A few questions:
1). What is the dog's posture when the pup is introduced?
2). How often does your dog socialize with new dogs and new ppl.
From your brief discription it sounds like it might be a socialization problem. If this is the case, you might want to try the following:
Start by having the two of them at a good distance apart so they dont react to each other then begin to move them closer together. Once the dog realizes that the pup is in the area, gauge the dog's response. If the dog is calm, reward it with quiet praise (such as a very soft "Good Dog") or a small treat. If the dog reacts poorly, (depending on the severity), adjust the position of the pup and the dog (moving them away from each other) until the dog is able to relax. Once relaxed, reward with quiet praise and a few small treats. Repeat as needed until the dog is able to approach your friends pup without reacting.
This can take weeks to do. Don't get in a hurry.
During this desensitization period, the dog must have time to work out the problem and find out that the puppy is a Good Thing (He gets rewarded and praised when the pup is present). Keep sessions short, and reward the dog with playtime after each session. The more times that your dog is exposed to desensitization, the faster this will happen. But be careful NOT to flood the dog with this stressful situation. "Flooding" can make the problem worse.
As the dog become less reactive to the puppy you can phase out the treats. Again, keep in mind that this may takes several weeks or even months to do. It will not happen in one or two sessions. Be patient, the results will be worth the time you invest.
The key here is to reward the dog for staying calm and excepting any situation you introduce. Your role as the owner is to project a feeling of relaxation, confidence, and complete control.