchestration of how we navigate the objects for our world or the service provider environment. Typically, I am responsible for advanced technology development, but also for making sure that the operation of the R&D components and the interaction between the federation components, meaning VMware, Pivotal, EMC, etcetera are operating coherently. We will talk a little bit about that, I am sure.

During this discussion, we have a kind of unique model of how we are structured. We like the loosely coupled model, but at the same time, there are many things that are difficult to navigate, if we need lot of orchestration across them; and so I tend to play that role as the gravitational center for the technology activity of the company.

Jim Suva - Citigroup

Great. Well thank you very much. Maybe if you can just kind of get people up to speed about that relational role that you have at VMware, Pivotal, what's that all about, the timing, the thought that goes into it? You brought all these companies. It seems like some have worked out good, some haven't worked out so good? You are kind of rearranging them. We have got Pivotal going on. You got the whole federation. Kind of what's -- give us a landscape?

John Roese

Sure. Sure. EMC as a corporation of has kind of an interesting and unique model, that sometimes I wish other people had our model, because it would be easier to describe by saying, we do it just like them. But the basic principle is a loosely coupled federation of technology entities. The actual financial manifestation is, there is a company called EMC that owns 80% of VMware, owns the majority of Pivotal, I will talk about what that is. Owns all of RSA. But each of those companies has their own brand, and they exist in a segment of the overall IT ecosystem, where they have a large degree of freedom of movement.

The purpose of this, is that we have a belief that we need to be able to build a complete IT infrastructure. But we also realize that there is not just one way to build an IT infrastructure. And so, some companies follow the path of basically buying and integrating deeply into a coordinated single approach to building enterprise IT or cloud IT, and what they find, is that the minute they start tightly coupling the choice of storage to the choice of virtualization, to the choice of security, to the choice of Big Data, they immediately start shaving off TAM, because if someone goes on to adopt their virtualization architecture, they cannot consume their storage ecosystem, and so we took an approach saying that, each of these layers should be able to work together, and if you snap them all together, you could build the (inaudible) stack.

But if you choose not to do that, each of the layers has the ability to form partnerships and relationships and to work across their horizontal layer, with relative freedom of movement. And so for instance, EMCii, which is primarily information infrastructure business, storage, document and things of that nature. Absolutely it can work with OpenStack and Hyper-V and non-virtualized environments. VMware has relationship with NetApp and Hitachi and even other types of Big Data and analytics frameworks.

And Pivotal, which is the newest member of the family, which was the result of us realizing that in 2013 for the first time, Big Data and analytics were no longer applications, but were becoming a platform. The idea that you would just stand up a Hadoop implementation for a one-off, no longer made a lot of sense. And so the idea was, that there should be a horizontal layer of IT, in which your Big Data and analytic frameworks and application development frameworks operate very similar to how you think about virtualization or storage or compute. It is a horizontal layer. And so we went through the entire company, and we found that we had assets in VMware and EMC and other pockets that actually were the foundation of building that platform.

We put them all together, put Paul Maritz in charge, and gave him the charter to build something called Pivotal 1 that will ship some time towards the end of this year, which essentially becomes the first manifestation of that horizontal platform, covering Big Data, which is things like Hadoop and those technologies. Fast Data, which are things like GemFire, which is realtime ingest of information, and the application frameworks that allow for cloud portability and new application models of development.

At the end of the day, that Pivotal architecture has a new element of the platform, consistent with the ecosystem strategy and the federation has the freedom of movement to place their workloads on any cloud. They work equally well, running their application on an Amazon environment, as they would on a VMware environment, and work with any storage ecosystem underneath it.

Now clearly, there is a preference and the ability to walk these things together, because we are all part of the family. This is probably a little easier to achieve, but at the end of the day, that freedom of movement means that regardless of the layer, we have the ability to address the entire market.

Again, sounds logical. We seem to be the only ones in the world doing it this way at this point, but for us it has been working reasonably well and the result is the ability to build the entire stack and preserve the freedom of movement and flexibility to address the whole TAM.

Jim Suva - Citigroup

John, when we think about the overall market, and the growth opportunities, can you walk investors through kind of how you see the growth of the market? The reason why I ask is, for example, my family and the twins, I am taking pictures, videos, I am uploading them, Citigroup IT hates me, because I am putting these videos on, and they have to duplicate them many times for regulatory purposes. But then you also have optimization and compression and D2D is kind of offsetting it. What's the type of growth rate that, both for data, as well as for the sales for the industry that you see going forward; because I think we have gone from a 20%, 30% type cadence, probably something a little bit more realistic long term?

