VMware is perhaps the best example of this phenomenon. No longer is the company positioning itself as simply a pioneer of server virtualization, but rather it is now betting its future on the broader software-defined data center. VMware dominates the server-virtualization market (its technology lets a company run hundreds of virtual servers on one physical server). It’s no surprise, then, to see VMware accelerate its R&D schedules and M&A activity to extend its technology portfolio to also seize the infrastructure and storage markets that are up for grabs in the new software-defined data center.

In a major bid to own the leading infrastructure play in the new software-defined data center, VMware last summer acquired software-defined networking pioneer Nicira for $1.26 billion. That is a staggering sum that becomes even more impressive when one considers that, by most estimates, Nicira was generating less than $10M in sales. As part of its strategy to bite off a small piece of the emerging software-defined storage space, VMware also recently acquired Virsto for an undisclosed sum.

The rationale behind these acquisitions comes into clearer focus when you consider the larger opportunity posed by the software-defined data center. As data center workloads increasingly become virtualized, it makes sense that VMware, which already enjoys a market cap of more than $30 billion, look for ways to increase its role in managing the broader data center infrastructure.

So, with all of this in mind, what actually makes up the Software-Defined Data Center — and which companies stand to gain the most in each area?

Components of the Software-Defined Data Center

The concept of the software-defined data center revolves around making the three major infrastructure components of a data center (compute/server, networking and storage) more flexible, more automated and less dependent on the underlying physical hardware. The idea is to create a pool of available resources that can automatically adapt to changing workloads and ensure that the right resources are available whenever and wherever needed. When you look at the compute/server space, virtualization forever changed the way applications are deployed, and the dominant force behind this is VMware. While VMware has established itself as the market leader in server virtualization, offerings from Microsoft, Citrix and Red Hat are beginning to carve out sizable market share, as well. With almost 70 percent of workloads today running on virtualized servers according to IDC, this is certainly the most evolved component of the software-defined data center to date.

Networking

In the wake of the Nicira deal, along with major announcements from Cisco, Juniper and other networking giants, software-defined networking has become perhaps the next focal point of the software-defined data center discussion today. While not as mature as the server/compute side, the software-defined networking market is expected to grow; IDC predicts from $360 million in 2013 annual sales to $3.7 billion by 2016.

Cisco, which has long dominated the networking market and has a valuation of over $111 billion, has started to face new competition from startup companies like Nicira and Big Switch Networks, which designed their products for today’s virtualized IT environment. To go after this market, Cisco has invested $100M in a “spin-in” company called Insieme Networks. Cisco clearly views software-defined networking as one of the most significant technologies to emerge in decades.

Storage

The last component of the software-defined data center is storage, which is not coincidentally the trickiest part of the equation. The storage layer has traditionally been the laggard of the data center, and most venture capital firms have feared investing in startup storage companies due to the stronghold on the market enjoyed by technology giants like EMC, NetApp, HP and IBM. This has changed in recent years, however. The rise of virtualization and, more recently, cost-effective flash technology, has spurred a storage renaissance — today, storage is one of the hottest markets for venture investors.

The increased investment sexiness of storage helps explain the success of Fusion-io, which created a new memory tier based on flash technology. The company went public in June 2011, and is valued at more than $1.5 billion. Because of the huge impact of flash technology, some of the big legacy storage vendors have been looking for acquisitions to help modernize their product portfolio. Last summer, EMC acquired XtremIO for $400 million dollars to add flash to its own storage portfolio. However, flash is just one component of software-defined storage.

Flash is a very disruptive technology that has paved the way for dozens of new entrants into the storage market, but flash by itself doesn’t address the complexity and data management issues created in virtual environments. Most major storage vendors created their product architectures before virtualization even existed, meaning they were originally built for a physical world where application workloads were discrete, known and predictable. Indeed, many of the new storage startups have continued using the same architectures, albeit with faster flash storage rather than spinning disks. The problem is that the software-defined data center is possible only with virtualization. And adding new layers of software on top of these legacy architectures is an inefficient way to deal with the problem.

The move to the software-defined data center is the major technology shift of this decade, just as virtualization was in the 2000s and the Internet was in the 1990s. Like those previous shifts, there is a wealth of new opportunities for companies both new and old. It will be interesting to see how everything plays out — and, rest assured, this race has a long way to go.

Dr. Kieran Harty is a co-founder of Tintri Inc. and serves as its chairman and chief executive officer. Harty served as an executive vice president of engineering and R&D at VMware, and has more than 15 years of engineering and management experience with high tech companies. Before VMware, he was vice president of R&D at Visigenic/Borland and chief scientist at TIBCO. Harty has a PhD in electrical engineering from Stanford University and a master’s degree in computer science from Trinity College Dublin.

Sales were up 6 percent to $5.39 billion, about $30 million below the consensus of $5.42 billion. Earnings per share were 39 cents, a penny off the expected 40 cents.

Never fear, though. EMC says it will still meet its guidance for the fiscal year. It still expects to earn $1.85 a share on sales of $23.5 billion. In the meantime, it will buy back $1 billion worth of stock this year.

EMC shares fell by 2 percent in pre-market trading.

Meanwhile, VMware, the cloud computing software company in which EMC is a majority shareholder, is getting whacked this morning on disappointing outlook. It reported earnings yesterday. VMware said it now expects sales in the range of $1.21 billion to $1.24 billion, below the consensus view of $1.25 billion. VMware shares are falling in pre-market trading. As of 8:45 am ET, the price was $71.51, down $4.19 or 5.5 percent.

You can’t say you weren’t warned. IBM’s first earnings miss in eight years certainly had all the appearances of a big red flag about the IT industry generally, and hardware sales specifically. Now we have to see whether or not Big Blue turns out to be an accurate read-through for NetApp and Hewlett-Packard.

That’s the conclusion of Chris Whitmore, an analyst with Deutsche Bank Securities, in the wake of yesterday’s earnings report. “IBM hasn’t missed consensus earnings expectations for eight years which raises the specter of increased macro risk and substantially weaker IT hardware spending,” he wrote in a note to clients today.

IBM is better than most at managing sales that turn south in one part of its business, but still able to make its numbers, he writes. That it wasn’t able to do so this quarter “raises a red flag” for other tech companies, especially those that sell a lot of hardware, including Hewlett-Packard, Dell, NetApp and EMC. “The IBM miss is a decidedly negative read through for the entire IT hardware segment and we are incrementally more cautious on the sector,” Whitmore wrote.

Expect a lot of attention on IT spending trends in the coming weeks, as other large IT companies get ready to report their results. The next big indicator will be when EMC reports quarterly results next week. HP, Dell and NetApp all report results in mid-May.

Aneel Bhusri

Few people in Silicon Valley wear as many hats as Aneel Bhusri. Currently known primarily for his role as co-CEO of Workday, the cloud-based human resources software company that floated in an IPO last year, he also maintains an active role as a partner at venture capital firm Greylock Partners. He also finds time to sit on the boards of many interesting startups, including Sumo Logic.

Workday is the company that caused a lot of consternation at the large enterprise software firms. As it raised money and marched toward its IPO, SAP acquired Workday rival SuccessFactors in late 2011, forcing Oracle to make a similar move to acquire Taleo.

AllThingsD caught up with Bhusri at a San Francisco restaurant recently to learn of the latest doings at Workday, and to chat about his view of the fundamental shifts that are rocking the enterprise from so many directions and creating opportunity in the process.

AllThingsD: Aneel, you sit in a position with sort of a unique point of view, being both a CEO of a cloud software company that’s by definition riding one of the fundamental shifts in the enterprise, and also you’re a partner at Greylock, with a history of leading investments in enterprise-focused companies. So, from a high level, how do see the changes happening in the enterprise landscape right now?

Bhusri: When you think about what’s happening in the enterprise, it’s the most disruptive time in 25 years. Apps are moving to the cloud. Arguably, the relational database is going to look like a mainframe in 10 years, as transactions move into in-memory databases and Hadoop and other noSQL databases for Analytics. Storage is going from disk to flash. The legacy enterprise companies aren’t innovating, but they have cash and they have distribution, so they can buy their way into this new generation of innovation. To me, the one big question is whether or not this generation of entrepreneurs sells out to the big guys, or do they go it alone? This is going to be a conundrum for this wave of entrepreneurs. The large companies will put such large valuations in front of you that it’s hard not to sell out. Some will go it alone, and some won’t.

