Asa Mathat / AllThingsD.com

Oracle sued ServiceKey in the U.S. District Court for Northern California last February, saying that ServiceKey plus a second company had used Oracle software code and access credentials as part of a scheme to sell support services to companies that had no active support contract in place with Oracle itself.

ServiceKey admitted in court that it downloaded, copied and distributed Oracle’s Solaris Operating System, acquired by Oracle when it bought Sun Microsystems in 2010. The company then advertised that it could provide Solaris software patches to customers. It also trafficked in passwords to gain access to Oracle’s customer support website.

Oracle had accused ServiceKey, as IDG News reported last month, of paying Oracle technical support fees for a small number of Solaris machines it owned, but then using those credentials to offer support to its customers.

Oracle will receive no monetary damages as a result of the judgment.

In a way, the challenges only got worse. HP leads the world in three declining markets — personal computers, printing and enterprise servers — and is rushing to build new businesses to replace sales lost from those declines. And while the challenges facing HP are getting bigger, Whitman seems more confident and cool-headed than a year ago.

Whitman has said that 2013 is to be the “fix and rebuild” year, during which the broken bits of HP — there were and still are many — would be remade in such a way that they can begin to deliver growth in 2014.

Investors seem to like what they see. HP shares are up by more than 14 percent versus a year ago. HP shares closed Monday at $24.49. But that doesn’t reflect how bad the optics on HP got at their worst. As recently as late November, HP shares traded as low as $11.71, making the recent 109 percent improvement look all the more muscular. Time will tell if it can stick, and HP’s next quarterly earnings report, on August 13, will be seen as a crucial indicator that the turnaround strategy Whitman has instituted is truly taking hold.

I sat down with Whitman yesterday in a meeting room at the Venetian Hotel in Las Vegas, shortly after she had completed a run-through of the keynote address she’ll be delivering later today. My first question was about the state of the “fix and rebuild” process.

AllThingsD: Meg, it’s now roughly halfway through a year that you’ve described for HP as the “fix and rebuild” year. What’s fixed and rebuilt? What remains to be fixed and rebuilt?

Whitman: I think what is fixed, or well on is way to being fixed, is the balance sheet and the cash flow generation potential of this company. In large part, the ability to do better than we said we would do explains a lot of the run in the stock price. And so the balance sheet is repaired, which is a big deal in a turnaround. I would say our core mission and the ability to execute against that mission is well in hand. I think our go-to-market motion is not as smooth as I would like it to be. We are commercializing innovation much faster than we did. One big change for the positive is that we’re promoting people from within. When I came in, 65 percent of our directors and above were outside hires. Now it’s the reverse. And the benefit of promoting from within is enormous, because people don’t have to learn the business. They already know how HP does things. And then, of course, there’s the big financial metric. We have to grow revenues. We’ve got to get to net positive growth for the company overall.

And that I think is the great metaphysical challenge for HP. And yet you have to grow at a moment when HP leads the world in a series of declining businesses: PCs, printing and servers. Let’s tackle the PC business first: How do you grow revenue in a marketplace that’s seeing such historic declines?

Within that personal systems group, of which PCs are the biggest share of revenue, a large part of our ability to grow revenue is affected by how fast the marketplace declines. I think that eventually the decline will begin to slow down. There are 140 million devices out there that are more than four years old. There’s still a lot of machines running Windows XP that are due for an upgrade. So I think the decline will slow down, but we’re moving as fast as we can to tablets, hybrids, multi-OS, multi-architecture, multi-form-factor. And how long that transition will take depends a lot on how precipitous the decline in PCs continues to be.

Are the profit margins better on these tablets and hybrids than they are on traditional PCs?

The margins aren’t as good, but they have a better attach rate. So, for example, when someone buys a tablet, they usually also buy a keyboard, or Beats Audio headphones, and the services around security, warranties. The attach rate for those is actually higher than it is for traditional PCs, but on the core hardware platform, the gross margin dollars are a bit less, but the percentage is less, as well.

Meanwhile, your competitors — and in this case, I’m thinking about Dell — are getting really aggressive in every market segment. How are you going respond to that?

We have to be really smart. We have to segment the market and decide where we want to play and where we want to win, and let the others go if there’s crazy pricing. And so we have to be very smart about market segment, customer segment and country. We have to make bets, because we can’t follow Dell all the way down, because it’s bad for HP. We have to decide where we need to protect and where we need to attack. And we obviously have to work on our cost structure, as we do every day in this industry.

How’s the search for the new chairman going?

It’s been very interesting. We’ve had a lot of interest from very well known executives. I think they sense that the era of uncertainty at HP is over. Perhaps the worst is over, so they’re happy to entertain joining the board. We’re going to announce a number of new directors over the fairly short term. In the end, we’ll be looking for four or five board members over the next 12 months, and we’ll probably announce two, or maybe a few, sooner than that. And we’re also looking for the next chairman.

Back to the point about the company’s debt. When you reach your goal of having a net debt position of zero, what happens then? Will you start considering acquisitions again?

So then we’re in the happy position of having to talk about a capital allocation strategy for HP. We’ll consider increasing the dividend and buying back more shares. But we’ll also consider getting back in the acquisition business. Big technology companies, we do need to make strategic acquisitions that help in one particular area of our business. And so I think there would be small to medium tuck-in acquisitions that we might do. Not transformational acquisitions, because we’re in the businesses that we’re in, but which further the businesses that we’re already in.

Obviously, we’re not talking about acquisitions this year, but given its history, especially Autonomy, having seen how deals like that can go wrong, what will guide you as you consider making your next acquisitions, whenever that happens?

I think it’s the same guidance that every big company should follow. It’s a question of what you’re trying to accomplish strategically, and what you’re willing to pay. Given what happened with Autonomy, the next acquisition that we do, even if it’s teeny, will be the most scrutinized acquisition, so we have to be thoughtful about it.

What will you be talking about in your keynote?

I’m going to talk about our progress over the last 12 months since Discover last year, and talk about how our objective is to provide solutions for the new style of IT. But, perhaps more importantly, to be the best possible partner to those CIOs who are under immense pressure.

What are you hearing from customers right now? I’m guessing they had a litany of concerns last year. Are they more positive than negative?

I’d say I’m hearing more positive than negative. I would say that the list of thing they’re concerned about is shorter now than it was last year. When I first came in, they had many concerns and challenges with HP, and they’ve seen us set them up and knock them down repeatedly. We still have work to do. I think we’ve made huge progress in being that customer-centric company that is a huge part of HP’s DNA. I still hear about challenges, but by and large what I hear is measurably better than 18 months or a year ago.

Shares of HP rose by more than 13 percent to $24.09 as of 10:15 am ET. The catalyst was yesterday’s quarterly earnings report that contained better-than-expected profits amid sales that fell short of consensus forecasts by more than half a billion dollars. Analysts this morning are questioning whether or not the company can maintain the veneer of progress toward a turnaround in the quarters ahead.

“Shrinking your way to profitability buys time but doesn’t equal a turnaround,” was the headline on a research note from Chris Whitmore of Deutsche Bank Securities this morning. With revenue down by 10 percent year on year, and sales in major business segments declining between 1 percent (printing) and 20 percent (personal computers), HP’s success this quarter and last appears to have been more about minding its cash flow and costs carefully, and less about selling more of the goods and services that make it money.

“HP is sacrificing market share, delaying research and development investment and the financial benefit of past restructuring actions to support near-term profitability which in our view is not sustainable,” Whitmore wrote.

Whitman explained yesterday, both in a conference call with analysts and in an interview with AllThingsD, that HP walked away from deals to sell PCs and servers that didn’t contain enough profit. It had the result of yielding some of its market share ground — HP leads the world in both PC and server sales — to Dell.

“Unsustainable,” appeared to be the word of the day among analysts covering HP. It also appeared in a note from Goldman Sachs analyst Bill Shope, who reiterated his “sell” rating on HP shares. HP’s exposure to “distressed end markets” will eventually overwhelm whatever actions it may take in the short- to medium term. Brian White of Topeka Capital Markets also maintained a “sell,” advising shareholders that yesterday’s 13 percent after-hours surge on HP’s share price represented an opportunity to do just that.

Hoped-for growth from sales of new products like Project Moonshot and new networking products are good, but even that success may not be enough replace the revenue that’s being lost, worries Evercore analyst Rob Cihra. “Low-power Moonshot servers, higher-end printing and software-defined networking all help but much more seems needed to move such a massive needle,” he wrote in a note to clients today. “Hopes for FY13 stability otherwise just appear to flow from deep restructuring cuts.”