John Roese

Well I think the manifestation of kind of growth in this industry is a bit confusing to people, because we hear consistently that there is exponential growth in data creation, and that is true. You know, the estimates are 40 zetabytes in a couple of years, and those are massive numbers, massive amount of information being created. Clearly, IT budgets are not growing at that rate, and clearly the revenue streams of the suppliers of the technology are not growing at that rate. And the reason for that is, to be candid, an awful lot of very intense work, to try to make sure that the cost of information growth does not grow at the rate of information growth. And so, for the last five years or so, for instance in the storage ecosystem, there has been a very conscious effort to develop and implement technology of scale, that actually contains that growth and the cost per bit at a level significantly lower than the actual production of data.

Things like thin provisioning, where you didn't have to pre-allocate a tremendous amount of storage capacity. You could allocate it as you needed it, which allowed for more fungible pools of storage. Deduplication, which today we take for granted, was a new technology, let's say five years ago, and it allows us to get 50 or 100 to one reuse of the data infrastructure by eliminating duplicates and many different approaches to that. But the bottom line is, across most storage systems today, there is deduplication.

Software defined storage, we have a new product that went GA today, called VIPER, which is the first real instantiation of large scale software defined storage across multiple arrays and multiple technologies and multiple virtualization environments, gives us the ability to abstract and pool storage to create virtual arrays, which actually accumulate all of the leftover storage if you will, and can actually result in the manifestation of almost an entirely new array out of your infrastructure based on using the unused portions.

And as we continue forward, we will see more and more of those technologies, and the purpose of them is to make sure that the cost of that capacity is not growing at a linear rate equal to the actual expansion of that capacity, otherwise, we create an unsustainable model, and I think we have done a pretty job as [an industry] of doing that, but it does create confusion. Because, obviously we hear about the data growth, we hear that data growth is unstoppable and expanding exponentially, and then you look at the performance of the companies in the sector and while, I think you can see us doing quite well in a complex markets and an interesting macroeconomic climate, while clearly not growing at those rates. Let me tell you that it's a conscious effort on our part, because any other path, ignoring that innovation, would result in a unsustainable model and the inability for people to actually capture and process that data.

The good news is, because we have been able to do that, things like Big Data have happened. This idea that it is now okay, and you can find cost effective ways to capture and store tremendous amounts of unstructured information without destroying your IT budget, have allowed for entirely new value creation opportunities, which are really the essence of Pivotal, which means that with those very large data sets, you can reason across them, look for patterns and not be as concerned about understanding how you are going to pay for storing them, and with that, has resulted in a tremendous number of innovations around these storage paradigms, like object stores and software only implementations, converged infrastructure, a bit of all cascaded to open up new opportunities for people like EMC.

Now personally, it would be great if our revenue grew linear with the growth of data, that isn't how it works. I think we have done a fantastic job, making sure that did not happen, the net result is, we see a incrementally expansive opportunity, but not at the same rate. And so, we actually have to look at the actual IT spend as opposed to the consumption and creation of data, to really understand how the market is growing. Good news is, both are net positive, and bad news is, they are not exactly the same number.

Jim Suva - Citigroup

John, any thoughts on what the market rate probably is sustainably going to grow realistically?

John Roese

Very-very hard to predict that. I mean, from an EMC perspective -- big EMC, we have put out fairly publicly about a 9% growth rate for the company, and about a 8% CAGR in aggregate. So we think we will grow faster than the market by a bit, but again, with a lot of large numbers, because we are the dominant player in many of these sectors. That does not correlate to the growth of data, the other numbers that you will see in terms of consumption and production. That being said, the world is changing very rapidly. Those are conservative numbers. I think they are the right numbers to model, that's where we feel comfortable with. But like everything in technology, especially in the cloud era, things are changing.

We would not have assumed three years ago, that the biggest adoption curve in terms of data consumption and even storage consumption, potentially could be something like Big Data and Analytics, that didn't exist a few years ago. Yet today, almost every enterprise in the world is trying to figure out how to build out that framework. They are not talking about just data storage, they are talking about data links. And so we expect there to be some unexpected opportunities. Modeling them is tricky. The first step in the journey is making sure you have sufficient technology, if you go and address them, we are doing it both at the storage infrastructure, but also at the Big Data and Analytics side, and then we will see how the market goes.

But in general, I think we have a reasonably safe expectation of what we think the market could do, but I think if we step back down two or three years from now, we would have been pleasantly surprised that people come up with interesting creative ways to create more consumption and more production of data, because most IT environments are absolutely shifting to an information driven environment, as opposed to an infrastructure driven environment, and that correlates directly to creative usage and creation of data sets.

Jim Suva - Citigroup

Well John, I have never been in a fight, and I don't plan to be in a fight, and this room is packed with people right now and I am sure they are itching to ask some questions. So at this point, we'd like to open it up to investors to ask some questions. We do ask that you raise your hand, and please keep it to one question, with a small follow-up if possible. We really don't want to have multiple questions, because there is just so many people here in the room. So if you have some questions, please raise your hand and we will get the microphone straight away to you. There is the first question over here to the side please.

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