Do the new companies stand a chance? I mean, you’re talking about some pretty formidable companies being attacked.

One big change that has occurred over the last few years, that if you look back to the period from 2000 to 2006, with the exception of Salesforce.com, everyone was trying to compete at the edges with the big guys. No one wanted to take them head-on. No one wanted to take on Oracle or SAP or EMC or any of these guys, because they knew they would lose. Then, with the explosion of new technologies like the cloud, like Hadoop, like flash memory, you’re seeing a new set of companies that are not trying to compete at the edges, but are going right for the jugular. We haven’t seen these in 15 years or so, when new companies are trying to disrupt the established players rather than just coexist. So the big companies have not been threatened for a long time. Salesforce is going right after Siebel, a.k.a. Oracle. Palo Alto Networks is going right after Checkpoint Systems and Cisco. Pure Storage is going right after EMC and Hewlett-Packard. This is why the enterprise space is doing well: Because the companies that are becoming public are going after big markets.

To follow your example, then, is Workday going for the jugular versus SAP and Oracle?

We have the advantage in product, and they have the advantage of distribution. And that race is going on in every key segment: Distribution channels versus innovation. Oracle and SAP have the advantage of distribution. It’s not about money. We have a lot of money in the bank. It’s more about investing it smartly and building out the distribution to bring out our market-leading product faster than they can build a market-leading product using their distribution.

So how is business at Workday generally? You recently landed HP as your biggest customer. Have you landed anyone else like that?

There’s nothing slowing down about the shift to the cloud. I don’t see anything on the horizon that is changing that. But, yes, we’ve landed a big customer and, no, I’m not allowed to talk about it yet.

Did having HP name you as a vendor help bring in more business?

Anytime you land a big company like that, it gives people more comfort that the cloud is real. It’s hard to measure. But it helps other large companies to see that another one of their peers is shifting an application to the cloud.

So, what are your priorities at Workday this year?

I would consider this to be a really key transitional year for Workday. If we’re really successful, three or four years down the road we’ll look and see this was the year where we put the foundation in place. If you look back historically, we were a one-product company and in only one geography, and that was the human resources product in the U.S. In the next 18 months, we’re going multi-product and multi-geography. We’re expanding into Europe, and the financial products are doing really well. We will continue work on the financial product, but this is the beauty of the cloud: With every update, we add more functionality, and we land more customers. And in 18 months, we become a company that is both global and has multiple products, then I think we’ll have Oracle and SAP back on their heels for the next five to seven years. As for HR in the U.S., the other guys have a really long way to go to catch up to us. We have to build out a global distribution channel over the next 24 months. And as we build that channel, we’ll also be building financials, which is a market that’s two to three times the size of the HR market. What comes out the other end is the next large enterprise ERP company.

Is there a third leg to the stool after financials?

Analytics. We announced a big data product, and it doesn’t go into general availability until the second half of the year. What I did not realize as much as I do now is that there are companies that have a variety of different data that they want to co-mingle from a lot of different sources. Also, they’re looking for a home for third-party data. Most production systems don’t want you to bring third-party data into them. They want a way to import all of the third-party data they had from either HR or financial. And our big-data product is a way to help them do that, and I expect a pretty strong attach rate with that. So I think that is the third leg, right there. Take those together, and you’re looking at a pretty big market.

It would seem that the cloud — that nebulous place of unseen servers maintained by anonymous humans in huge, remote and unmarked buildings called data centers — can, in theory, have your back. That’s the idea behind Zerto, an Israel-based startup that uses cloud infrastructure for disaster recovery.

The company announced today that it had closed a $13 million Series C led by RTP Ventures, an affiliate of ru-Net Holdings. Also participating in the round were Battery Ventures; Greylock IL, the Israel-based outpost of Greylock Ventures; and U.S. Venture Partners. Murat Bicer, a managing director at RTP, is joining Zerto’s board. The round brings Zerto’s total capital raised to north of $34 million.

The old way of doing disaster recovery was expensive, and only companies willing and able to spend big could do it right. They’d build a redundant copy of their IT infrastructure, the point being to fail over to the copy in the event of a disaster, and keep everything running. Acquiring and maintaining the fail-over stuff effectively doubles the cost and effort.

Zerto’s approach takes advantage of a key cloud technology — virtualization, which is running several virtual computers within the confines of one or more physical computers. Time was, vital applications were too important to entrust to virtual machines, but nowadays pretty much everything is running on VMs.

Zerto moves the business of replication to the hypervisor, the software used to manage virtual machines. This is a key capability missing for enterprises that want to rely more on the cloud.

The company has had a busy year: Its staff has doubled, and lots of new customers have signed on, including Univita Health and University of Louisville Physicians. More than 100 cloud providers are taking advantage of the Zerto Cloud Ecosystem, up from 33 previously.

CEO Ziv Kedem and his brother Oded started Zerto in 2009. They were behind a previous disaster-recovery company called Kashya that was acquired by EMC for $150 million in 2006 and is now known by the EMC brand RecoverPoint.

The Pivotal group — which includes VMware’s Cloud Foundry application platform service, EMC’s Greenplum data analytics software and other products — will create its own equity aimed at “potentially” attracting strategic acquirers, EMC Chairman and Chief Executive Joseph Tucci said, though he cautioned such goals are far away and could change.

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Basically, it comes down to subbing out all the proprietary hardware that’s used to build up a network and instead setting all the parameters for how you run a network in software that’s running on commodity hardware.

Well, as the networking industry starts to get its head around all this, the time has come to set some standards. Standards-setting is a kind of nuanced, political process that can take years and requires the patience of a diplomat.

Today we heard an interesting shout in all this from Dell. The computing giant, which also has a small networking business, said it has aligned itself with the Object Management Group, a.k.a. OMG, and has proposed a working committee that would set standards around software-defined networking. The committee’s first meeting will be in April.

So, what does OMG do? It’s a nonprofit organization whose task forces set out to get everyone working on the same page, so that different systems from multiple vendors can work together. Dell is a member, as is Hewlett-Packard, which has its own sizable networking business. IBM is a member, too, though there’s no word on whether or not it will join this task force.

One company that probably won’t: Cisco Systems. And there’s a reason for that. Cisco has its own standards-setting effort under way. It’s code-named Daylight, and is supposedly going to be announced at the Open Networking Summit in Santa Clara in April. Some critics say Cisco is trying to make its proprietary technology central to it.

I may be wrong, but it seems that a cold war is breaking out over software-defined networking. It may not matter. Dell’s networking business is relatively small, and this could turn out to be something of an insurgent effort. Then again, there are a lot of people who think the whole idea behind software-defined networking is intended specifically to go against the idea that networking gear should be proprietary, which is exactly what Cisco has specialized in for years.

Anyway, the politics of setting standards are always confusing and deeply technical. But the fact that this process is getting under way at all is an interesting development around the whole SDN trend, and bears watching.

For one thing, it has regularly sponsored an annual “Digital Universe” study that seeks to estimate the amount of data that’s produced by all of us every year. Last year, EMC, in cooperation with the research firm IDC, determined that surveillance cameras and smart meters had pushed the amount of digital data created in 2012 to nearly three zettabytes. And in case you’ve lost track, zettabytes come after exabytes, which come after petabytes, which come after terabytes, which is the scale at which the average hard drive inside a PC is today. And for the record, the next one is yottabytes.

Anyway. Today, as reported by Mark Hachman at Slashdot, the storage company donated a storage system with a capacity of up to 2.8 petabytes to the Vatican Library. This library, established in 1475, contains some of the oldest texts in the world, some of the earliest copies of the Bible and millions of other books, pamphlets, letters, manuscripts, ephemera and incunabula from the dim mists of antiquity.

Enter EMC, which is helping the library digitize its entire collection so that its holdings can be viewed by the outside world. Here’s an example, but don’t ask me to tell you what it says.

Protecting the documents is considered kind of important. History has a way of destroying places where knowledge has been collected to suit the political whims of the moment. Consider the case of the Library of Alexandria, destroyed in phases ending sometime around the year 391. Digitizing what’s in the Vatican helps prevent something like that from happening again, no matter how unlikely it may seem today.

So what exactly is in the library? As it happens, “60 Minutes,” the TV news magazine on CBS, did a segment on it recently. A fascinating 12 minutes of television it is. After you watch it, you’ll be glad, too, that this stuff is getting preserved.