Brian Marshall of ISI presented a similar view in a note to clients: “As global economic growth softens and PCs and printers face secular decline, it will be challenging for large technology vendors such as HP to find significant sources of new growth that can move the needle on approximately $110 billion of annual revenue.”

When surveying analysts on the subject of HP, it doesn’t take long to return to the notion of a breakup. HP is worth more in pieces, the argument goes, than as a unified company. That’s what will happen if HP isn’t able to turn the corner soon enough, argues Toni Sacconaghi of Sanford Bernstein, in a note today. While Sacconaghi has an “outperform” rating on HP shares, based on its prospects for improvement over the next six to nine months — an opinion he explained in detail on CNBC yesterday — he remains convinced that, after that, HP will either fix what’s broken or break itself up.

But in a short phone interview with AllThingsD, CEO Meg Whitman and CFO Cathie Lesjak reiterated what they said on a conference call with analysts: Progress has been made, but there’s still a lot of work to be done.

AllThingsD: Meg, let’s talk about the state of the competitive environment. We heard some pretty tough results from Dell last week, and you said on the call that HP was choosing to pass on some deals in order to protect profit margins. Tell me a little more about that.

Whitman: For the long term, profitability remains a focus for us because we can’t afford to let our profitability crater the way Dell did. We have to have the ability to invest in the next generation of PCs and servers and software. It was a tough quarter. We walked away from several deals and lost some share. But it felt like we did the right thing in going after the deals that were the right deals for us. There were also some execution issues. We have to make sure we have the right product for the right customers at the right price point. And particularly at the low end, I think we could do a better job there. But overall I’m reasonably pleased that we made the right decisions in the PC business.

Dell was also making a lot of noise about industry standard servers and how it took some share away from HP. Was it a similar dynamic in servers as it was in PCs?

Whitman: Yeah. We saw what happened to Dell’s earnings. They were down 75 percent. If they were a publicly held company that was trading freely in absence of a buyout number, the stock would be down by 50 percent. It would be ridiculous. We are a publicly held company and we have to invest in the long haul. So we had to choose to walk away from some deals in hyperscale and industry standard servers and PCs that didn’t make sense for the company. I feel like we did the right thing, but there’s always something you can learn from these things.

How do you feel about competing against a privately held Dell versus a publicly held Dell? We saw some indication of how it might behave in the marketplace this quarter. Do you think you’re going to have more of this aggressive pricing behavior and so on?

Whitman: I don’t know exactly how their behavior is going to change. But remember, they’re loading a lot of debt onto the company. And remember how LBOs work. The key is to pay off the debt quickly so you can take the company public again and make a lot of money. We’ll see if they remain as aggressive as they have been. But frankly, this is just a competitive business. We have a lot of competition. We have shown that we can win over time whether it’s against Acer or other manufacturers that we beat out. So if it’s Dell or anyone else, we have to have continuous improvement. We have to invest in the right products. We have to streamline our go-to-market strategy, we have to constantly refine our supply chain and we have to be more agile. And that is just part of being in the business.

Lesjak: And we’ve shown that by being No. 1 in the market for industry standard servers for many, many years now, and we’ve been competing against Dell that entire time.

Cathie, there was a lot of talk on the call about reducing HP’s debt. Give me a look ahead as to what changes when that debt comes down to approaching zero, then what happens?

Lesjak: It frees us up to step back and look at what we want to do with the cash we’re generating, and we want to make sure we’re making the right kind of investments. Those investments may be in buying back shares, or capital expenditures, or research and development to get us on track for the future, or to make small M&A deals. And we want to evaluate these all on a returns basis, both in the near term and in the long term. Because you really need to do both. Some decisions will be based on the near term and with some we’ll be willing to wait a long time for the returns because they’ll be worth it. This is actually one of those moments when we’re going through a lot of product transitions, where the new style of IT products are coming in and the older style products are going away. And what we really want to be able to do, instead of having to manage big transitions, we want to get through them more quickly and that means that you have to invest for the short term and long term.

Whitman: I’ve been saying this a lot lately: You have to plant acorns before you have oak trees. And I think with a lot of the CEO transitions, we didn’t plant enough acorns. And now we’re paying that price.

So part of the impression I got from this quarter and last is that you’re able to beat the Street expectations in part because you’re able to manage your cash flow very tactically. You did well with cash flow for the first half of the year and you said on the call that you don’t expect it to remain as strong in the second half. With the macro environment remaining so weak, I come away thinking that your success is really less about products and lines of business and right now more about managing and taking out costs. Is that fair?

Lesjak: I’d sum it all up to operational excellence. You have to do this all the time. I mean, we’re in a competitive industry. Margins are tight and you have to be maniacally focused on managing your costs every minute, and making sure you’ve got the right product in the right place at the right time. I think this has to be part of the DNA of the company. There’s no moment when you exhale and then you get to spend more. This is about being focused all the time and bringing that discipline to the company. Now in the second half we have some extraordinary cash payments to make around taxes and restructuring payments. As well as some cap-ex that we think will be good investments for the future.

Is there any indication that the macro environment is going to improve? We’re seeing the worst environment for PCs pretty much ever, and IT spending generally isn’t looking so good. Do you sense any improvement in either?

Whitman: From a macroeconomic perspective, which is what drives IT spending across small businesses, medium ones and big enterprises, I think the environment remains about the same. I could be wrong here. We don’t see any improvement coming in Europe and we don’t see an improvement in the U.S. So we’re not counting on those as tailwinds or headwinds, but really more of the same. PCs are a little different. PCs are a subset of personal systems, and as you know that business is growing generally with all the tablets and mobile devices. It’s possible the PC growth rate doesn’t decline as much. It may continue or it may flatten. The objective is that when it starts to flatten out, whose is the company with the best products and the company best-positioned to gain share. We want it to be us.

Lesjak: Taking advantage of the fact that tablets are a growing segment, you really look at HP’s position in tablets, and that will improve significantly in the second half of this year. We’ve got the Slate 7 Android consumer tablet and the Elitepad commercial tablet. Those ramp in the second half, so we’ll have some help on the top line. Not so much in the PC business but personal systems.

Project Moonshot launched during the quarter and there’s a sense that there’s a lot of hope riding on that product. When does it start shipping in earnest for revenue? Is that a 2014 story?

Lesjak: It really ramps in the second half of this year but it’s more of a 2014 story. The real material benefit is 2014 and 2015. IDC has done some projections that the Web and cloud services business will grow about 19 percent in 2016. So that works out to about 8-10 million servers between now and then. So that’s the market that Moonshot is going after.

Whitman: You also have to remember that the ramp is slower with these enterprise products than with the consumer products. Big enterprises need to bring them in and do a proof of concept and see what workloads they want to run on them. And then they have to prove it out. Enterprises move more slowly, but when they move, they move big. But the ramp is slower than the the consumer product.

What’s your biggest priority for the rest of the year now, Meg?

Whitman: We continue with our restructuring program. We said it was going to be a three-year program, and we’re about halfway through that timeline. So there’s more work to do there. And to Cathie’s point, it becomes part of the DNA. This is what we do in the normal course of business. We also have to manage the transition between the new products and the older products. We’d like to accelerate the growth of the new products if we can.

And you said on the call, despite all these market headwinds, you think you can grow next year.

Whitman: We do. We continue to believe that growth is possible next year. You’ve got to remember, we’re doing this amid some of the biggest transitions that have hit the IT industry in a generation. The macro environment is not going to help. The delayed runoff in enterprise services helps this year but hurts next year. But we think we can grow. It depends on a lot of different factors. To be clear, we expect EPS growth in 2014 regardless.

What’s your latest thinking on Autonomy? Is that part of the operation where it should be?

Whitman: I think Robert Youngjohns and his team have done a great job of stabilizing Autonomy. We’ve put in some systems that were lacking and we’ve changed our go-to-market. We’ve invested in R&D jobs there. We had 50 openings for research jobs there recently and I suspect that most of them have been filled by now. So I’m pleased with the progress. That team went through a lot, so I have to give them a shout-out. They had some difficult circumstances. And I’m pleased with what they’re doing. I think you’re going to see Autonomy grow in the next few quarters.

You still having fun, Meg?

It is fun. The senior team feels like they’re making a difference. The turnaround is on schedule. Obviously there are lessons learned every quarter, but we feel good about where we are.

