Just wow, that was so helpful SteppenWulf. Thank you! the cool analogies prevent my eyes from glazing over when trying to make sense of all the “Cloud” terminology/lingo that is bandied about.
There’s really no place like the Motley Fool place.
Best wishes,
Matt
Great stuff SteppenWulf!!
Saul found in their IPO prospectus a statement about Sub numbers falling. I know your thoughts on the TAM and the long roadway Pivotal has to get Enterprise to the cloud but any insight or thoughts on the statement of “focusing on renewals and expansion of existing customers” etc.
Why not do both? Renewals and new sub customers?
Here is a copy from Saul’s post.
319 Subscription Customers in 4 years
2014: 0
2015: 75
2016: 180
2017: 275
2018: 319
In fiscal 2018, we focused primarily on renewals and expansion of existing customer subscriptions, which resulted in fewer net additions relative to prior periods. However, with the recent launch of PCF v2.0, including the release of PKS, we intend to increase our focus on adding new customers.
Thanks again for the tech clarity!!
Chris
I haven’t looked at the financials for any of these companies, but it’s a space that I have some experience with so I figured I’d give a technical perspective. Pivotal is indeed nice, but I’m afraid it’s a bit different than most of the competition, and not in what I consider a good way. Here’s a Youtube video you may find interesting. It’s probably too technical, but there are a few timestamps I can point you to that are interesting.
https://www.youtube.com/watch?v=NRZ6N4e-Mko
At 28:45 he puts up a slide where he defines the market leaders:
(I’ve used 5 of the above.)
He then gives “honorable mentions” @29:00 to CloudFoundry (effectively Pivotal), GKE, Tectonic, Triton, Heroku, and Juju. At 30:20 he starts to present consumer reports like charts comparing the platforms.
You may object and say “it all depends on how you define the category”. Yes. Absolutely. But from my view, container based deployment is dominating. Containers are more generic and flexible and have the bonus characteristic that they have the least lock-in. Pivotal, on the other hand, is fairly locked into a specific way of building applications. It’s tries to be at a higher level than containers and so has more lock-in and less flexible (with the upside being that if your application fits into the Pivotal model it’s even easier to package up).
The point being, that there is a lot of competition in this space. Pivotal had some early advantages and is a solid product. But, at least based on my perspective, they seem to be bucking the industry trend towards container based deployment. Pivotal would absolutely be able to compete as a container based platform, but they’d lose some of their differentiation and would be playing catch-up in a crowded market.
I’d love to hear a dissent; but I’m not exactly sure this is a hot an opportunity as presented.
–CH
Hey Conehead - thanks for the input.
I’d love to hear a dissent; but I’m not exactly sure this is a hot an opportunity as presented.
I actually got excited about the preIPO potential of Docker and containerisation a year or so ago (and I posted about it on this board) when talking to someone who saw it really making waves worldwide and reaching APAC. Since then the source who brought it to my attention has really gone off Docker specifically and containerisation to a degree and thinks it (Docker) might be a dying entity. The source works for Red Hat fwiw.
All anecdotal so take it with a pinch of salt.
Ant
Hey Conehead, good to hear an alternate perspective. I always prefer to hear bear arguments about my stocks, to see if there is something I’m missing.
The topic of the presentation you highlighted is container platforms - Cloud Foundry is not primarily a container platform but a vendor independent cloud tool set - he talks about it in multiple places in the presentation starting around minute 4. Also the speaker, Karl, does have an iron in the fire - he is working for a new container startup. It doesn’t mean I discount everything he says, but I know he needs to make the argument that container development is better than PAAS or other options.
Containers were very hot 2-3 years ago, but from my end, I see a lot fewer engagements using them over the last year or so. I think it is not clear yet whether containers or PAAS will win in the end. Containers require a lot more configuration work and upkeep, and that work doesn’t help the developers solve the business problem. I think we’ll see a lot more specialization of containers before dust settles, and find that their best use if for custom edge cases. Even if 5 years from now we find out everyone prefers containers, I doubt there will be a single container that wins. Enterprise companies will still require vendor independent tool sets and processes. But that is just my guess.