At the point where I wrapped up part one of our conversation from late last year, Levine had been talking about opportunities he saw around data storage in the enterprise. As he sees it, another big space ripe for disruption — and thus investment — is in security. That’s where the conversation picks up below:

AllThingsD: So Andreessen Horowitz has done a bunch of security deals. What kinds of opportunities are you seeing there?

Levine: Data security. Okta puts active directory out in the cloud. All SAAS apps, everything goes out there. That’s access control, which very much is security. Security is also being exacerbated by the number of mobile devices in an environment. If you have BYO devices and you’re using someone else’s SAAS, as a CIO you don’t own either piece of that. So an interesting security problem to solve is how you make corporate data usable in that scenario.

Is anyone coming close?

Sure. There’s one company in our portfolio. Silver Tail (now part of EMC) does behavioral prevention. It can look at the behavior of an endpoint and determine if it’s a human being. If you can detect patterns of illicit behavior, you can shut them down before they do any damage. So that’s interesting. Bromium, which just announced, which builds impenetrable walls around processes that live on mobile devices. The premise of Bromium is that you no longer have to do virus scanning. It assumes that viruses are coming into a system anyway, and they’re going to come by way of something like a browser, and affect a running process. But if that process is wrapped by an impenetrable wrapper, it can’t get onto the system. To kill that virus, all you do is shut down that process. So that’s an interesting investment we’ve made.

How do you go about finding the companies that you invest in?

We are not thematic investors, first of all. And I love that. To me, if you’re a thematic investor you end up being the 40th one to pick a company in a given stack, because you have to be in on a certain kind of company. We really do see nearly 100 percent of all the deals that are occuring at any given point of time. We evaluate every single company on its merits. As soon as we say we need to be in on something like, say, database technology, then all of a sudden I have made a preordained and preconceived decision that this is important. I don’t want to have a bias coming into things, that I throw out something that’s actually interesting, or include something that may be way overinvested. We look at each company as a fresh canvas, but we will look at companies that have great technical co-founders who believe that they are going to go dominate a given market segment. It may not be obvious at all. Most obvious things are obvious to many people. It’s a matter of finding the non-obvious things. There are a lot of things we see, and there are a lot of areas where we haven’t invested.

Is that how do you explain GitHub? That was a huge deal, and no one really understood it at first.

I wasn’t really looking to invest in a collaborative source code control system. Before last year, I didn’t even know it existed, and didn’t internalize the value of what they do. After we met them and realized the power of what they do, and have done, and the potential future for that company, we invested. It’s interesting when you don’t have biases and just let everyone come in and pitch, knowing you really can see things in the eyes of the entreprenuer, which I believe is really critical. As soon as I have opinions, I start to shape the company in my mind’s eye, and that’s really backward, because as a board member you want them forming the vision and to help along the way.

I’m hearing deal flow has been really high. Is that likely to continue for awhile?

It’s good that we’re seeing tons of stuff, and there’s a tremendous amount of innovation occuring. It used to be there was a lot of consumer stuff going on, and maybe only a few things happening in the enterprise. Now the enterprise deal flow is much higher than consumer. But I’ll tell you, it’s so cool to see all that. And we’ll pass on most things. But it’s cool being here, at this firm, but also at this time. The last time there was really a lot of flourishing innovation around the enterprise was in the mid-1990s.

Will you be doing many more deals in 2013?

I’m sure we will. We have a lot of seed investments right now. It’s a lot like dating before you get married, so I’m a big believer right now in what we have going on with our seed portfolio. They’ve come up for A rounds, and we have the opportunity to really work with the company. But I like seeds, because you get to watch a company and watch the execution and the dynamics of the team. One recent deal we did was Convergent-IO, which was a seed that turned into an A round.

What do you like and dislike in a team?

We’re very much pro-technical co-founder or founder. I would say that that is like a fundamental criteria. It is easier to coach a technical co-founder on how to run a business than it is to coach a professional manager on the DNA of what the vision of the company is. We look for someone who has a burning passion to go take on the world. We want entrepreneurs that want to go for the long ball. They want to run the company for the long term, and they want it to be a standalone enterprise, as opposed to building something to get acquired. We also like to make sure the entrepreneur understands how they’re going to use the money they’re raising. We like for them to have an appreciation of the clear understanding of how to get from point A to B.

RSA makes the login security systems used by 95 of the Fortune 100 companies. Two years ago, it was also the victim of a major cyber attack that put the company’s reputation at risk and prompted a $66.3 million charge in part to pay to replace its well-known SecurID tokens.

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“The supreme art of war is to subdue the enemy without fighting.” The Chinese philosopher Sun Tzu wrote that.

Both come to mind as the world is waking up a newly disclosed body of evidence from the Internet security firm Mandiant, publicly illustrating, in the starkest terms yet, how wide, deep and pervasive computer hacking attacks from China have become. As reported on the front page of today’s New York Times, numerous attacks on American, Canadian and British companies, dating as far back as 2006, have been carried out by a single unit of the China’s People’s Liberation Army. Mandiant, a firm based in Alexandria, Va., has identified it as Unit 61398, operating out of a single building just walking distance from the point in outer Shanghai where the Huangpu and Yangtze Rivers meet.

The company maintains that the unit has compromised the networks of at least 141 companies or organizations, and probably more than that, spending an average of 356 days perusing their networks. In one case, the attackers had unfettered access to a target’s computers and networks for a grand total of four years and 10 months.

Who do they attack? None of the companies are named. But, if you think back, you can remember some names that have disclosed attacks blamed on China, that might fit the bill: Google and Intel have over the years complained in public of attacks carried out by China. The Times says the army unit was the one responsible for the attacks carried out in 2011 against RSA, the security unit of the technology company EMC, which were described at the time as “extremely sophisticated.”

More recently, a series of attacks against media organizations have been attributed to China: The New York Times, The Wall Street Journal (which, like this website, is owned by News Corp.), Bloomberg News, the Washington Post and the Associated Press are among them.

Other targeted industries include information technology, defense and aerospace, energy, transportation, satellites and communications, navigation, chemicals, health care and mining, to name a few.

What do the attackers take? Here’s a list taken directly from Mandiant’s report:

• product development and use, including information on test results, system designs, product manuals, parts lists, and simulation technologies;
• manufacturing procedures, such as descriptions of proprietary processes, standards, and waste management processes;
• business plans, such as information on contract negotiation positions and product pricing, legal events, mergers, joint ventures, and acquisitions;
• policy positions and analysis, such as white papers, and agendas and minutes from meetings involving high-ranking personnel;
• emails of high-ranking employees; and user credentials and network architecture information.

Most of the time, the victim company doesn’t even know that its information has been stolen until it is far too late to do anything about it.

Who gets the information in the end? It’s unclear, exactly, and so Mandiant engages in educated conjecture and looks at the available evidence. In one case in 2008, a targeted company suffered an intrusion lasting two and a half years, during which emails and attachments of the CEO and general counsel were stolen. During the same time period, news reports showed that a Chinese company had managed to negotiate a significant increase in the price of a certain commodity component with an unnamed victim company. It may be a coincidence, Mandiant concedes, but then again, it may not.

How do they attack? Usually by sending innocent-looking attachments in email messages. An employee at the target company opens it, triggering software embedded within it that gives attackers remote access to that employee’s machine, which then serves as a beachhead for more attacks. You can see a short video showing some of the attacks actually taking place in the video below.

Certainly, suspicions about China and its intentions, capabilities and actions in this area have pervaded for months. Knowledge about all this has probably circulated within the classified community for years, and no doubt plays a part in the concern among lawmakers and U.S. federal government agencies about the growth of the Chinese networking company Huawei.

Mandiant points to another: Unit 61398, it says, carried out a series of attacks against a unit of a Canadian company called Schneider Electric. The incident was first reported by security blogger Brian Krebs, and was carried out when the unit was an independent company called Telvent. What does the company make? Remote access tools, basically software that lets you control one computer from another computer far away.

The part that should scare you is what kinds of computers this software is intended to control: They’re known generally as SCADA systems, or supervisory control and data acquisition systems. They’re the stripped-down machines that sit between large industrial machinery like generators or pumps, or any other kind of big, automated equipment, and regular computers.

In a series of letters to customers in September of last year, Telvent disclosed that attackers traced to China had installed malicious software on its network, and had stolen files related to a key product called OASyS SCADA, which is designed to connect older IT assets to certain “smart grid” systems running on electrical power networks.