A conference call with analysts concluded just a little while ago. On it, CEO Meg Whitman and CFO Cathie Lesjak reiterated that the turnaround roadmap they outlined at a meeting last year is still going about as expected, and that it is and will remain a multi-year plan. They’ve focused a lot of energy on paying down HP’s debt and improving its operations while making the investments to inject new life into its products lines.

There were also questions about HP’s decision to avoid fighting Dell in the PC business over pricing. Dell has recently said it was getting aggressive in order to take share, while HP has apparently decided to hold on to its profit margins at the expense of sales volume.

It will also be worth listening for hints of and adjustments in the strategy and timing of the turnaround plan put in place by CEO Meg Whitman and outlined at last year’s analyst’s meeting.

Also, HP earlier today released a video with Whitman summarizing the highlights of the quarter’s results.

Here’s a partial transcript of the conference call.

2:06 pm: Joining the conference call in progress. Meg Whitman is speaking. She just said that Europe will continue to be challenging and that China is starting to slow down.

Meg says revenue run-off in Enterprise Services will be slower than expected and will affect overall revenue in 2014.

In the Enterprise Group: Converged infrastructure is the future. Also, the two server groups are being merged into one. Project Moonshot lost during the quarter, but it will “take time to ramp.” But she’s confident that it will work to HP’s advantage without cannibalizing the existing server business.

In networking, HP is a strong number two after Cisco Systems, and its switching revenue is as much as the next five competitors combined, she says.

In software, Autonomy is stabilizing, and Vertica is looking good. The business is “well positioned.” Autonomy landed All Nippon Airways as a customer.

Now she’s speaking about areas where HP’s performance needs to improve. PCs is an area where it needs to fight harder. In mainstream servers, HP suffered from the conditions of the market and was tripped up “by our own execution.”

In PCs, “We stepped away from many deals to protect our bottom line.”

One key difference between the first half of this year and the first half of last year was that the PC industry roared back to life after hard drive supplies were disrupted by the flooding in Thailand.

2:16 pm: Whitman: “Overall our turnaround made progress in the second quarter.”

Now CFO Cathie Lesjak is speaking, and she’s running through the numbers again.

“IT spending softened and the macro-environment clearly did not improve.”

Revenue in most geographic regions was all down.

Software was down some as the industry is shifting to SAAS, Lesjak says.

2:29 pm: Revenue was down in financial services.

Lesjak is now talking about capital allocation and the balance sheet: We delivered more than $5 billion in the first half of the year, which is ahead of our previous guidance. But we do not expect this pace to continue.

Outlook: We remain confident in our ability to manage our cost structure. We are still on track to achieve the savings we’ve planned, but some business units are using these savings.

Moonshot launch was very successful, but we are not pleased with performance of x86 server sales. Printing continues to perform well.

Generally Lesjak expects lower restructuring expenses. “We now expect 2013 free cash flow to be about $7.5 billion.”

2:35 pm: Now time for Q&A. First question is from Katy Huberty of Morgan Stanley. Do you still think you can get to revenue neutral in services?

Whitman: We are rebuilding ourselves amid some of the most profound changes to hit the technology industry in a generation. The slower run-off in revenue will hurt us, but if 3Par and other business units perform as we expect, we expect to grow in 2014, but there will still be headwinds.

Whitman talked about some options for capital allocations. She says it’s mostly going to be “returns based,” meaning a bias toward share buybacks and dividends, and not M&A activity.

Question from J.P. Morgan. Again about services. What is your confidence in the planned services leakage events happening in 2014? Can you still unwind these planned attrition events? Basically he’s asking if some ineffective service contracts will get fixed.

Whitman: There is some predictability coming that was not there in 2012. “The control of this business is feeling better than it did before.”

Whitman: “We are fixing a lot of the problems that are keeping HP from being great. … This takes time. This is an enormous organization.”

Question from Sanford Bernstein: Could you clarify your plan for balancing profitability vs. growth? What is the near to medium term focus on share or profitability?

Whitman: We’re here to set this company up for the long term. In ISS (industry standard servers) we did walk away from some deals that weren’t profitable. In terms of Technology Services, one big headwind was the attach rate of support to sales of Business Critical Services (BCS, a.k.a. the Itanium server business).

Lesjak: We may well be more aggressive in pricing on an industry standard server if we’re getting attached to TS. We’ll take a lower margin based on the complete picture, and the long-term outlook on the account.

Question from Shannon Cross. More color on currency effects. Also pricing on the printer front from the Japanese companies.

Lesjak: Currency is about a point to revenue. It had been two points. “HP is exposed to a whole basket of currencies, and we have different hedging strategies.”

2:49 pm: Lesjak: We think our cost savings in the second half are creating a war chest for our Japanese competitors.

Whitman: We’re going to use that opportunity to fight back. Our competitors are more cost competitive because of what has happened to the yen.

Whitman: “The days of ever-escalating IT budgets in government are over.”

3:03 pm: That’s it. Thanks for tuning in.

Earnings per share were at 21 cents, a whopping 14 cents below the consensus view, while revenue, at $14.07 billion, was above the forecast by about a half-billion dollars.

During a conference call with analysts that wrapped up just a little while ago, Dell management struck a tone of sticking to its strategic guns. With the PC market contracting fast, it has gotten selectively aggressive on pricing in order to try and take share away from rivals like Hewlett-Packard and Lenovo. At the same time, the results show growth in expenses like research and development spending that aren’t exactly helping gross margins.

In short, Dell is starting to act a lot more like the privately held company it expects to be before the summer is over, accountable only to its owners.

In their questions, analysts sought to tease out what details they could about the effect of the proposed go-private transaction on things like employee retention and relationships with key customers. CFO Brian Gladden and head of investor relations Rob Williams shot those questions down.

Here’s a summary of the substance of the conference call (all times are Pacific):

1:46 pm: On hold waiting for the conference call to begin with what sounds like some Vivaldi playing in the background.

And now things are getting under way.

Standard conference call boilerplate from head of investor relations Rob Williams.

Brian Gladden is speaking. “We continue to invest in strategic capabilities.” He’s talking about the acquisition of Entratius, which closed last week.

Gross margin was down 40 basis points sequentially.

“We continue to face a competitive pricing environment … and this has affected our profitability.”

Selling and general costs were up 4 percent.

R&D spending is up 33 percent.

Gladden: There were almost $90 million worth of expenses related to the go-private transaction that were excluded from the non-GAAP figures.

1:54 pm: Tom Sweet is talking about business segments. Here comes the news on server sales that Michael Dell said was going so well.

Servers, Networking and Peripherals saw sales grow by about 10 percent, but sales of storage fell about 10 percent.

Sweet: “Dell powers four out of the top five search engines and 75 percent of the top social media sites worldwide.”

Sweet is covering a few customer wins. And now he’s on to software. Revenue was $295 million and had an operating loss of $85 million. “We remain confident that the Quest acquisition (which was $2.4 billion) will be accretive by FY 2015.

Sweet is talking about End User Computing, a.k.a. the PC segment, and says the environment continues to be competitive. The plan is to try and cut $1 billion out of operating costs by 2015. But customers are “diverting spending to alternative mobile solutions.” Does he mean iPads? Yup.

2:01 pm: Sweet is talking about a big PC win with Marsh and McClennan that has 55,000 seats. “We won despite a key competitor that was a longtime incumbent.” Who? HP maybe?

Question and Answer session is getting underway. First is Katy Huberty from Morgan Stanley. “Can you step back and say if the margin decline is what you expected when you rolled out the more aggressive pricing strategy?”

Gladden: We’ve been talking about this for a few quarters, the need to adjust pricing. There are parts of the business where we are beginning to see some elasticity. Demand has been weaker than expected. These are accounts that we’re gaining that we feel good about their profitability. We feel for the long term we think it’s the right thing to do. If you look at the share dynamics, we did improve our share position in a market that is pretty tough.

A question from Tony Sacconaghi of Sanford Bernstein: Is there a minimum level of profitability that you are willing to sustain in an effort to hold or gain share? Also a question about cost-cutting.

Gladden: Without providing details of specific initiatives, we have continued to take cost out of the business. We are choosing to reinvest those dollars in sales and R&D. I think those things are going on concurrently. (Essentially what he’s saying is that Dell is acting like it’s a private company already.)

As Gladden is speaking I’m looking at the slide presentation. The worst geographically was Asia-Pacific, where sales fell 12 percent year on year. Ouch. Sales in the Americas were up slightly. The BRIC countries fell 17 percent, led by China which fell 24 percent. Super ouch.