However that turns out, I don’t think the bull case on Pivotal is based on it having, in some way, the “perfect” or “best” technology. Technology is a moving target and is always changing. It’s built on the case that it has no significant competition in its very profitable market - a vendor independent cloud tool set in the enterprise space. Because of this, Pivotal is growing subscription revenue extremely rapidly, and can expect to continue for as far as I can see.
We need to remember that large enterprise companies, unlike startups, don’t settle on one technology. They always have lots of groups that want their own thing. Enterprise architects and the standards police try to corral them in to certain standard products and processes, but they never totally succeed.
I think that Pivotal plays well no matter who wins. Their core engine works with containers as well as with PAAS, IAAS, and private clouds. Any new container or other deployment option just becomes a new integration point for them. Of course they could screw it up or be buried by a new technology bursting out on them. But they have a lot of smart engineers, and will probably integrate each new technology. Being the big kid on the block, all the new startups will be dying to integrate with them.
Let me know what you think.
Very interesting discussion, thanks to everyone 
I have not had a chance to look at these post but I do know that Nutanix has picked up a few companies to add Cloud management capabilities and there may be some overlap. Also there is another company called Qubole which also provides similar things on their platform . I do agree there is so much happening today in the Cloud that we are not sure who will build the ecosystem and get over the chasm and learning curve of the eco system and be a clear winner . All this will take a few years but I do see that Pivotal does have competition in different places from different companies.
I will dig a bit more and come back if I get any more relevant information …
rajesh
Right now the investment bank customers who got stock in Pivotal in the IPO are selling it, and that is good for us. Why do I make those claims? Well, let’s take a look:
First of all, investment banks insist that companies doing an IPO sell their stock for less than it’s worth. It’s not that investment banks are evil. You might as well call a wolf evil because he eats rabbits. It’s the nature of things.
Here’s why they do it: Sure the investment bank gets a fee for sponsoring the IPO and arranging to sell all the shares, but it still has to get rid of those millions of shares. Normally it sells them to its own clients. Now if it’s a big popular company like Facebook that is having the IPO, everyone wants shares, and all the investment banks compete for the prestige of taking part in the IPO. That gives the company having the IPO a lot of negotiating power.
However, if the company having the IPO is a little company that most non-tech people have never heard of, or one that their clients may be hesitant about because it’s mostly owned by Dell, how is the investment bank going get rid of millions of shares? The answer is to pressure the IPO company to sell its shares as cheaply as possible, and well below what they are worth. What matters to the investment bank is how its own clients who get the shares will do, not how the company who is having the IPO will do. And it’s not only worried about its clients! The underwriter will take a bunch of the shares itself, for its own book, if the price is low enough.
The IPO company is a one-time customer. However, the favorite clients will hopefully be there indefinitely, and the investment bank wants to keep them happy so that they will take IPO stock from other companies in the future too. That insures that they, the investment bank, can keep getting those IPO fees, etc. In addition, if the favored customers can make instant money on the IPO, that gives them a good reason to keep their banking and investing relationships at the investment bank.
So why are the clients selling now? Most of them had never heard of Pivotal before the IPO. If they had heard of it, it was just as a subdivision of Dell, so they may have been a little reluctant at first to even take the shares (as we were, too). All these clients know is that, because they are favored customers of the underwriter, they got some shares at a bargain and they can make a quick profit. They are not buy and hold investors in this trade. They are get-a-stock-at-a-cheap-price-and-sell-it-at-a-higher-price investors. Well they got it so cheap that at yesterday’s close they have almost a 30% profit in a couple of weeks. Their sales are holding down the price right now, which gives us a chance.
That’s the way I see it, anyway.
Best,
Saul
Ugh. This is what I get for posting late at night and trying to do so quickly. As a result, I don’t think I made my case very well. Let me address a few things by responding to SteppenWulf’s excellent critique of my post. Pardon me, but I’m going to quote his post a bit out of order for clarity.