Attacks on SCADA systems can be very effective, in part because the machines involved are older and have tended to be less well-secured. How effective? Remember Stuxnet? The malware attack carried out by American and Israeli intelligence agencies against the Iranian nuclear research program? In that attack, nuclear centrifuges were caused to spin out of control, and ultimately explode. That was an attack against SCADA systems. We already know how easily attacks like it might be carried out here.

Stealing intellectual property and trying to gain an edge in business negotiations is one thing. Penetrating the systems that run critical infrastructure is rather more serious, bordering on sabotage. Now that the government officially considers cyberspace a theater of warfare, similar to land, sea, and sky, this is starting to look serious.

Earnings per share were 54 cents, compared with an estimate of 52 cents; sales were $6 billion versus an expectation of $5.98 billion. But its outlook for 2013 missed expectations. Earnings will be $1.85 a share this year, short of the $1.90 analysts were expecting, on expected sales of $23.5 billion.

EMC also announced plans for a corporate restructuring that will include a reduction in force, though it didn’t say how many people will be affected. The plan will be completed by the end of the first quarter of the year. EMC said it expects to take an $80 million charge for restructuring costs.

It also said that VMware, the software unit of which it is a majority shareholder, will also restructure in order to streamline its operations. It expects to take a charge in the range of $70 million to $80 million to reduce personnel. It said yesterday that job cuts could reach 900. Another charge said to be in the range of $20 million to $30 million will cover costs associated with exiting certain lines of business.

EMC shares fell more than 4 percent in pre-market trading to $24.10. Shares of VMware are down more than 18 percent to $80.36.

Weighing in at 7.5 pounds, it is an ambitious, jaw-dropping effort helmed by former Time, Life and National Geographic photographer Rick Smolan — he of the “Day in the Life” series of photography books, as well as “America at Home,” “America 24/7” and “24 Hours in Cyberspace.” Smolan’s new book attempts to demystify — largely successfully — the nebulous concept: What is big data?

It was exactly the question that Smolan was asking when he first hit upon the idea for the book while attending the D9 conference in 2011. Hearing the phrase “big data” uttered in so many conversations, he had no idea what it meant. Asking at first yielded unclear answers, yet he persisted, eventually landing on the idea.

Today, the book is landing on the desks of world leaders, dignitaries and other notable people around the world: Among those on the list: President Obama, the Dalai Lama, Pope Benedict XVI and Chinese Premier Wen Jiabao, and also Twitter CEO Jack Dorsey; Daniel Tunkelang, chief data scientist at LinkedIn; and actor Robin Williams. Among the images they’ll see upon opening it is the blended image of 1,400 different shots of New York’s Times Square taken across 15 hours. Big data is about people: What they do, where they go, who they know and so on. The stories about how data, once harnessed, solves problems and in some ways creates new ones, is its overarching theme.

There’s also a smartphone app for iPhone and Android that is launching today. It’s an interactive viewer app from Aurasma that aims to bring the book’s content to life, accessing videos and animations by pointing the camera at images on certain pages flagged within the book. On top of that, there’s a $2.99 iPad app that enables readers to take a deeper dive with some of the stories, using videos, charts and animated infographics.

I talked with Smolan about the book yesterday by phone, after spending more than a few hours perusing an advance copy over the weekend. Here’s a little of what we talked about:

AllThingsD: So where did you get the idea for a book on big data? It’s a phrase that doesn’t necessarily jump out at me as part of the title of a bestseller.

Smolan: I was at D: All Things Digital in 2011, and I kept hearing the phrase big data, and I kept asking people what it meant, because I felt stupid and because it sounded like one of those marketing phrases. The first person I talked to said, “It’s so much information it won’t sit on your personal computer.” Well, that wasn’t very interesting. The next one said, “It’s taking information from one place and overlapping it with information from another, and finding these patterns.” And that wasn’t interesting, either. The third person said, “It’s like watching the planet grow a nervous system.” And that sounded interesting. Basically, we’re seeding the world with low-cost sensors, and we’ve all become sensors with our cellphones. And instead of doing random samplings, we can almost survey every single person on the planet in real time — where they are, what they’re doing, how fast they’re going, what they’re spending money on. The ability to gather that information, process it, visualize it and then respond to it while it’s still happening is something we’ve never had the ability to do before.

Some of the material in the book I’m familiar with. The first image I saw when I opened it was one I recognized from MIT’s Sensable City Lab, and I also recognize big data anecdotes from IBM, like the one where they harnessed medical data to detect infections in premature infants. In this way, it seems it’s a little different from your previous books.

It’s sort of a combination of original photography and curation. I think that putting all the information in one place and weaving it together, with these wonderful essays that I think are just as strong as the pictures. I’ve been getting notes from people like Marissa Mayer and Jack Dorsey saying that this is the first time they’ve had something that helps them explain how important this is. Amazon called last week to say they sold out of copies of the book on the first day and people were ordering 50 or 60 copies at a time, which has never happened ever to any book I’ve done in 25 years. They were dumbfounded. The hard thing about the book world is that you never know whether 10 people or a million people will find it interesting. A lot of people have never heard about big data and the ones who have, have a lot of trouble explaining it to other people. So I’m hoping that this will become the thing the people who know give to their parents or their family as a way of saying “this is why what I do is important.”

Obviously you’ve spent a lot of time thinking about all this during the last year, and you’ve probably been asked a million times if you think this is all creepy or intrusive in some way. Is it?

I’m an optimist. Every new tool can be used for good or evil. The whole point of doing this project is to start a conversation about it all. The people who are thinking most about big data right now are corporations and governments. I’d like to broaden the conversation and I hope the book makes some kind of contribution. I’m worried that the only ones profiting from it right now are corporations. As individuals we have very little say about how our data is being used. I’m not worried about the privacy implications of it so much. But it seems to me that as an individual, if I’m the one generating the data, I should have some kind of say in how it’s going to be used.

Did you have a particular favorite anecdote or photograph?

I just came back from Australia, and they have this expression down there: Gobsmacked. I think a lot of the pictures in the book convey that feeling. There are some that are funny, some that are just thought-provoking. There’s the case of the Environmental Systems Research Institute (ESRI) that creates these incredibly detailed satellite maps for governments. They found there were villages in Nigeria, which has the highest rate of polio resurgence in the world. There are villages there that have never shown up on any map, no one in the government knew they were there. ESRI can recognize the shape of huts and pathways. The Gates Foundation has been trying to eradicate polio in places like Nigeria, and they have a very big effort there. They took the satellite maps and handed out 10,000 GPS-enabled cellphones to polio workers. They could see where they were in real time, and make sure they got to each of the houses. We spent a week travelling with the polio workers watching them do their work. I think the idea of using satellites to help cure polio is a pretty interesting concept.

You have a lot of examples where understanding of big data is saving lives, which I think will surprise some people who don’t initially see it as having direct benefits for real people. What are some others?

There’s the case of the recent earthquake in Japan. I heard a fascinating story by Kai Ryssdal on Marketplace Radio about how 43 seconds before the shaking actually began, all the bullet trains and factories in Japan stopped running. It was all automated. That country spent 15 years and half a billion dollars to build the system that automated all of this. Obviously the devastation was horrible, but the system worked. Then I read about a group of engineers in Palo Alto that had created a program called Quake Catcher that uses the accelerometer in your laptop. Its the part in your laptop that detects when it’s been dropped and quickly moves the head on the drive drive before it smashes to the ground. It uses the same acceleromter to detect earthquakes. If it senses vibration and sees the same pattern over a 30-mile area, that’s an earthquake. On one side of the page, you have this huge half-billion dollar project, hardwired, dedicated parts that have to be replaced, lots of engineering time. And on the other you have this free ubiquitous crowdsourced mobile sensor system that has no profit motivation, and no cost. I love it. It’s a delightful story of people doing this to help each other. And the data just underpins it all.

Is there anything in the book that has some practical, everyday value?

Yes. There’s the example of Shwetak Patel, he’s a MacArthur Fellow and teaches at the University of Washington. He found a way to detect every device in the home and measure how much power it’s using. Every month we get a bill from the power company and we just pay it, we don’t even ask what it’s about. He’s created a sensor that can be plugged in anywhere in the house that detects the unique digital signature of everything that’s drawing power in the house — your computer, your toaster oven, whatever. I asked him if there was anything he had learned that would surprise the average American. He said it’s the DVR. The average American spends 11 percent of their monthly electrical bill on their DVR. It was designed in such a way that the hard drive never spins down, so even if you record only one show a week, it’s running the entire time and consuming power. So instead of drilling another oil well or burning more coal you could reduce America’s power bill by 5 percent just be redesigning the DVR. So many stories have this sense of delight: The data has been there all along, it’s just that no one was paying attention to it.