Maynard Um: Are customers holding out given the go-private transaction?

Gladden: The customer base has been very supportive of the company. For the conversations I have been a part of they have resulted in many opportunities for the company.

FYI Dell share price update: In after-hours, Dell is trading at $13.37, which is 28 cents below the $13.65 that Michael Dell and Silver Lake have offered shareholders to take it private.

2:11 pm: Question from Steve Milunovich from UBS. He’s asking about changes in sales model on PCs that’s expected as Dell goes private.

Gladden: I wouldn’t say our strategy has changed at all. We’ve adjusted our pricing accordingly and expanded our offerings across the portfolio. This is not a new strategy or business model for us. It’s adjusting tactics given where the market is going.

Question from Credit Suisse: In terms of pursuit of new PC customers, have you put the investments in that you need to or is there more effort to come through?

Gladden: Basically says the strategy hasn’t changed.

Question from Deutsche Bank, asking about servers and the storage business. Servers are good but he says storage doesn’t seem to be getting good attach rates.

Gladden: With servers, we’re winning in the marketing. And when you look at density-optimized servers, we’re winning. We feel good about the server business. You don’t see us trading price for growth there.

About storage. We feel like that business is growing with the market. It’s shrinking with the market. That is not what we’d like to see, obviously. We’re working on it. We’ve added commercial resources over the the last 18 months. We feel positioned to out perform the market.

Question from Keith Bachmann at BMO: How might the M&A strategy differ if the go-private transaction happens? Also about employee retention during the transaction.

Rob Williams: No answer to the first question.

Gladden: Attrition has been about normal for us.

Another question: Does the PC market get softer or better over the next four to six quarters?

Gladden: There are multiple dynamics playing out. There’s a lot driving a refresh cycle. We see improvements in corporate and SMB segments. But we see consumer and government, not so good. Windows 8 has not been the catalyst to growth that we hoped it would be. (That’s a big admission.) You look at recent external data, and we would expect to see over the next few quarters declines in PC demand. We’re trying to run the business based on that.

2:22 pm: Can you update us on the peformance of Quest in the quarter?

Gladden: It’s progressing as expected. We expect it to be accretive in the first fiscal quarter of next year. (Or a year from now.)

Question from Bill Shope of Goldman Sachs, about the PC pricing reductions: Which accounts are the ones that get the discounts? Where do you draw the line on profit vs. market share?

Gladden: We know where long-term strategic accounts are. In many cases those are accounts we’ve had before and have walked away from. I think we’ve been selective. There are clearly some unit volume opportunities where we can sell a lot of units, but they don’t create any profit benefits.

2:29 pm: One last question, this one on support and deployment revenue, which was up.

Tom Sweet: We’re happy with the attach rate there. The team has seen some good things with support products. We’ve been able to keep the attach rate relatively high. Despite downward pressure, it will be a good business.

Gladden: We think that’s a good business on the enterprise side, too.

And that ends the call. Thanks for tuning in!

First off, Dell has moved up the date of its report. Originally set for May 21, the results will come after markets close in New York today and a conference call with analysts will start at 1:45 pm PT.

The reason for the change likely has a lot to do with the fact that Dell is probably going to report another miss on its consensus numbers. Analysts polled by Thomson Financial expect Dell to report a 35 cent per-share profit on sales of $13.5 billion. But as The Wall Street Journal reported Monday, Dell expects to announce profits of about 20 cents on $14 billion in sales, a huge bottom-line miss.

It’s difficult to expect much else. Despite all the efforts made in recent years to nudge Dell in the direction of becoming a more enterprise-focused company via acquisitions in the areas of cloud computing, software and services, Dell still derives about 70 percent of its sales, give or take, from consumer or commercial PCs or PC-related accessories like monitors. And as we all know, PC sales are plummeting at a historic rate.

That’s not to say there aren’t potential bright spots. CEO Michael Dell has been crowing about the company’s success in server sales and has described market share losses by rival Hewlett-Packard as “staggering.”

Then, of course, there’s the ongoing saga of Dell’s quest to go private in a $24.4 billion buyout transaction with Silver Lake Partners. Carl Icahn and Southeastern Management, which between them control about 13 percent of Dell shares, are opposed and this week made their own counter-offer, and then nominated a slate of directors to replace Dell’s current board. Icahn has made no secret that he’d like to send Michael Dell packing. The special committee of Dell’s board overseeing the buyout process has asked the Icahn camp for more information.

Certainly there will be questions for management about all of it, though the answers from Dell management will probably be some variation of “no comment.”

The Times report quotes SAP co-CEO Bill McDermott as saying that HP had asked if SAP might be interested in buying Autonomy. The story isn’t clear on when the conversation between HP CEO Meg Whitman and McDermott took place, other than to say it was before Whitman visited London last month and said that Autonomy was not for sale.

I just got this statement from HP on the matter:

“Contrary to reports in the media, HP has no interest is selling Autonomy. During the past year, we’ve received inquiries from SAP about purchasing HP software assets, and time and again we’ve said ‘no.’ We believe Autonomy will play an important role in HP’s long-term strategy.”

I also reached out to SAP spokesman Jim Dever, who tried to walk back what the Times reported based on what he says McDermott actually said in the interview with reporter Nic Fildes:

“If you look at the quote, Bill doesn’t say anything other than we were aware when Autonomy was on the market. I was part of the conversation, and he never mentioned discussions with HP. In fact, he never said we were approached by HP.”

Sources familiar with the conversations tell me that since HP is such a big SAP customer — something its operational head John Hinshaw mentioned in a recent interview with AllThingsD — Whitman and other HP execs routinely meet with McDermott and his co-CEO, Jim Hagemann Snabe, CTO Vishal Sikka. She’s also met with founder Hasso Plattner, where they also discussed, among other things, HP’s naming rights to the HP Pavilion, home of the National Hockey League’s San Jose Sharks.

These sources tell me that the conversations on the topic of Autonomy potentially changing owners, if you could even call them conversations, were so informal as to be almost meaningless. “Autonomy was never shopped to SAP,” one source told me emphatically.

It’s not the first time chatter has emerged about potential buyers interested in taking Autonomy off HP’s hands. In January, there were reports that HP was getting “expressions of interest,” but HP quickly slapped them down.

And there is indeed a school of thought that Autonomy would have a more natural home within SAP. Former HP CEO Léo Apotheker had previously been a co-CEO at SAP, and before he was fired had steered HP toward becoming more of a software company. If SAP is trying to engage HP on the subject of selling Autonomy, it may be because it simply doesn’t like the idea of HP being in the software business.

HP is still a relatively new player in software, which accounted for a little more than $4 billion in sales last year, or 3.3 percent of HP’s total revenue of $120.4 billion. Small, but growing enough to constitute being considered a rare bright spot at HP. HP’s sales grew 43 percent from 2010 to 2012, though that includes the addition of the Autonomy business.

Update: After further reporting, I’ve updated the story above to reflect which SAP executives Whitman has met with. It turns out she hasn’t met with Jim Hagemann Snabe after all.

Taking to CNBC’s airwaves in another one of his candid phoned-in afternoon rants (the last was an epic 28-minute on-air slugfest with hedge fund investor Bill Ackman in January) with host Scott Wapner during the closing half hour or so of the network’s “Fast Money Halftime Report” show, Icahn revealed that on Monday he will nominate a slate of 12 new directors and, if successful, he’ll see to it that Michael Dell doesn’t remain CEO. “He will not be running the company,” Icahn said.

“It’s not that I have anything against [Michael] Dell. I’m sure he’s a very nice guy,” Icahn said. “But it’s a new world out there.”

Icahn has had a busy day on the Dell front. First he reported in a filing with the U.S. Securities and Exchange Commission that his stake in Dell amounts to 4.52 percent. He also joined Southeastern Asset Management, Dell’s largest outside shareholder, in making a joint bid for the company. (The Wall Street Journal’s Moneybeat has the full text of the joint Icahn-Southeastern letter to Dell’s board here.)

The special committee of Dell’s board has in the last several minutes issued a statement saying it is “carefully reviewing” the Icahn-Southeastern offer.

“Mr. Icahn and Southeastern have outlined a potential leveraged recapitalization transaction that they want the Dell Board either to recommend at this time or to consider if the existing going-private transaction is rejected by Dell shareholders. They have also proposed replacing the Board with a slate of new directors who they say would approve such a transaction. Consistent with the Special Committee’s goal of achieving the best possible outcome for all shareholders, we and our advisors are carefully reviewing the potential transaction to assess the potential risks and rewards to the public shareholders.”