The topic of the presentation you highlighted is container platforms - Cloud Foundry is not primarily a container platform but a vendor independent cloud tool set
What I was trying to avoid is having to ramble on forever trying to define CaaS and PaaS and what each thing means. Especially to what is probably a mostly non-technical audience. Because while CaaS is a fairly concrete term, the PaaS term gets thrown around quite a bit for a pretty wide category of things. Which I guess is why you prefer the term “independent cloud tool set”.
But, yes, I agree, I was 100% comparing apples and oranges.
- he talks about [CloudFoundry] in multiple places in the presentation starting around minute 4.
This is the thing that I really messed up about. The whole part around 4:00 was one of the things, perhaps the most important thing, I wanted to point out. Or, most specifically at 6:40. This is the core point I was trying to make. Let me actually post the slide here:
Traditional “PaaS” roles have been taken over by containers… The piece that is left for PaaS is the part that was always the most important part of PaaS in the first place, and that’s the opinionated developer experience. --Brendan Burns, Kubernetes cofounder.
Now the speaker makes it absolutely clear that this is not an unbiased opinion. But it is backed up from my own personal experience. The speaker has an interesting slide up around 14:55 where he shows the spectrum. He defines it as
IaaS → CaaS → PaaS → FaaS → SaaS
(FaaS isn’t really a term I’ve seen before, but I understand what he means.) But, in my personal experience, the Application platforms are getting squeezed. The left of the diagram gives you more control. The right of the diagram gives you more convenience. And I feel like the jump from CaaS to Pass is giving you less convenience than it used to, and the jump from FaaS/SaaS to PaaS doesn’t give you as much power as it used to.
3 years ago I was seeing 40% of people using hardware or IaaS directly, just hacking together a bunch of scripts, 30% using containers (mostly hacking together a lot of container management stuff), and 30% using PaaS. I knew a lot of people at Pivotal at this point, as well as at IBM Cloud Foundry.
But these days I’m seeing 20% using hardware/IaaS directly, 70% using containers, and 10% using PaaS. And this is the point that I was most interested in feedback on, because I am very aware it probably depends on where you work and in what groups.
Containers were very hot 2-3 years ago, but from my end, I see a lot fewer engagements using them over the last year or so. I think it is not clear yet whether containers or PAAS will win in the end. Containers require a lot more configuration work and upkeep, and that work doesn’t help the developers solve the business problem.
Which is why I find your response so interesting. I very well knew that you might have a different experience. But I’ve seen the exact reverse. 2-3 years ago I saw a lot of people really interested in containers, but very little hard core use because the container management features weren’t mature enough. Whereas, Pivotal had a really mature CloudFoundry platform that could be used for real stuff. So 2-3 years ago, I saw Pivotal with a real advantage. Now, it’s containers for anything of serious scale.
I think it is not clear yet whether containers or PAAS will win in the end. Containers require a lot more configuration work and upkeep, and that work doesn’t help the developers solve the business problem.
[Companies] always have lots of [developers] that want their own thing. Enterprise architects and the standards police try to corral them in to certain standard products and processes, but they never totally succeed.
These are two separate quotes from SteppenWulf’s post. But I think it illustrates my opinion. Yes, containers require more work to set up. But containers will work with basically everything. And that work can be automated. With the product I’m working with right now, I click a button and out pops a container. Click another button and that container is deployed in a clustered and elastic environment.
In order to use CloudFoundry, however, you do have to corral your developers a bit. Not everything works in CloudFoundry. CloudFoundry is “an opinionated developer experience”. In theory, the code I’m working with can deploy to CloudFoundry, but it’s a PITA because cloud foundry is “opinionated” about the network communication I need.
However that turns out, I don’t think the bull case on Pivotal is based on it having, in some way, the “perfect” or “best” technology. Technology is a moving target and is always changing. It’s built on the case that it has no significant competition in its very profitable market - a vendor independent cloud tool set in the enterprise space.