You’ve also done iPad and smartphone apps to enhance the book. What can you tell me about that?

I don’t know that anyone has ever done this with a book like this before, but there’s a free app you can download to your smartphone. Some of the pictures in the book have this little yellow key symbol in the corner. When you have the app, and you point the app at the page, it launches the page in the app. There are videos, there are Ted Talks. I think there are 22 or 23 videos. There’s an animated version of a story about pizza delivery guys in Midtown Manhattan. There’s also an iPad app, the profits from which go to charity: water, which is a nonprofit that’s working on bringing safe drinking water to people in developing nations. My goal here is to keep people turning the pages.

What do you want people to be left with in the end?

There’s an essay toward the back of the book called “Data Driven” by Jonathan Harris that has a really interesting thought. It’s that there is a relatively small group of people who are living in cities like San Francisco and New York, are mainly between the ages of 22 and 35, who are having an outsized effect on the rest of the human species. The kinds of societal changes that used to be the result of wars and famines are being brought about through software. …What I like about the essay is that EMC, which funded the book, had no right of review. I told them that this book wasn’t going to be all about cheerleading big data as the solution to all our problems. I said it was also going to sound a cautionary note because I think that right now governments and corporations are the ones having conversations about big data and that the average person isn’t. But it can have an effect on so many things in our lives, from our credit rating to our ability to get hired and our ability to do lots of things. I think it’s really important that we have this conversation now.

In response, the once-lethargic $20+ billion enterprise storage industry is exhibiting unprecedented innovation. Giants like EMC and Dell are vying with, partnering with and acquiring start-ups for supremacy in a morphing landscape.

It’s a serious game. More than $3.5 billion was pumped into VC-backed storage start-ups between 2007 and 2011, with more than $1 billion in 2011 alone. And $10 billion more has been poured into M&A, with the most recent example being EMC’s $430 million purchase of a company that hasn’t finished developing an initial product. Tectonic shifts come from collisions of forces. There are three major force vectors here.

First is the demand for more scalable, instantly provisionable, faster and higher-capacity storage. Even in an anemic economy, demand for data storage grows more than 50 percent per year.

Storage in a Flash

The second driver is the widespread proliferation of flash memory. Remember when you could feel the hard drive spinning inside your iPod? Today, practically every consumer carries flash memory in his or her pocket or purse.

Flash has been around for years, but was too expensive for broad adoption. Thanks to companies like Apple, which consume enormous amounts of flash, the cost is dropping like an apple from a tree. It’s still much more expensive than rotating hard drives, but its notable physics are compelling. Solid-state flash is faster than mechanical drives, and doesn’t forget everything when the power is turned off. Perfect, right?

Flash in the Pan?

Actually, not so perfect for corporate, governmental or cloud environments. In addition to high cost, flash has some unfortunate features. For example, it wears out in the same way your favorite pair of jeans will become threadbare with use. You’ll never wear out your phone from too much texting. But in an enterprise application, the number of IOPS can be so staggering that flash has to be treated almost like a printer cartridge, a consumable.

Many companies are developing techniques to deal with flash’s inherent limitations to make it suitable for data centers. It’s a gold rush, with vast sums of capital chasing big markets. That $430 million acquisition by EMC? Yup, flash.

Why pay so much for a pre-product company? There were multiple bidders. NetApp made a rich offer, which Dell topped by a lot, which EMC topped by an equally wide margin. There will be more M&A.

Interestingly, this activity is driving breakneck commoditization. This is great for customers, but not for vendors, who will not long enjoy rapacious (oops, I meant healthy) margins on proprietary technology. Ironically, the value in flash-based systems is really in the software that wrests the value from the hardware. Everyone in the industry knows that the days of differentiated flash hardware are numbered.

When Is Storage Not Real? When It’s Virtual.

As if hot, high demand and cool flash aren’t enough, the storage games are impacted by a third force called virtualization. Virtualization has transformed computing. The leading vendor, VMware (not coincidentally, owned by storage company EMC), has built a market capitalization of roughly $40 billion. All by making fake computers.

We call them virtual machines. Your iPhone may be talking to one right now over the Internet. Their magic allows the creation of what looks like a physical computer server. A virtual machine, or VM, appears to embody central processing units, memory and communication networks like physical computers. But it’s a software abstraction. Through this prestidigitation, data centers run scores of VMs on a single server box.

Enterprises can deploy vastly more applications because virtualization from Microsoft, Citrix, Red Hat and VMware saves enormously on capital and operating expenses. And provisioning is so much faster. Just a few clicks and, voila, you have a new server. By the way, you can buy server hardware from anyone. That freedom makes vendors compete harder, which you like if you run an information technology department.

What does this have to do with data storage?

Enterprise and cloud storage still live in the physical age. That is, storage system features are embedded in proprietary hardware. Want a cool software feature? You have to buy hardware to get it. Before virtualization, this was how the server industry worked. But virtualization is stressing traditional modes of delivering storage to applications. Performance problems, high costs and inflexibility cause VM users great pain on a daily basis.

Hello, Storage Hypervisor

The key enabling technology in compute virtualization is called a hypervisor. This core magic remade the server industry for the benefit of all. Until recently, there was no storage equivalent.

Now the storage industry is beginning to buzz about the concept of a storage hypervisor — the analog of the server hypervisor, but for storage. Storage hypervisors promise to increase the effective performance of hardware by an order of magnitude. By virtualizing resources to provide the administrative paradigm needed in virtualized environments — VM-centric management — they provide unprecedented flexibility and efficiency. Naturally, the ideal storage hypervisor leverages flash, just as server hypervisors unleash the power of Intel-based silicon.

Giant publicly-traded storage vendors and ambitious start-ups alike are talking up their offerings. All have differing approaches, but share the goal of giving data-center storage buyers the benefits already bestowed on server customers.

A Serious Game

Today we observe a convergence of forces transforming a multi-billion dollar market. The unending pressure for more data increases demand for high-performance flash-based storage hardware. This in turn is driving the essential requirement for virtualization of storage hardware resources. This confluence will enable vastly larger amounts of storage to be applied to every imaginable use case, all while making the economics not only affordable, but also compelling.

The winners in this game? Corporate and cloud data centers and their users. In other words, you.

Before co-founding Virsto, Mark Davis was CEO of storage resource management vendor Creekpath, where he engineered its acquisition by Opsware (now HP).

This is the privately held company that specializes in detecting fraud on the Web, and the reason venture capitalist Marc Andreessen was speaking so highly of security companies when he spoke at D: All Things Digital in 2011. His firm, Andreessen Horowitz, led Silver Tail’s $20 million B round.

Financial terms of the deal are not being disclosed, and EMC says it won’t be material to the 2012 fiscal year.

I just got off the phone with Scott Weiss, the partner at Andreessen Horowitz who led the firm’s investment. Weiss, you may remember, is the founder of IronPort Systems, now part of Cisco Systems, and became a partner at AH in March of 2011. He’s also a director at Silver Tail.

Silver Tail, he says, will essentially become part of RSA, the security branch of EMC that operates more or less independently within EMC.

Weiss told me that when AH made its investment, Silver Tail had about a dozen employees, two paying customers and a lot of promise. “I made 10 reference calls before doing the deal, and the customers made sure I knew they were not on the fence,” he said. “Some even told me they thought Silver Tail was charging too little.”

That’s not a bad sign. So, what does Silver Tail do, anyway? Banks and insurance companies and Web commerce companies use it to keep track of incoming traffic to their sites in real time, and to distinguish good traffic generated by normal customers from bad traffic generated by criminals probably trying to do bad and shady things that more often than not break the law.

It does this using a form of predictive analytics on live Web traffic, at a massive scale. Among the ways to tell good guys from bad are the speed with which they move from one page within a site to another, and the kinds of data they look for. Traffic that’s outside the norm gets flagged for additional scrutiny. Given that the normal patterns are known, there are almost never any false positives. Weiss told me that Silver Tail’s customers include Merrill LynchE-trade and Citibank.

Update: So I’m hearing from sources familiar with the deal that the purchase price was in the neighborhood of $300 million to $400 million. I’m going to try and narrow that down a little bit.