In his televised jeremiad, Icahn blasted Dell’s board and said that Dell shareholders will “literally get screwed” by the $24.4 billion Michael Dell/Silver Lake offer to take the company private in a leveraged buyout. His offer, he said, would leave existing shareholders with a publicly traded stub that would allow them to make more money than the $13.65 per share Dell and Silver Lake have offered.

Below, two video highlights. The second one focuses more on Wapner’s fascination with Icahn’s opinion of the legendary Wall Street short-seller Jim Chanos, who has previously publicly stated that he has been shorting Dell shares. “I’ve made a lot of money going against Chanos,” Icahn said.

Of course it goes without saying that all the attention on Dell caused the shares to trade upward during the half hour or so that Icahn was on CNBC. Ahead of 1 pm ET, Dell shares were trading as high as $13.51, or up more than 1 percent. After Icahn hung up (and apparently called BloombergTV to make a similar on-air speech), its price settled back down. Here’s a screen grab I took of Dell’s share price via Yahoo Finance.

Well, you’re not alone, and the networking company Novell — yes, that Novell — would probably like to have a talk with you. Today it launched a service called Filr (pronounced “filer,” get it?) that it says provides that same kind of mobile-friendly, access-anywhere type of experience for enterprise files that you might expect from other services, but that leaves total control of what can and can’t be shared and with whom in the hands of IT managers.

Better yet — if you think this is a good thing, and some certainly will — instead of farming those files out to the cloud using infrastructure you can’t see or touch, let alone control, it uses your company’s existing IT infrastructure. It just makes it seem more cloud-y than it actually is. Everything stays on premise, and files maintain the permissions they already have. But they’re accessible from mobile devices and can be shared both inside and outside the organization, and they don’t need to be duplicated for that purpose because they stay right where they are.

The service is available today, like those cloud-based products sold on a subscription basis, though some Novell customers using its Open Enterprise Server or Novell Open Workgroup Suite can have it added on.

And yes, this is the same Novell that became part of the privately held Attachmate Group back in 2010 and that previously fought a seemingly endless legal battle with SCO Group over Linux.

(Image via Wikipedia)

Hewlett-Packard made a big move in that direction today, announcing a series of switches that support OpenFlow, open source software that makes routers and switches programmable and thus a lot more flexible.

The news gave me an opportunity to catch up with Bethany Mayer, HP’s senior vice president and general manager for networking. We talked about HP’s plans around SDN:

AllThingsD: Bethany, put simply, what is SDN all about, as HP sees it?

Mayer: The idea is that we’re trying to create more automation, less constraint, and have the network be more abstracted so that there are few manual processes in the data center. It’s meant to bring more simplification and flexibility to the data center. In all of these products we have enabled OpenFlow. We now have 40 platforms that are OpenFlow-enabled. And we have about 20 million ports out there in the marketplace today that are OpenFlow-ready.

How is the state of HP’s networking business, generally?

Backward-looking, we now have 13 quarters of year-over-year growth under our belt. So we’ve continued to grow the business. Our SDN strategy is getting a lot of interest in the industry. I just recently spoke at the Open Networking Summit. The amount of interest has been very high. We had about 60 customers in our SDN beta, and they’re really excited about the applications we’ve created. No one else has created a security application, a load-balancing application, so things have been very good.

And how do you see the competitive landscape? HP is a distant No. 2, but a solid N0. 2 to Cisco Systems. Do you see yourself taking business away from Cisco, or is it more complicated than that?

We’ve continued to take market share in the industry over the last several quarters, and we’ve also maintained our No. 1 position as an enterprise networking vendor in China.

And HP tends to play mostly in the enterprise networking space, but you don’t play in the carrier-class and telecom networking market where Cisco tends to dominate, correct?

That’s correct, however I would say that with this virtual services router that we just announced, that offers us some inroads in the service provider market, because there are new capabilities they are looking for, something called network services virtualization, where they are trying to virtualize functions like routing and switching, security and load balancing. The capabilities that we’re bringing to the table with this announcement makes them very interested. This allows them the ability to move toward virtualizing their networks, and avoid the amounts of money they pay for their expensive proprietary switches and routers. Our focus for disrupting the networking industry is via open standards and simplification. That’s generating strong interest from the service providers. They don’t want to spend the money on the more expensive switches and routers. The point is to help these customers break the proprietary lock, help them make their networks more agile, and meet the new needs of their networks.

Factory equipment is reporting operational data to some server somewhere. Utility stations report their operating conditions or send notifications of repairs that might be needed. Weather stations constantly report temperature and wind speed and so on. You get the idea. When you hear the phrase “Internet of Things,” this is part of what it means. But in this case it’s often referred to as “machine-to-machine” communications, or M2M for short.

The flow of all this messaging data is quickly turning into a deluge. Consider that there may be as many as 22 billion devices connected to the Internet by the end of the decade, and that they’ll be generating 2.5 quintillion bytes of data every day, and it’s a pretty sure bet that big tech companies are going to throw a lot of computing power into new efforts to handle it all.

Today IBM announced a new appliance that’s intended to help companies sort through that deluge. It’s called MessageSight, and it’s an appliance that gets installed in a typical server rack. It takes advantage of a new industry standard technology called MQTT or Message Queuing Telemetry Transport.

MQTT is important because it’s a standard that everyone can work with, said Michael Riegel, an IBM VP. “It’s significant because buildings and traffic lights and mobile phones all have different protocols,” he said. “Having a common standard enables a whole lot of innovation.”

The biggest problem is sorting messages quickly, which the MessageSight can do. It has the capability to process 13 million messages every second, and can route them to the proper place. Once they’re sorted and collected, they can be analyzed for patterns. If you’re seeing a certain kind of equipment failing at a regular interval, you can order more preventative maintenance or track down a faulty component. IBM has long been making the case that this kind of analysis — “analytics” is one of Big Blues favorite words these days — can lead to important insights that can help pretty much any business operate more efficiently and save costs.

And the idea isn’t just about industrial gear but pretty much anything that can be measured. Health care data is always considered a target for this kind of measurement and analysis. The automotive industry is also getting hip to it, and indeed Ford took part in IBM’s announcement today. Some cars are basically turning into rolling sensor platforms, generating truckloads of wireless data.

As it happens, IBM isn’t the only one seeing a big opportunity around M2M communications. SAP, the German software giant, put out a survey today of 751 IT decision makers in six countries that concluded companies in China, Brazil, Germany and India appear to be the “most ready” to embrace the possibilities of M2M. (The value of that finding, however, appears to pivot on whether or not those surveyed actually knew what M2M stood for. Respondents in China and Germany scored highest, while more than half of those surveyed in the U.S. got it wrong, thinking it meant “mobile to mobile.”)

My conclusion: Get ready to hear a lot more about this in the next year or two.

A little less than an hour ago, NetSuite reported a 32 percent jump in revenue to $91.6 million, while recurring revenue — a key metric for cloud companies that sell their software on a subscription basis — grew by 28 percent to $74 million. Cash flow from operations was also up by 39 percent to $14.7 million.

On a non-GAAP basis, NetSuite earned $2.8 million, or 4 cents a share, which was down slightly from the year-ago period of 6 cents, but it also beat the expectations of analysts, who had forecast EPS of 3 cents on sales of $90.9 million. On a GAAP basis, it lost $13 million, or 18 cents a share, versus $7.7 million, or 11 cents a share, in the year-ago quarter.

While NetSuite has traditionally served small and medium businesses, the company started going after bigger fish last year, selling its ERP software that competes with offerings from software giant SAP and Oracle to global subsidiaries. In time, enough of those subsidiaries will come to rely on NetSuite that some will standardize on it across the entire company. “We have a lot of pilot projects going, and those pilots are starting to expand,” Nelson told me in a call earlier today. “As they begin to see the product and start to like it, a lot of those large enterprises are beginning to look for other places within the organization that they can deploy NetSuite.”

That’s probably why NetSuite just raised its guidance for the rest of the year. On a conference call with analysts moments ago, CEO Zach Nelson just boosted the company’s outlook on fiscal 2013 sales. The company now expects to report FY13 sales in the range of $404 million to $408 million. The old range was $397 million to $402 million. A bad sign of doings in the cloud business it is not.

Following through on a plan they first announced last year, the two companies said that Box’s content-sharing capabilities would be integrated with Jive’s software. If your company happens to be a customer of both — not uncommon — content in Box will from now on be easily accessible from within Jive and vice versa.