This is why I disclosed that I haven’t looked at Pivotal’s financials at all. Because I’m not sure what is priced in. Pivotal’s value prop is to go to those people in the 20% using scripts to deploy to IaaS and say to the IT managers “look at all the time that is being wasted”, “look at all of the tools I can provide you”, and “look at all of the errors I can prevent”. They then go to the developers with a similar message.
That’s not a bad value prop. But over time, I do think the growth is going to slow down. Other techniques (containers, non code-based platforms) are going to be more competitive. The market of people who are just starting in the cloud is getting smaller. If Pivotal is priced as a growth play, you are probably good. Pivotal has many good years ahead of it. If Pivotal is priced as a hyper growth play, about to hit a tipping point, I think that’s overly optimistic. I think Pivotal is past it’s hyper growth phase personally. (Although your anecdote is definitely evidence to the contrary.)
I think we’ll see a lot more specialization of containers before dust settles, and find that their best use if for custom edge cases. Even if 5 years from now we find out everyone prefers containers, I doubt there will be a single container that wins. Enterprise companies will still require vendor independent tool sets and processes.
Now for some interesting IT speculation. This has little to do with my case regarding Pivotal. Also, CaaS and PaaS are not my core competency. I write code. As much as possible, I try to let it be someone else’s decision and responsibility to deploy and manage that code. So take the following with a grain of salt. 100% possible there are winds blowing in this market I don’t know about.
But it really seems like the world is boiling down to Kubernetes as the base standard for container orchestration (and thus Docker for containers). The major cloud vendors will probably roll their own on top of that, and the enterprises will buy a stack of technology built on top of those two quasi-standards. The companies Docker and Kubernetes will do well, as the owners of those “standards” but will be squeezed by the players building value on top of them.
Just as Pivotal felt it important to have an open “CloudFoundry” and then leverage their early mover and innovator advantages to be the de facto best CloudFoundry implementation, I think we will have a container world that revolves mostly around Kubernetes. Yes, I know there are still some major exceptions to this, but Kubernetes seems to be that getting critical mass where anything not based on Kubernetes is going to have issues.
Also the speaker, Karl, does have an iron in the fire - he is working for a new container startup.
Yeah, I meant to point that out. Interesting to note that he worked for Pivotal previously as well.
I should also add my own disclaimer since I like to remain pseudo-anonymous on these boards. I do not work for any company with a direct stake in these markets. My current company does have relationships with several of these vendors (including Pivotal) because we want our product to run in these environments, but I mostly don’t care what our customers use. I’d be more specific, but I think it would provide too many clues to my identity.
I do think we probably have more companies using containers for deployment, which may explain why my perception of the market is so different from yours.
–CH
This thread had me passing out recommendations like they are going it if style. Thank you all for a very good discussion.
Ethan
Thanks ConeHead, It’s always very useful to get such a well thought-out cautionary view. I’ll just have to follow the numbers and see where they take us at the next earnings report.
Best
Saul, and thanks again.
Which is why I find your response so interesting. I very well knew that you might have a different experience. But I’ve seen the exact reverse.
I wonder if the difference in perception between you and Steppenwulf is a function of which verticals you are in, or different size companies, or companies specifically in technology versus those in non-technical fields?
Saul
You are providing excellent views but also confirming a bit my concern on user bias.
I have my own user bias in that i constantly hear differing opinions from clients regarding IT vendors or a specific technology.
I hope to gather some random feedback from different “thought leaders” in my neck of the woods and see how their views correlate with yours.
It may just come down to numbers, which is probably how saul would gauge winners in this space. Are they growing, how much, what do the trends in their numbers hint at, are they well managed, etc etc…
Plenty of folks probably had issues with cisco and vmware and yet they eventually were just about in every enterprise. Same things happened with cloud over last 6-8 years as skepticism gave way to at least partial adoption for certain workloads in most enterprises and continues to expand it seems.