Also, I just got off the phone with Silver Tail CEO Tim Eades and RSA CEO Art Coviello. Here are a few more details on the deal. Eades is calling it a “match made in heaven,” in part because of RSA’s knowledge in understanding the specific needs and buying patterns that large enterprises have when it comes to security.

Coviello, who essentially runs RSA as an all-but-independent company within EMC, says that’s how Silver Tail will run initially. “At RSA we take the same Hippocratic Oath-like approach that EMC does with acquisitions, that of ‘first do no harm.’ Silver Tail has tremendous momentum and we’re certainly not going to upset that,” he told me. “That said, we have a specialized sales organization that understands the unique use cases of the Silver Tail technology.”

Here’s a hint at what kind of momentum. Eades told me that when Silver Tail recently deployed its product with a “large bank” with 21 million customers, it accomplished it within two days. Not bad.

EMC’s announcement is below:

HOPKINTON, Mass. and MENLO PARK, Calif., Oct. 30, 2012 /PRNewswire/ –

News Summary:

EMC Corporation announced it has signed an agreement to acquire privately-held Silver Tail Systems, a leader in real-time web session intelligence and behavioral analysis.

Silver Tail’s innovative technology enhances RSA’s position in the rapidly growing Web Fraud Detection market and complements RSA’s anti-fraud solutions that help leading banks and retailers thwart sophisticated cybercrime attacks.

Silver Tail’s pioneering product portfolio has witnessed rapid adoption by some of the largest brands in financial services, ecommerce and federal government.
Silver Tail’s Big Data approach to fighting cybercrime will help accelerate RSA’s strategy to leverage data analytics and adaptive risk-based controls for broader consumer and enterprise security use cases.

Full Story:

EMC® Corporation (EMC) today announced it has signed a definitive agreement to acquire privately-held Silver Tail Systems, a leader in real-time web session intelligence and behavioral analysis. Upon closing, Silver Tail will operate within the RSA security division and is expected to extend the capabilities of RSA’s Identity Protection and Verification (IPV) solutions, as well as other areas across RSA’s enterprise security portfolio. Terms of the deal were not disclosed. The acquisition is expected to be completed in the fourth quarter of 2012, subject to certain closing conditions. The acquisition is not expected to have a material impact to EMC GAAP or non-GAAP EPS for the full 2012 fiscal year.

The rapid evolution of malware and advanced online threats has left growing numbers of online banking, ecommerce and government web sites and their customers vulnerable to attack, account takeover and fraud. In response to this evolution organizations historically have focused on building fraud detection and security strategies that try to identify what a bad transaction looks like, creating solutions that must always play catch-up to the latest threats.

Silver Tail Systems’ web session intelligence is the response to this evolution in threats and fraud, using a Big Data-driven approach to gather and analyze mass quantities of information in real time and at scale to deepen visibility into web sessions and mobile traffic. The information is fed into Silver Tail Systems’ behavior analysis engine to review at both user and population levels to detect anomalies, IT security threats, fraud, insider threats, business logic abuse and other malicious activity.

Silver Tail Systems has been recognized as a leader by prominent industry analysts for its innovative approach and disruptive technology. Silver Tail’s solutions are deployed globally in large customer environments, helping to secure online banking traffic and ecommerce and government web sites and portals. Their team has extensive experience in building high-performance solutions that provide monitoring for upwards of 330,000 clicks per second for some of the largest ecommerce and banking providers on the market today.

Within RSA, Silver Tail is expected to contribute to multiple areas across RSA’s enterprise security portfolio. Silver Tail’s products will add a disruptive fraud-fighting technology designed to install and begin providing value in a matter of days, lowering complexity and cost of ownership. In addition, it is expected Silver Tail’s core transaction and behavioral analysis technology will help further extend the security analytics capabilities across RSA’s enterprise security solutions portfolio.

Executive Quotes:

Art Coviello, RSA Executive Chairman and Executive Vice President, EMC Corporation

“The industry is well beyond the point of providing effective security using static, perimeter point tools that fail to keep up with dynamic cyber attackers. Customers need better intelligence, analytics, and the ability to respond in real time which is a capability that Silver Tail’s products do extraordinarily well to help foil web-based attacks. Silver Tail offers proven anti-fraud solutions that complement RSA’s portfolio of risk-based and adaptive products and services.

“We see tremendous opportunity with Silver Tail at the intersection of Big Data and Security to leverage our collective expertise and technologies to move beyond the hype to execute on the vision of intelligence-driven security that is risk-based, agile and contextual. Together RSA and Silver Tail can deliver compelling solutions that leverage session intelligence and Big Data analytics to help our customers gain better visibility and control risk.”

Tim Eades, Chief Executive Officer, Silver Tail Systems

“Stopping cybercrime has never been harder than it is today. The recent attacks on the North American banking infrastructure are stark reminders of the pace of innovation in the cybercriminal ecosystem, the convergence of the fraud and info-security attack techniques and the profound responsibility of the CISO to help defend against these attacks.

“Silver Tail pioneered an approach that uses web session intelligence to provide unmatched visibility and the behavioral analysis that detects these threats and protects web-based platforms around the world. Together with RSA, we have an incredible opportunity to extend these capabilities beyond what we do today to protect web-based platforms. Silver Tail’s session intelligence technology demonstrates the capacity to expand the awareness and intelligence of what is occurring on the network with context, helping to rapidly sift through data to identify unexpected behavior and apply controls against advanced threats and malicious attacks.”

EMC shares fell by 51 cents, or more than 2 percent, as of a few minutes after 11 am ET, after the company said sales would fall short of the $22 billion mark it had expected in prior forecasts. For the third quarter, it reported a per-share profit of 40 cents, missing the Street’s expectation of 42 cents.

EMC is just the latest of the large tech companies to report disappointing results for the quarter. Microsoft, Intel and IBM have all been struggling with various ends of a generalized cutback in IT spending taking place against the backdrop of a weakening world economy.

Sales for the quarter were $5.3 billion versus the $5.5 billion analysts had expected. For the full year, EMC said it expects to earn between $1.68 and $1.70 share, short of the $1.72 analysts had been predicting. As recently as July, EMC had stuck to its guns, saying it expected to earn at least $1.70 a share for the year.

One expression of that strategy — and a controversial one at that — was the nearly $12 billion acquisition of the British software firm Autonomy, announced 13 months ago. HP ultimately didn’t spin off its PC business, but its acquisition of Autonomy stuck. Now it is firmly part of HP’s software business.

As CEO Meg Whitman struggles to turn HP around, software is still a key part of her plans. While Whitman has made no secret of her opinion that Autonomy needs attention, there are some solid bits of HP’s software business — like Vertica and ArcSight — that are showing significant promise, if only they could grow.

Finding a way to get them growing is the job of George Kadifa. In June, HP named him as executive vice president, head of the company’s software business and a member of its executive council. Kadifa knows a bit about the software business. He spent seven years as a senior vice president at Oracle, and then ran his own company, Corio, for six years, until it was acquired by IBM for $182 million in 2005. From there, he went to investment firm Silver Lake, where, as partner, he pushed portfolio companies to improve their operations.

Kadifa sat down with AllThingsD last week at the software unit’s new headquarters in Sunnyvale, Calif., for his first interview since joining HP. We talked about how he plans to fix its weaknesses, improve its strengths and make software a more sizable piece of HP’s overall business.

AllThingsD: George, you joined HP to head up its software business unit in June. You’ve reached the 100-day mark, so give us your assessment of where you see things now and where they’re going.

Kadifa: A lot of good things are happening. We’re at about $4 billion in revenue, so if you look at HP Software as its own business, we’re about the fifth- or sixth-largest software business in the world. We have a great customer base; having worked at IBM and Oracle and now HP, customers really like us, versus previous experience. And we have a lot of products. A lot of them we acquired rather than built in-house.

Among the recent acquisitions, Vertica is one where the consensus seems to be that it was a pretty good deal. Where do you see Vertica going in particular, and what sets it apart?

One is the technology, which we think is second to none. When you think about it, the idea of taking data in columns and then arranging it in a row fashion, it seems like sort of a trivial difference. But it’s really unbelievable what it gives you in terms of capabilities. Say you’re storing a thousand names, you’ve got first names and last names. Let’s say five of those guys are named Arik. Normally you’d store five Ariks in a column. But here, instead of listing the name five times, you make a note above it with a five, so you know the name occurs five times. Now when you search through that list it’s so much more efficient, it’s two or three orders of magnitude faster, which means it’s 100 to 1,000 times faster than classic relationional technology. It has turned out to be a real diamond for us.