Yesterday I got Box CEO and D11 speaker Aaron Levie on the phone with Jive CEO Tony Zingale to talk about why they’re pairing up and which competitors they share in common.

Here are some highlights from our conversation.

AllThingsD: So you said last year you were going to team up in this way. What exactly have you done here and why is it important?

Zingale: Back in October we announced our intent to go to market together. It had a lot to do with the complementary nature of our products and the huge shift we were seeing in the marketplace as enterprises retool around collaboration and social and mobile. And being the two market leaders in those areas, it makes sense we would get together and connect our two systems. We think it’s a huge deal between the two companies and can now demonstrate the functionality now that it’s shipping.

Aaron, Box was sort of built from the ground up with working with other companies in mind. And now here you are working a little more closely with one in particular. Is there any other outside company with which Box has so close a relationship?

Levie: This is critical to our strategy. We feel that content needs to extend into all sorts of business applications that you may want to use. As you look at the social enterprise and collaboration space more broadly, Jive is the clear leader. So the deeper that we can combine our products and services, it creates one unified experience for customers. And true to Tony being the master of the enterprise, they are in a very big number of large companies that we’re now starting to serve. This will only accelerate that. At a more meta-level, it represents a bigger trend. Five or 10 years ago you were forced to buy all your technology as a single large stack from an Oracle or an SAP. But now because of collaborations like this, and because of open APIs, you can mix and match the best IT products and services. That will fundamentally change the IT landscape. Startups and disruptors will be highly favored over established players.

One big competitor you share is Salesforce.com. Salesforce has Chatter, which competes with Jive, and it has also announced plans to build a product that it says will compete with Box, though Salesforce is also an investor in Box. Can you unpack that shared dynamic for me?

Zingale: The intent to compete with Jive has existed there for years now. The second thing is that I would riff off what Aaron just said. The Salesforce solution is a stack of their own. If you want to use all the Salesforce apps for sales and marketing and service, go have a nice day. But Chatter has morphed into sort of a front-end user interface for its stack of vertically integrated applications. Box and Jive are both agnostic and we’re both going to integrate with whatever is there and present in the customer’s environment. In our case that includes Salesforce. We add a lot of value on top of the CRM (customer relationship management) app, both inside and outside the enterprise. Their position is very much confined to their three silos. And yes they’re open, but I don’t see many enterprises embracing that as the way to integrate how they get things done. We sit on top of and really don’t any more compete head to head with Chatter as much as we once did.

Levie: I would posit that for Tony and myself, the bigger shared enemy for us is probably Microsoft.

Zingale: Same for us.

Levie: I think that in the land of Microsoft, we are all disruptors collectively. Salesforce included. The big opportunity is the legacy spend on collaboration tools. For those companies moving to the cloud, that is the big opportunity for this kind of service.

Aaron, does Box work as closely with any other company as it is now doing with Jive?

Levie: The only other one where we have this depth of integration is NetSuite. We go pretty deep on the Salesforce CRM. But we certainly look for areas where we have a shared customer base, or where customers want to extend the content from Box into something else.

How much do your customers overlap?

Zingale: As we both disrupt the new wave of enterprise applications, Jive has always attacked the larger companies, the ones with thousands of knowledge workers. The attraction for us is that Box has a huge reach within small companies, but also small groups within large companies like American Express or Fidelity or Procter and Gamble using Box is very interesting to us.

Levie: There probably isn’t an enterprise over 1,000 employees that we talk with that isn’t either on Jive or exploring Jive, mainly because social is the type of product where you want it to go across the entire company and not just be integrated with your sales applications.

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.

But even so, for all the talk about cyberwar, it didn’t come close to eclipsing the amount of financially motivated crime that took place in the digital realm, a new study by telecom giant Verizon has found.

In its ninth annual survey of data breach investigations, which will be formally released tomorrow, Verizon found that old-fashioned financial motivations accounted for 75 percent of computer security incidents. State-sponsored attacks accounted for 20 percent. And, as you might expect, the victims are the organizations that move or hold a lot of money: Financial organizations were targets 37 percent of the time, followed by retailers (24 percent) and manufacturing, transportation and utilities (20 percent).

The study’s sample size included 621 confirmed data breaches and more than 47,000 reported computer security incidents in 27 countries and territories. Verizon has been gathering the data for nine years, and now has records encompassing 2,500 data breaches and 1.2 billion compromised records.

Attacks by outside entities accounted for the majority of breaches, while only 14 percent were attributed to insiders and 1 percent to business partners; 71 percent of breaches targeted user devices and 54 percent were aimed at servers. Perhaps most troubling: Two thirds of the breaches reported required a month or more to discover.

The benefit of a study like this is that it happens at all. Since most large companies and organizations aren’t usually willing to disclose when they’ve been attacked — most have — and suffered a breach that actually cost them some money, it’s rare to see this sort of trend data gathered up in one place.

One interesting thing I noted as I scanned the report. For all the security-related anxiety that seems to have arisen during the two years or so around the “bring your own device” trend in the enterprise — where employers let workers use their personal smartphones or tablets or notebooks to access corporate networks — there seem to have been practically no BYOD-related security incidents. As one sidebar in the report put it:

“The Bring Your Own Device (BYOD) trend is a current topic of debate and planning in many organizations. Unfortunately, we don’t have much hard evidence to offer from our breach data. We saw only one breach involving personally-owned devices in 2011 and a couple more in 2012. We’ll keep watching.”

In an announcement set to be made later today, Somaini, whose title will be VP and chief trust officer, is one of three high-profile hires at Box that will be announced later today. The other two are Niall Wall, who will be SVP and head of business development, and Jeff Mannie, who will be VP, controller and chief accounting officer. Wall will take over for Karen Appleton, who has been promoted to senior VP in charge of global alliances.

What does the new title — chief trust officer — mean? “Two things,” Somaini told me in a brief conversation yesterday. “Really driving a trust strategy for the company around the products and services we provide and how that relates to internal functions of how we perform. Second, we have to make sure there’s a tight integration with our customer to base to really understand their needs. And it’s not only that we’re able to respond to their pain points, but that we’re able to predict them.”

He should have a pretty good appreciation for their pain points. Before creating the CISO job at Yahoo, he held the same title at security software giant Symantec. Before that, he was director of information security at VeriSign and an adviser to Palo Alto Networks. He also writes a widely read blog on computer security.

Wall is also a Symantec alum. Most recently, he was VP and general manager of the Norton Data Services business unit. Before Symantec, he worked at Oracle and Digital Equipment Corp., now a part of Hewlett-Packard. At Box, he’ll be overseeing the company’s efforts to create partnerships and strategic alliances.

Mannie hails from PayPal, the payments unit at online sales giant eBay. He’ll be in charge of external financial reporting, policies and controls. He’s probably going to be busy as Box heads toward its long-talked-about initial public offering next year.

Box has been aggressively raising money, and in January quietly increased its funding to $150 million from a previous $125 million in a round led by private equity firm General Atlantic, at a valuation of about $1.2 billion. CEO Aaron Levie, the 27-year-old wunderkind who started the company in a dorm room at the University of Southern California in 2005, has said on the record that Box will likely go public in 2014, and it has started hiring more execs with time at publicly held companies on their resumes.

The expanded round brought Box’s total capital raised to $312 million. Other investors include Salesforce.com, SAP Ventures, New Enterprise Associates and Bessemer Venture Partners.

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.

But the only thing any of the assembled journalists she’s had contact with have wanted to discuss is Autonomy, the British software firm that HP acquired in 2011 and on which it blamed the majority of an $8.8 billion write-down.

The magnitude of the accounting improprieties, Whitman said in interviews with The Guardian and The Telegraph, were such that HP had to report its findings to regulators on both sides on the Atlantic. She also ruled out any notion that HP is interested in selling off Autonomy — such rumors are apparently still in the air in the U.K. — calling it “critical to our strategy.”

Here’s Whitman in an interview she did with the BBC, which starts with her being asked whether it was “wise” for HP to attack Lynch and the rest of Autonomy’s former management team.

In an open letter to the special committee of Dell’s board of directors overseeing the go-private process, Southeastern argued that the company failed to make an adequate case that shareholders should accept the $13.65-per-share offer made in February. The firm also said that the go-shop process managed by the committee resulted in what it calls “an inadequate outcome.”