I asked an entire team of clients from a large global company about their cloud strategy yesterday and they all deferred because 1 key guy wasnt in the room. It is both scary and an opportunity to realize the influence that 1 key contact may have on a cloud strategy. Whatever biases or preferences he has, combined with how open or closed-minded he may be, can dictate the direction they go, regardless of what the smartest developer in the building may believe.
So marketing matters (having dell helps but could also hurt depending on clients view and past experiences of dell. Who is selling it matters too…is it all direct sales force or do they leverage a broad channel to gain marketshare quicker, etc…
Glad this conversation got started either way, as my own bias on the dell association had given me a negative view of pivotal at a high-level.
Looking forward to learning more before i jump in and go long on shares.
Dreamer
Hey Conehead, great discussion.
I should start off with my conclusion, I think, before going on to the details. Maybe I’ve been a bit too pedantic saying Pivotal has no significant competition in the vendor-independent cloud tools space (yes, I made up the term since calling it a PAAS doesn’t really say anything ;).
RedHat is a valid competitor and we need to keep an eye on the myriad startups that are always popping up around cloud tool sets. As a technology, containers particularly Kubernetes, bear watching. If there is a seismic shift toward containers, Pivotal may not have the best tool set for container-based development (though you would hope they would see it coming and focus on improving their product if they see it has business value).
First is RedHat - I haven’t seen it anywhere in my personal experience, but it’s obviously being used somewhere. RedHat is a pure container-based solution, and containers only run on Linux (as far as I am aware), so it is a natural fit for Linux data centres moving to private cloud, and looking to add hybrid cloud capabilities. I’ve been in a few of those shops and haven’t seen it, but I was at the enterprise end, not the infrastructure end, so I may have missed it. And anyway a few shops don’t represent the world.
The bigger point you raise is containers as a technology, as competition to Pivotal. I’ve been discounting that for a few reasons:
Containers are just another among numerous deployment options, as you mentioned
IaaS → CaaS → PaaS → FaaS → SaaS
Pivotal supports containers transparently, along with all other deployment options, via BOSH
My personal experience is that containers have passed through Inflated Expectations phase in the Gartner Hype Cycle, and are on the down tread toward the Trough of Disillusionment. In my current job I am responsible for the Innovation Lab and Fintech group at a large bank, and most of my developers are off containers - they consider them too much of a pain. We also did various POCs with them and have passed, as I also hear from most of my colleagues. I see Lambda or FAAS taking over as the next big thing. But that is just my experience - your mileage may vary.
Now the thing you raise about containers is that although Pivotal’s solution includes containers, it is not the “best in class” container tool set. It is an add-on, rather than custom built for containers, whereas the Google, RedHat, and a bunch of startup have created solutions specifically for container-based development.
And of course you are correct, Pivotal is an opinionated framework (as most modern frameworks are), which makes it really easy to do things the way they want, but harder to do things differently - a side effect of convention over configuration .
So I think these are good things to be looking out for if you are interested in investing in Pivotal:
RedHat or startup competitors
How much container-based development goes on in the enterprise space, and if Pivotal continues to be the tool set of choice for enterprises that move toward container-based development, or if a different tool set starts gaining ascendence.
I (like Ant/anthonyms and perhaps others here) was a former EMC Corporation shareholder. When Dell acquired EMC Corporation for $67 billion on September 7, 2016, I was paid cash for my EMC Corporation common shares and given shares of a newly created Dell Technologies, Inc. (DVMT), which became the world’s largest privately-controlled tech company.
Dell Technologies does not have publicly-traded Class A, Class B or Class C Common Stock. After the completion of the merger with EMC Corporation, the company issued Class V Common Stock or “Tracking Stock” shares that are intended to track the performance of a portion of Dell Technologies’ economic interest in the VMware business. Dell Technologies’ Class V Common stock is listed on the New York Stock Exchange (NYSE) and traded under the trading symbol “DVMT.” The shares began trading on September 7, 2016.
https://investors.delltechnologies.com/stock-information/sto…
It’s important for Pivotal Software (PVTL) investors to know about Dell Technologies because it is Pivotal’s majority stockholder, owning, indirectly through its subsidiaries (including VMware, Inc.), 175,514,272 shares of Pivotal’s outstanding Class B common stock that represent approximately 70.1% of Pivotal’s total outstanding shares of common stock and approximately 95.9% of Pivotal’s combined voting power immediately after this offering (or approximately 95.6% if the underwriters exercise their over-allotment option in full). Pivotal Software is a “controlled company” within the meaning of the corporate governance rules of the New York Stock Exchange.