Yet it’s a small diamond. Yes, it’s growing, but how do you get it to grow fast enough that it becomes a more meaningful part of HP?

It’s a fair question. What we started with was a business with revenue in the low millions. It wasn’t in the $100 million range in revenue. It was really a project with some customers. We took it, and now it’s in the middle-double-digit millions. I can see us getting to $100 million with Vertica in a very short period of time. And there’s no reason it can’t be a billion-dollar business.

Let’s wrestle with the situation at Autonomy a little. You just named Robert Youngjohns to run it. Unlike Vertica, the consensus here is that Autonomy was an expensive deal that hasn’t come close to meeting expectations yet. What do you see happening there?

We just had a two-day planning meeting with everyone from Autonomy, where we went through the current status and looked at where we’re heading. The key for us right now is to get fiscal year 2013 on track, and that starts Nov. 1, so we’re working on that right now. Basically, when you look at Autonomy, the core unit is the IDOL Engine, which is the unique capability of meaning-based computing. We’re going to double down on that. In our labs in Cambridge, England, we have 40 or 50 mathematicians writing algorithms. And we’re going to build a team here in the U.S. to productize it and create a platform around it, because it has that potential. Frankly, the way Autonomy was managed previously, they put a lot more emphasis into enabling applications, which was fine, but our belief is that there’s a broad agenda, which is creating a platform around meaning-based computing. So we will maintain those apps, but at the same time we’ll open up the capabilities to a broader set of players outside HP.

It sounds like what Autonomy was doing was growing by acquisitions and then creating a more vertical stack of applications prior to HP’s ownership, rather than taking a broader, more horizontal approach. It sounds to me like HP wants to make Autonomy more horizontal. Is the potential there?

You’re correct. And, yes, the potential is there. I asked Autonomy that very question about why they went vertical instead of horizontal, and the answer that I got was that it came down to a difference of culture between the U.S. and Europe. In Europe, they tend to make things complex in order to create more value. For example, they saw the IDOL engine as too complex to just give it to people. Instead they thought they should acquire vendors and then create value by enabling applications. Here we take something that’s complex and we ask how we might simplify it in order to give it more scale for a bigger market. So, some of that difference was cultural, and some of it was that I think they fell in love with these acquisitions. … We think Autonomy’s technology has broader implications. And to reach that potential, we have to open it up as much as possible. And we’re also working with other organizations inside HP — PCs, printers, servers — to basically produce additional synergies.

Are the teams ready and primed? Meg Whitman, your CEO, and CFO Cathie Lesjak have made no secret that, so far, they have seen Autonomy’s ability to respond to deals that had been teed up by HP as lacking. Is the structure in place to address that problem?

It’s not in place yet, but the situation has settled down somewhat. The processes are working. The reason is that initially we kind of left Autonomy alone, and then we tossed a bunch of deals at Autonomy. The initial plan was to keep it intact, have the HP salesforce bring in deals, and everyone would be happy. One problem is that there were too many deals, and second is that the deals weren’t well-qualified. So what we did next was put in place a management process around sales cycles at Autonomy.

There’s been a lot of turnover there. Obviously, the former CEO, Mike Lynch, left, but so did a lot of the people who worked with him. Does that hurt the institutional memory at all?

No. Basically we lost the top half-dozen people. And you always expect that with an acquisition, especially with people who have grown up as entrepreneurs and will always be entrepreneurs. The remaining people running the products lines are still around, and so is the salesforce. The development guys in Cambridge and Chicago are still there.

Michael Dell has basically said he intends to keep growing his company by acquisition. Your boss, Meg, has said that we can expect no major acquisitions for the forseeable future — at least until the balance sheet is in better shape. If there were going to be acquisitions, even small ones, I would imagine they’d more likely be in software. Is that a fair statement?

I don’t want to say anything on Meg’s behalf. From a software point of view, if there are tuck-in acquisitions that can help us develop our technology, I’ll go and request to do it. The cash we generate from software would cover us. So that’s the thinking right now. We need to learn as a business how to grow organically because that’s where all the value is. At Silver Lake we did analysis on companies that grew by acquisition: Oracle, SAP, Microsoft, IBM, EMC and others. You find that their revenues grow and their profits grow. But what doesn’t grow, and what actually shrank from 2006 to 2011, is their multiples. Their valuations multiples shrank. What the market is saying is that just making acquisitions doesn’t add any value unless they create organic growth. That is how we look at it here. We’ve done a ton of acquisitions, so the task now is to create more organic growth because that is what the market will value.

The good news is that earnings, at $1 on a per-share basis, will be slightly higher than had been previously expected. The bad news is that those earnings will count only on a non-GAAP basis, because HP intends to take a combined $9.5 billion to $9.7 billion in charges this quarter, the most in its history: $8 billion for a writedown in the value of its IT services unit, the company formerly known as EDS; and $1.5 billion to $1.7 billion for restructuring charges associated primarily with the voluntary retirement and firing of some 9,000 HP employees.

The job reductions are only the first round of an expected 27,000 cuts that will occur between now and 2015. HP CEO Meg Whitman has said the restructuring is needed to get HP down to a size where its longer-term business prospects are more tenable.

However, the pressures on its many lines of business are numerous and intensifying. If the results that rival Dell reported yesterday imply anything, it’s that the state of the personal computer business, of which HP remains the global leader — though only by a whisker — is dismal.

Revenue from Dell’s PC business fell 14 percent, and its consumer business took the bluntest part of the blow, falling 22 percent from the year-ago period. HP may fare better, but only slightly so, says analyst Chris Whitmore of Deutsche Bank in a note to clients earlier this week. The consistent popularity of Apple’s iPad continues to eat into notebook sales, Whitmore says, while those still in the market for a new PC are waiting for Microsoft to get Windows 8 into the marketplace. “Looking ahead, we expect summer PC shipments to experience a slowdown ahead of the Windows 8 release, expected this fall and improving into the holidays with Win 8 related inventory restocking,” he wrote.

But PCs aren’t the only trouble spot for HP. Results from Canon, Lexmark and Xerox all point to a weak market for printers and printer supplies.

Then there’s servers and storage. Ongoing uncertainty in HP’s Business Critical Server business, brought on by the continuing legal fight with Oracle concerning the Intel-made Itanium chip, is hurting not only the sales in its high-end Integrity line of servers, but the associated service and support fees that HP collects from customers who buy them. Whitmore reckons that HP has lost some of its share of this specialized market to IBM. Meanwhile, sales of mainstream servers are also thought to have declined, as well, while in storage, EMC and NetApp are also thought to be taking business from HP.

If all that weren’t enough, there’s the vexing problem of HP’s services business: The writedown of EDS is only the first step in a long, complicated process that is intended to turn that unit toward a smaller number of more protein-rich, profitable contracts, and away from more numerous less-profitable ones. As Whitmore put it: “We expect these programs to take considerable time to develop and market. Increasing the size and depth of HP’s Services bench will likely take multiple quarters before translating into improving market share performance. As a result, we continue to expect a long, slow turnaround in EDS.”

On top of all that is the bitter frosting of the world economy. HP does more than one-third of its business in Europe, where the weakness of the euro versus the U.S. dollar adds additional headwinds that have only gotten worse since last quarter. And it’s unlikely to get better anytime soon, Whitmore says: “If the recent strengthening of the U.S. dollar is maintained, year-on-year revenue compares will continue to be a meaningful headwind in future quarters.”

See you later today.

It has been only two years since the enterprise storage wars. In fact, it was two years ago this month that Dell and Hewlett-Packard bitterly battled over 3Par. HP won that fight, paying $2.4 billion for the storage concern. Dell bought Compellent instead, while IBM took out Netezza. All told, it was a $5 billion M&A bonanza that ended just as suddenly as it started.

By joining the loose collection of companies I’ve dubbed the Flash Madness Club — companies that have tossed their hats in the ring, either selling or relying on flash memory in a big way — IBM, a lot of people are speculating, will force rivals like HP, Dell and maybe Oracle to start rolling up the other flash-technology players. Nor is IBM done buying in this area.

The main target of all this is Fusion-io, the Utah-based flash-technology company that first went public last year, and which is remembered mostly for its data-center supply relationships with Facebook and Apple.

Fusion’s primary product is the ioDrive, an insert card that essentially speeds up conventional servers by feeding data to the main processor faster than the relatively poky hard drive. Fusion shares rose 7 percent on the speculation, closing yesterday at $28.23.