It’s no surprise that Southeastern is arguing against the buyout proposal. It’s somewhere in the neighborhood of $800 million to $1 billion underwater on Dell shares, having made a long bet starting in 2005 at a time when the stock was trading mostly between $30 and $40 a share. It has no choice but to argue against a buyout that would force it to take a bath.

But, as the proxy statement released last month clearly shows, it was Southeastern that first lobbied Michael Dell to consider going private in the first place.

Southeastern makes one clear point: The buyout offer is taking advantage of a moment when Dell shares are trading at a pretty low point relative to its history, and the board had authorized share buybacks at an average of $15.25, much higher than the $13.65 buyout offer:

“The same Board that was confident with Dell buying its shares for $15.25 is now attempting to convince all shareholders that Dell’s business is in such dire straits that they should take $13.65 and exit their investments. We believe the Board’s sudden rush to sell is triggered by one thing: Mr. Dell’s desire to buy.”

Southeastern also appeared to throw its weight behind two competing proposals from the private equity firm Blackstone and the activist investor Carl Icahn.

It also questioned the wisdom of going private at all. “The proxy statement does not contain any sound reasoning for why, at this stage in the transformation, the company needs to be taken private,” the firm said.

Here’s the original letter:

MEMPHIS, Tenn., April 9, 2013 /PRNewswire via COMTEX/ — Southeastern Asset Management, Inc., the largest outside shareholder of Dell Inc. DELL +0.07% , today released an open letter to the Special Committee of the Dell Board of Directors and addressed Dell’s preliminary proxy statement.

The question now is whether Southeastern casts its lot with Blackstone, the private equity firm that has expressed an interest in offering $14.25 a share for at least part of the company, or Carl Icahn, the activist investor who wants to buy as much as 58 percent of it.

The full text of the letter is as follows:

April 9, 2013 Special Committee of the Board of Directors Dell Inc. One Dell Way Round Rock, TX 78682 Attention: Alexander Mandl

RE: Dell Inc. Proxy Statement

Dear Members of the Special Committee:

As the beneficial owner of 8.4% of Dell Inc.’s outstanding shares, we are writing today to express our views regarding the Company’s proxy statement. It is our position that the proxy statement fails to make a case for shareholders to accept the $13.65 per share Michael Dell / Silver Lake buyout offer. In addition, we believe that the Special Committee conducted a process that resulted in an inadequate outcome.

According to the proxy statement, Mr. Dell notified the Board of his intention to take the Company private in August 2012. The proxy statement clearly shows that, in their review, the Special Committee and Board of Directors reached conclusions that stand in stark contrast to views held by the Board prior to August 2012. While the Special Committee may have worked diligently and was assisted by credible and reliable professionals, even a good process — without the exercise of proper business judgment — can result in a bad transaction.

The Proxy Reveals a Robust Process Leading to an Inadequate Result

Over the last two years, under a Board authorized program, the Company has repurchased 224,000,000 shares for $3.4 billion at an average price of over $15.25 per share. The same Board that was confident with Dell buying its shares for $15.25 is now attempting to convince all shareholders that Dell’s business is in such dire straits that they should take $13.65 and exit their investments. We believe the Board’s sudden rush to sell is triggered by one thing: Mr. Dell’s desire to buy.

Furthermore, the proxy statement and the analysis performed by the Special Committee focus disproportionately on the End User Computing (EUC) business while giving little attention to the Enterprise Storage and Services (ESS) business. Southeastern’s in-depth analysis indicates that at the completion of the Company’s transformation to ESS, Dell’s future owners should realize valuation multiples significantly higher than those reflected in the current offer price.

It is not about the PC. It is not about the PC. It is not about the PC …

Management has repeatedly highlighted the ESS business on previous earnings calls and provided estimates that show that ESS will account for 35% of the Company’s fiscal 2014 estimated revenue and 58% of its fiscal 2014 estimated Non-GAAP operating income (OI). Because the 58% of Dell’s 2014 estimated Non-GAAP OI attributable to ESS is worth a much higher multiple than the 42% of Company profits tied to the EUC segment, the ESS business, Dell’s cash and Dell Financial Services (DFS) are worth far more than half of total corporate value (see Table 1).

Yet, in all the analytical work and the voluminous proxy statement, EUC and PC are referenced hundreds of times more frequently than ESS. This is a stark contrast to the Company’s prior emphasis on the emerging value of ESS. Given this change in public positioning, Dell’s shareholders should question why the Board is suddenly focused on EUC, and not on ESS — which was previously believed to be the future of the business.

In addition, the Board’s approach of initially limiting the potential acquirers to private equity firms that would allow Mr. Dell to have majority ownership of the Company and remain as CEO narrowed the potential bidders materially and contributed to the Board’s approval of a transaction at a price that undervalues the Company.

In fact, within the proxy statement, virtually every justification of the $13.65 per share price is based on a premium to market at the time of the analysis. Such an approach is misleading when it is based on a price at the low end of the trading range over the last 15 years. Instead, any valuation analyses should have compared the $13.65 offer price to the net asset value of the Company. Additionally, the valuation analysis should have focused on an appropriate multiple of the Company’s free cash flow per share, more than half of which is from the growing ESS business, plus the net cash on the balance sheet and the value of DFS.

The Special Committee Gave Limited Consideration to Shareholder Friendly Alternatives

In our February 8, 2013, letter to the Board, we stated that we would have been prepared to support a leveraged recapitalization and suggested it could have been done in the form of a $12 per share special dividend, a Dutch auction or another structure that would have allowed shareholders an opportunity to participate in Dell’s future. Despite the viability of such a transaction, the proxy statement shows that the Board and Special Committee spent little time researching a leveraged recapitalization. The lengthy proxy statement only discusses the “pros” and “cons” of a leveraged recapitalization on a handful of pages and in only a cursory manner. The proxy statement also does not provide any real analysis or give any attention to solutions that would have either allowed shareholders to receive a large special dividend or to remain shareholders of a company with a smaller share base. It appears that neither the Board nor the Special Committee aggressively pursued the leveraged recapitalization idea because senior management preferred a go-private transaction.

In addition, as widely reported, management spent over $13 billion on acquisitions of non-PC businesses which benefit from the very same cloud and mobility trends that are negatively impacting the PC business. Long-term owners such as Southeastern have supported Dell in its transformation into an enterprise solutions company, but are not being given the opportunity to participate in the return on that $13 billion investment.

On January 29, 2013, Southeastern sought a meeting with the Special Committee in response to market leaks regarding a reported go-private transaction. In that meeting, we asked the Special Committee why giving shareholders a choice, through some form of cash/stock election, would not be preferable, and in fact fairer, for those shareholders who want to participate in the Company’s upside. Dell’s proxy statement answers that question: quoting from page 38, “Mr. Dell and Silver Lake were not interested in pursuing a transaction such as the one proposed by Southeastern in which public stockholders would retain an interest in the Company.”

The Proxy Statement Contains No Justification to Take Dell Private

The proxy statement does not contain any sound reasoning for why, at this stage in the transformation, the Company needs to be taken private. In the entire proxy statement, we found only one page (page 82) devoted to Mr. Dell’s plans for the Company following the transaction. That single page is consistent with the Company’s prior public statements, and nothing about these plans requires that the Company be private.

In fact, in an interview with ZDNet two weeks ago, John Swainson, head of Dell’s software unit, essentially confirmed that it doesn’t matter whether Dell is public or private. He said, “the corporate structure of Dell doesn’t make a difference on how customers interact with our products or how we develop or sell them.” We note that many companies, including IBM, were able to successfully transform their businesses as public companies. In addition, BCG, an advisor to the Special Committee stated that “many of the ‘take-private’ value levers could (in principle) be applicable to [Dell] as a public company.”

The proxy statement reveals that the Board had become increasingly frustrated with management’s execution of the transition, and rather than try to solve the problem, it chose to give Mr. Dell the opportunity to purchase the Company from shareholders at an inadequate price. Mr. Dell would not be participating in the proposed go-private transaction if he did not believe in the Company’s future upside and his ability to execute the transformation of the business.

The Special Committee Has the Power to Act in the Best Interests of All Dell Shareholders

As we noted above, we believe the proxy statement fails to make a case for shareholders to accept the $13.65 per share Michael Dell / Silver Lake buyout. For shareholders trying to decide whether to support the transaction, the Company’s suspension of earnings guidance and extremely limited discussion of the Company’s future plans will make it difficult to make an informed choice. In the next draft of the proxy, the Special Committee should provide sufficient detail about Mr. Dell’s future plans so that public shareholders can properly evaluate their options.