[Source: https://www.sec.gov/Archives/edgar/data/1574135/000104746918… ]
Some here (Saul, Ant and SteppenWulf) have already expressed concern about this control structure of Dell Technologies.
Saul: Hi Steppenwulf, Your comments interested me, but this is what I found out: Dell still owns 70% of the company post-IPO and 96% of the voting power. Pivotal is thus actually a wholly controlled subsidiary with a small slice of its shares trading in the open market. Dell itself is a core piece of its business, providing Pivotal with a large source of its revenues.
That wasn’t encouraging.
Ant: The one additional piece I worry about beyond this revenue model transition is to what degree the attractiveness of the Pivotal business that I knew has been handicapped by DELL - with voting rights, accounting interference and specifically debt loading.
SteppenWulf: I wonder and worry about this also…
There is a significant reason for this control mindset.
Previously, the top management of the former EMC Corporation wanted as much as possible control of its subsidiaries and entities that made-up what was called the EMC Federation. For examples, Joseph Tucci was the Board Chairman and CEO of EMC Corporation, the Board Chairman of VMWare Corp. (partially owned by EMC) and the Board Chairman of Pivotal Software (partially owned by EMC). During Tucci’s reign, the EMC Federation made significant accomplishments in data storage and was at the forefront of iCloud research and development. The following focuses on Pivotal Software:
• In 2009, EMC and Cisco, with investments from VMware and Intel, formed a joint venture called VCE (Virtual Computing Environment aka Acadia) to develop products and services for the converged infrastructure and cloud computing markets.
• In April 2011, the announcement of Cloud Foundry took place. Cloud Foundry is an open source, multi-cloud application platform as a service (PaaS) governed by the Cloud Foundry Foundation, a 501(c)(6) organization. The software was originally developed by VMware and later in 2013 transferred to a new company Pivotal Software.
• In April 2012, BOSH, an open source tool chain for release engineering, deployment & life-cycle management of large scale distributed services, was publicly launched.
• In April 2013, a joint venture by EMC, VMware and General Electric launched a new company Pivotal Software to market assets including Cloud Foundry, RabbitMQ and Spring.[Note: Privotal’s roots go way back to 1989, when it was founded by Robert Mee (who today is CEO of PVTL); EMC acquired Pivotal in 2012. ]
• From the start, Pivotal Software shined in its platform as a service play (PaaS) which leveraged Cloud Foundry and Spring. Many vendors came on board with the open source Cloud Foundry project, and many other companies contributed to the project. Back then, Cloud Foundry became the “de facto PaaS standard.”
• In December 2015, Pivotal acquired European Cloud Foundry development and services provider CloudCredo. This deal gave Pivotal both a face in Europe and the experience and insights the CloudCredo team has gained via its Cloud Foundry projects.
While all the above and other good things were going on, EMC Corporation was highly rated by analysts with 4 and 5 stars, but its stock price appreciation was mediocre and downright disappointing. I called it a “Rodney Dangerfield” stock because it got “No Respect” from investors. This also caught the attention of activist investor Paul Singer, hedge fund manager of Elliott Management Corporation, whose Portfolio Manager Jesse Cohn, sent the following letter dated October 8, 2014, to EMC Chairman Joe Tucci and Board members available at this website:
https://www.businesswire.com/news/home/20141008005668/en/Ell…
Key excerpts:
I am writing to you on behalf of Elliott Associates, L.P. and Elliott International, L.P. (collectively, “Elliott” or “we”), which collectively own 2.2% of the common stock and equivalents of EMC Corp. (the “Company” or “EMC”), making us one of your largest shareholders. We greatly appreciate the dialogue we have established with Joe and his team and we look forward to continuing it.