At that price, it trades at a market cap of about $2.6 billion. Assuming a 50 percent premium, it would, in a hypothetical deal, probably go for about $4 billion, assuming there wasn’t a crazy bidding war.

But there would be. Fusion’s primary strength is its OEM relationships. (OEM is industry lingo for Original Equipment Manufacturer.) In these relationships, Fusion sells its products like the ioDrive to such companies as HP, Dell and IBM, which then offer them as part of their own distinct servers.

The product is considered strategic enough that if one big IT player were to try and buy it, the others would put up a fight and offer competing bids to prevent Fusion from falling into the hands of a competitor. Fusion would become a much more expensive target rather quickly.

But, at the same time, the winning bidder would own an asset that would instantly lose value. If, for example, HP closed a Fusion-io acquisition, can you realistically see Dell and IBM continuing to do business with it? Future growth of Fusion’s products would have to offset that lost revenue. And given the concentration, the loss of one partner would be a big blow: 82 percent of Fusion’s revenue in its most recent quarter was made up of individual companies, each accounting for 10 percent of sales or more. A target that would get progressively more expensive in a bidding war and then lose value right away doesn’t look like a good deal.

Longer-term, there’s a lot of value in Fusion’s relationship with the end customers. Even when an OEM sells a server with Fusion’s technology inside it, it is usually Fusion and not the OEM that supports the product with software upgrades and maintenance. As more companies begin running hardware with Fusion’s technology inside them — banks and financial institutions are big fans of it, for one thing — owning Fusion would make sense for one of the big IT companies.

But here’s another thought: If Fusion is to be acquired, the thinking goes that it would have to acquired by either a traditional IT company or a dedicated storage player. HP and EMC are the ones being mentioned as possible buyers in the analyst notes today. But why not Intel?

The world’s biggest chipmaker has the cash — $13.7 billion, as of its most recent quarter — and is constantly looking for ways to expand its relationships with the hardware vendors. And since Intel already does business with all the OEMs that Fusion does, none would lose access to its technology. There are probably a lot more things to consider, but I just don’t see why Intel is not part of this conversation.

While the consensus of Wall Street analysts points to earnings of 46 cents per share on sales of $11.6 billion, up from 40 cents on $11.2 billion a year ago, the ongoing worries about the state of the economy and the persistent troubles in Europe can’t help but weigh things down a bit. Having a significant geographical portion of your market melting down makes for a tougher turnaround.

So tough that analyst Brent Bracelin of Pacific Crest Securities worries that the Street might be too optimistic in forecasting flat sales for the quarter ending October. The weakness in Europe combined with currency effects could prompt Cisco to forecast sales that decline year over year by as much as 3 percent.

Worse for Cisco and its CEO John Chambers, there are new threats emerging. Both Oracle and EMC are making moves in a new area of networking technology that could make the specialized networking hardware that forms the backbone of its business obsolete. So far, software-defined networking has been best personified by Nicira, the start-up that VMware acquired for $1.26 billion last month, or Xsigo Systems, acquired by Oracle seven days later. Software-defined networking turns otherwise commodity hardware into a customized piece of networking gear and puts all the intelligence of creating a network in software.

While it’s not an immediate danger, the fact is that Oracle and VMWare — and thus VMWare’s largest shareholder, EMC — now represent a new competitive threat. “Cisco needs to respond with its own offensive on how it plans to help redesign the legacy IT stack,” Bracelin writes.

That means more acquisitions. Cisco has always been fairly acquisitive. For example, on July 31 it closed its $5 billion deal for the Israeli video software concern NDS. But Bracelin would like to see more deals closer to the data center.

“With the IT industry on the verge of the next major transition to a cloud computing architecture, Cisco is in an enviable position to expand into new adjacent markets,” he writes. “However, the growing disconnect between Cisco’s slowing growth and that of other large enterprise suppliers suggests that it faces increasing competitive pressures and product transition risks.”

Interesting times, indeed.

Sales were $106.6 million, and per-share earnings were 9 cents, easily besting the consensus of $96 million and 3 cents. Great, but that’s not what got investors so excited that they kicked Fusion shares up by 26 percent in the after-hours session. The company said it expects sales in its fiscal year 2013 to grow 45 percent to 50 percent, well ahead of the 37 percent analysts had been expecting.

At least part of that outlook stems from things like the super-secret deal Fusion did with enterprise storage concern NetApp last week, and also the trend of servers going all flash, thanks in part to Fusion’s software.

“We got new products and new opportunities within existing markets, so we feel pretty good,” CEO David Flynn told me in a brief conference call after Fusion reported earnings today. All the new stuff going on is offsetting what has been the traditional criticism against Fusion since its IPO last summer: That it relies too heavily on large purchase orders from a small number of customers, specifically Apple and Facebook, who buy a lot of Fusion’s technology for use in their data centers.

“They’re representing a smaller overall portion of our business as these new opportunities develop,” Flynn told me.

One other thing he said: Some of those big customers have some pretty aggressive plans to scale out their data centers. “These relationships have afforded us some visibility on their plans, and we’ve factored that into our guidance with high confidence.” It looks to me like Fusion-io’s guidance is quickly becoming a pretty good barometer for the overall state of the data center business.

It’s kind of a weird announcement, where neither company is disclosing what it’s all about. The only hints we get are from the press release, saying they are:

… working closely with storage industry leader NetApp to provide solutions using server-side flash and caching software products when used in conjunction with the NetApp Virtual Storage Tier. The two companies are collaborating on low-latency, high-performance solutions for compatibility between the Fusion ioMemory platform and NetApp’s Data ONTAP operating system, as well as key caching solutions, including NetApp Flash Cache, NetApp Flash Pool and Fusion-io caching software.

Basically, we’re going to see Fusion’s technology in NetApp products, coming soon to a data center near you.

The news can’t help but be seen as a reaction to EMC’s acquisition of Israeli flash technology concern XtremeIO in May. EMC paid somewhere between $430 million and $450 million for that company, and the combination was seen at the time as a blow to Fusion-io and NetApp. Shares of both have been trading in lower ranges since that deal. Fusion, which first went public last summer, has been the subject of persistent speculation as an acquisition target. EMC’s deal was expected to kick off a round of acquisitions.

The collaboration should also affect the outlooks of Violin Memory and Pure Storage. Violin raised $80 million in a Series D round of venture capital funding in April, at an implied valuation of $800 million, and has been marching steadily toward an IPO no later than October.

Pure Storage is the other flash player worth watching here. It came out of stealth last summer with a $30 million Series C investment and a plan to use flash to disrupt the business of storage arrays.

Fusion, you’ll recall, is a founding member of the Flash Madness Club. Its flash memory insert cards for servers are widely used in data centers of companies like Apple, Salesforce.com and Facebook, speeding up the ability of servers to process data by eliminating bottlenecks created by conventional hard drives. Its customers also include Hewlett-Packard, Dell and IBM, among other server manufacturers who offer Fusion’s products, like its ioDrive inserts as a build-to-order option.

The markets don’t quite seem to know what to make of it, either, as all three are falling in premarket trading in New York. NetApp shares fell by 33 cents, or 1 percent, to $32.58, while Fusion shares fell by 13 cents to $19.50. EMC shares fell by 18 cents to $26.38.

Mr. Maritz, meanwhile, will become vice chairman at EMC, one of the people said. EMC Chief Executive Joe Tucci will remain in his job at the top of the data center giant, the person said. The two companies are linked via EMC’s majority stake in VMware.

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XtremIO makes storage arrays based on flash memory chips, and is a would-be rival to Violin Memory, the Silicon Valley start-up that’s revving its engine for an IPO later this year, following an $80 million Series D funding round which AllThingsD reported exclusively last month.

Another player in the all-flash storage array business is Pure Storage, which came out of stealth mode last August with a $30 million Series C led by Redpoint Ventures.

News of the deal gave shares of Fusion-IO a jolt. Fusion-IO rose 50 cents, more than 2 percent, to $21.63, just as the markets opened for trading in New York. As of yesterday’s close, Fusion shares have fallen by more than 6 percent since its IPO debut last June.

Fusion is a founding member of the Flash Madness Club. Its flash memory insert cards for servers are widely used in data centers of companies like Apple, Salesforce.com and Facebook, speeding up the ability of servers to process data by eliminating bottlenecks created by conventional hard drives. Its customers also include Hewlett-Packard, Dell and IBM among other server manufacturers.