The Special Committee has obtained two preliminary alternative proposals, both of which we view as superior to the Michael Dell / Silver Lake buyout. We view these proposals as superior primarily because each offers shareholders the opportunity to remain owners of Dell while also offering a higher cash price to owners who choose to exit their investment.

Southeastern urges the Special Committee to negotiate and evaluate these alternatives in good faith, and to recognize that offering shareholders a choice is a win / win outcome for all parties. We call upon the Special Committee to work hard to make this possibility a reality.

Sincerely,

O. Mason Hawkins G. Staley CatesChairman & CEO President & CIO

ABOUT SOUTHEASTERN ASSET MANAGEMENT

Southeastern Asset Management, Inc., headquartered in Memphis, Tenn., is an investment management firm with $34 billion in assets under management acting as investment advisor to institutional investors and the four Longleaf Partners Funds: Longleaf Partners Fund, Longleaf Partners Small-Cap Fund, Longleaf Partners Global Fund and Longleaf Partners International Fund, as well as two Irish domiciled UCITS Funds: Longleaf Partners Global UCITS Fund and Longleaf Partners US UCITS Fund. Southeastern was established in 1975, and the first of the Longleaf Partners Funds was launched in 1987.

Good as it may be — and lots of people like it — it is not without its critics. Many sales pros spend the majority of their time away from their desks and are relying increasingly on mobile devices to access their customer data. Plus, when it comes to adding information about the customer to the software, there’s a lot of typing involved. That gets old pretty quick.

Enter AppMesh, a startup led by two former Salesforce execs, Leo Tenenblat and Tom Tobin, who are aiming to rewrite the rules of CRM software with the iPhone and iPad in mind. Data available on one device syncs up across the others using whatever connectivity is available at the time. And users can also export their current data from Salesforce itself. (Getting info from AppMesh into Salesforce isn’t possible. Yet.)

The other thing AppMesh does is sync up with calendars and email. If one deal is potentially bigger than another, email about the larger deal will be placed atop the inbox where it can be acted on first. Go and see a customer, and AppMesh tracks information about the interaction by tagging it with location data.

It’s available now for the iPad and iPhone. Support for Android is coming. It’s in the App Store starting today.

Today we heard from another analyst following SAP who says quite the opposite. Adam Wood, an analyst with Morgan Stanley, issued a short note to clients critiquing Goldmacher’s findings and urging them to “be aware of headline risk.”

Wood said you can do the same kind of analysis Goldmacher did on any company and come to a similar conclusion. “What he’s saying is that companies have leeway in how they report product growth, so that if you exclude stuff that has been growing very fast at SAP like HANA and Mobile then the rest won’t be growing as fast,” Wood wrote. “If SAP’s overall growth rate was poor it might be useful. But SAP’s overall growth rate is good, [about] 10 percent, and much better than its main peer.”

Goldmacher’s main contention is that SAP has been using aggressive discounts in apps and business intelligence products while holding the pricing line on database and mobile products. The cumulative effect is to make the undiscounted stuff look like it’s growing well on a revenue basis relative to the discounted stuff, which may be growing better.

Wood doesn’t think this is going on, though in at least one sentence he seems to agree that it’s possible SAP is doing exactly what Goldmacher accuses it of: “Anecdotally we don’t think SAP discounts HANA but may discount other products if they take HANA, so they want that business to grow. [There's] nothing unusual or untoward about that,” he wrote. However SAP has said that more than half of its deals for HANA products have been for standalone sales, and not for HANA when packaged with other things.

Take out HANA — SAP’s database appliance product — and mobile, Goldmacher argued, and you find that other products are growing at only 2 percent annually, much more slowly than the industry average for business software.

Wood calls Goldmacher’s note a “poor piece of analysis where the only outcome could be that SAP decides to stop disclosing as much in future in line with their peers, which would be a shame.”

It’s no surprise SAP is taking a little flack for this. SAP has been making noise about HANA’s growth for a while. Co-CEO Bill McDermott called it the “the fastest growing software product in the history of the world” in an interview with AllThingsD earlier this year. And since the world has a sense of irony, McDermott’s enthusiastic pronouncement came only days before SAP sales came in short of expectations in a January quarterly earnings report.

For its part, SAP says it has been consistent in its pricing of HANA and has stuck to its no-discount policy, and that there has been no change to how it reports results.

Fast and loose with the numbers or not, American Depository Receipts of SAP have fallen a tad. Having closed at $80.79 on April 2, they’ve fallen by more than 1.5 percent and closed today at $79.56.

In a research note to clients today, analyst Peter Goldmacher of Cowen and Co. essentially accused SAP, the $21 billion (2012 sales) business software giant, of arbitrarily assigning revenue from other lines of business to HANA to make it seem as though it is growing faster than it is.

“If we take management at its word and believe that HANA’s two-year license growth [rate] through FY13 is about 120 percent, then this means that the other 90 percent of SAP’s license business, Apps and BI, is growing at … roughly 2 percent, materially below category growth rates,” Goldmacher wrote. “Our research and experience lead us to believe that SAP is allocating product revenue subjectively and that this is resulting in an inflated HANA growth rate. This could give the appearance of market momentum that doesn’t yet exist.”

That’s an important point, he argues, because HANA, a hardware appliance that runs several SAP business applications, is central to the bullish case that SAP shares are a good buy right now. “This could give the appearance of market momentum that doesn’t yet exist,” Goldmacher wrote. Incidentally, SAP doesn’t fully break out all the details in all the software markets it plays in.

SAP has been crowing about HANA’s growth rates for a while. In a conversation with AllThingsD in January, co-CEO Bill McDermott called it the “fastest growing software product in the history of the world.” Maybe, maybe not. It certainly didn’t help SAP meet the expectations of analysts when it last reported quarterly earnings in January.

So how is SAP supposedly doing this? Discounts. Large discounts on apps and business intelligence products coupled with no discounts on database and mobile products have the effect, Goldmacher argues, of making it look as though the database and mobile products are growing faster than they are. “Absent the uneven application of discounts by product, the database and mobile businesses are materially lower growth businesses and investors are overly confident in the ability of these two product lines to impact the model in the near to intermediate term,” he wrote.

I asked SAP spokesman Jim Dever about all this. He said that no such discounting is taking place. “We believe in the value of HANA, have priced it competitively, and do not discount it,” he told me today. “We have been consistent in our HANA pricing, our no-discount policy, and our reporting of growth rates and revenue results, and we have no changes to announce.”

For the record, SAP said it expects to see sales growth in the range of 11 percent to 13 percent in software and software-related services and 14 percent to 20 percent in its software and cloud subscriptions. The company next reports earnings on April 19.

This was the cloud computing startup that originated at NASA, where the original ideas for OpenStack, the open source cloud computing platform, was born. Anso Labs was acquired by Rackspace a little more than two years ago.

It was a small team. But now a lot of the people who ran Anso Labs are back with a new outfit, still devoted to cloud computing, and still devoted to OpenStack. It’s called Nebula. And it builds a turnkey computer that will turn an ordinary rack of servers into a cloud-ready system, running — you guessed it — OpenStack.

Based in Mountain View, Calif., Nebula claims to have an answer for any company that has ever wanted to build its own private cloud system and not rely on outside vendors like Amazon or Hewlett-Packard or Rackspace to run it for them.

It’s called the Nebula One. And the setup is pretty simple, said Nebula CEO and founder Chris Kemp said: Plug the servers into the Nebula One, then you “turn it on and it boots up cloud.” All of the provisioning and management that a service provider would normally charge you for has been created on a hardware device. There are no services to buy, no consultants to pay to set it up. “Turn on the power switch, and an hour later you have a petascale cloud running on your premise,” Kemp told me.

The Nebula One sits at the top of a rack of servers; on its back are 48 Ethernet ports. It runs an operating system called Cosmos that grabs all the memory and storage and CPU capacity from every server in the rack and makes them part of the cloud. It doesn’t matter who made them — Dell, Hewlett-Packard or IBM.

Kemp named two customers: Genentech and Xerox’s research lab, PARC. There are more customer names coming, he says, and it already boasts investments from Kleiner Perkins, Highland Capital and Comcast Ventures. Nebula is also the only startup company that is a platinum member of the OpenStack Foundation. Others include IBM, HP, Rackspace, RedHat and AT&T.

If OpenStack becomes as easy to deploy as Kemp says it can be, a lot of companies — those that can afford to have their own data centers, anyway — are going to have their own clouds. And that is sort of the point.