Since the publication of news reports detailing our position, we have received numerous calls from fellow shareholders requesting our views and sharing theirs. In addition, EMC management has spoken publicly about their view of the Company’s structure. The purpose of today’s letter is to share our thoughts on the right path forward. We hope this will help to inform Joe and the Board as part of EMC’s current review process regarding the long-term value-maximizing pathway for the Company.
The summary takeaways from our letter, which are more fully described below, are:
• EMC’s current structure – “the Federation” – obscures enormous value at EMC
• EMC should pursue pathways to recognize this value, including a separation of VMware from Core EMC and/or various M&A opportunities
(snip)
Stock Price Underperformance
Though EMC is a leader in numerous markets with great products, EMC’s stock price has deeply underperformed its proxy peers and the market over all relevant time periods. It is important to keep in mind that the current structure (EMC + VMware) has existed over the entire timeframe illustrated below. The below chart highlights EMC’s stark underperformance as of July 18, 2014, the trading day prior to the public disclosure of Elliott’s position in EMC.
Bottom-line, EMC was being pressured by Elliott Management to reorganize their unusual “Federation” structure, in which EMC’s divisions were effectively being run as independent companies. Elliott argued this structure deeply undervalued EMC’s core “EMC II” data storage business, and that increasing competition between EMC II and VMware products was confusing the market and hindering both companies.
Needless to say, Joe Tucci, who was about to retire, was extremely upset by this threat from Paul Singer, who was also called by some a ‘vulture capitalist.” Actually, I am a follower and admirer of Paul Singer and totally agreed with his letter as an EMC stockholder. Long story short, Tucci sought and on 10/12/2015 found an iron-clad way to thwart Singer by agreeing to be acquired by privately-held Dell Inc.
http://www.dell.com/learn/us/en/uscorp1/secure/2015-10-12-de…
Dell Inc. and EMC Corporation today announced they have signed a definitive agreement under which Dell, together with its owners, Michael S. Dell, founder, chairman and chief executive officer of Dell, MSD Partners and Silver Lake, the global leader in technology investing, will acquire EMC Corporation, while maintaining VMware as a publicly-traded company.
EMC shareholders will receive $24.05 per share in cash in addition to tracking stock [note: this became Dell Technologies] linked to a portion of EMC’s economic interest in the VMware business.
Thus, evolved the current iron-clad control mindset and corporate structure with a parent company - Dell Technologies - that has no publicly-traded Class A, Class B or Class C Common Stock. It appears that a “Dell Federation” is in place. So going back to the October 2014 Elliott Management letter to the EMC Board to change the federation structure, that issue has been ignored. Here are the current management in place:
Dell Technologies Inc. (DVMT) with a $57.74B market cap
Michael Dell, Chairman & CEO
Thomas Sweet, CFO
Pivotal Software, Inc. (PVTL) with a $4.77B market cap
Paul Maritz, Chairman
Robert Mee, CEO & Director
Cynthia Gaylor, CFO
Note: A huge plus is that Robert Mee, original founder of Pivotal in 1989, is still aboard.
VMWare (VMW) with a $56.16B market cap
Michael Dell, Chairman
Patrick Gelsinger, CEO & Director
Zane Rowe, CFO
Regarding the Elliott Management issue about EMC stock price underperformance, Pivotal Software in its current realm and exposure as public company has the best chance to improve this as this company transitions and grows into a hybrid subscription-based (PaaS) from a service play (PaaS).
Regards,
Ray
Ray - respect mate! We have intertwined investing history.
Bottom-line, EMC was being pressured by Elliott Management to reorganize their unusual “Federation” structure, in which EMC’s divisions were effectively being run as independent companies. Elliott argued this structure deeply undervalued EMC’s core “EMC II” data storage business, and that increasing competition between EMC II and VMware products was confusing the market and hindering both companies.
I find it freaking ironic (and that is the most positive way I can describe it - you don’t want to know the British euphemistic translation, it involves Fs and Cs), that the amazing EMC federation was pressured into a value crystallisation event involving a DELL buy out who then promptly recreated the federation.
Ant
@Ray - I read your description of the EMC and VmWare history with interest - I’m also an former investor in EMC and VMWare, though I exited my position prior to the Dell purchase.
Thanks for focusing on the Dell ownership issue at Pivotal, which has always been a concern of mine - not that I feel it is bad for the stock, but that I don’t clearly understand the implications
The problem is I couldn’t understand your point of view regarding Dell ownership either. You seem to be saying that the Dell ownership prevented EMC/VMWare from unlocking value in the past.
Regarding the Elliott Management issue about EMC stock price underperformance, Pivotal Software in its current realm and exposure as public company has the best chance to improve this as this company transitions and grows into a hybrid subscription-based (PaaS) from a service play (PaaS).
You concluded with the above statement, however, which seems to suggest that Pivotal is the best chance to improve this and unlock the hidden value in EMC - although Pivotal really brings a completely business to the table from its parent. Am I understanding what you meant?
Saul:
Thanks ConeHead, It’s always very useful to get such a well thought-out cautionary view. I’ll just have to follow the numbers and see where they take us at the next earnings report.
Thanks for the kind words. Although, I do want to say that I’m not necessarily taking a negative view. Cautionary may be right word. Because whereas someone like Arista may be at the bleeding edge, I think Pivotal is past that point and is now under pressure from new technologies. They have growth ahead of them, I just don’t think any more hyper growth.
Ethan:
Customer adds per year were as follows
2015 75
2016 105
2017 95
2018 44
Maybe this is an execution issue, lack of staffing, maybe they needed to spend more on Sales and Marketing but that is a pretty big drop off.
It’s funny, I was actually talking to someone who worked for a CaaS platform this morning and he was giving me some anecdotal numbers. He says that in 2015/2016 both PaaS and CaaS vendors were tripling customers every year. But starting in 2017 the CloudFoundry folks started to level off and the Container based folks continued in hyper growth. Just another anecdote, not real data, and one from a biased source as well, but generally supportive of my theory of increased competition from CaaS.
Saul:
I wonder if the difference in perception between you and Steppenwulf is a function of which verticals you are in, or different size companies, or companies specifically in technology versus those in non-technical fields?
Verticals is one possibility. I’m pretty wide in verticals, Steppenwulf says he is in fintech. Maybe that’s a particular strength for Pivotal. I will say that fintech is often ahead of the curve, so what happens in fintech often happens in other verticals in a couple of years. So maybe other people will start to see more disillusionment with containers soon, like Steppenwulf says he has.
But I think a lot of it is just the fact that there are so many specialties in IT these days, and the fact that the data samples are so small. If I talk to 25 customers directly and 200 indirectly through conferences/etc., that’s still a small and non-scientifically selected data sample of the market. Not to mention personal biases. My circles of associates is likely to have somewhat similar opinions because we all influence each other. Same for Steppenwulf.
It’s why I’m curious to hear completely different opinions from internet strangers. This guy I was talking to told me today “CloudFoundry is dead” and “everything is Kubernetes going forward”. Steppenwulf says “Containers were very hot 2-3 years ago, but from my end, I see a lot fewer engagements using them over the last year or so”. Which is true? To some extent, I suspect both. Lots of enterprises probably have both technologies. In some verticals and customers one is doing a lot better than the other. Only time will tell us the ultimate winner.
–CH
unlock the hidden value in EMC, no. I meant in my statement with clarifications in parentheses: Pivotal Software in its current realm (as a company under its parent Dell Technologies) and exposure as public company (again under its parent Dell Technologies) has (instead of your is) the best chance to improve this (its stock price performance) as this company transitions and grows into a hybrid subscription-based (PaaS) from a service play (PaaS).
Regards,
Ray
@Ray
Ok, I think I get it. You are bullish on the Dell ownership and the release of the controlled stock in PVTL