November 6, 2015
The personal computing giant, Dell, purchased the data storage and virtualization company, EMC, on October 12, 2015 for $67 billion dollars in the largest technology deal of all time. To put the scale of this purchase in perspective, the next largest tech sale checks in at only $36.5 billion, just over half the size. It is a truly monumental feat and shifts the market landscape considerably.
Responses to this deal have been mixed and there are a lot of moving parts. Below is a closer look at the merger, why it happened, and some opinions from the rest of the industry.
What Caused the Deal?
Since the days of “Dude You’re Getting a Dell,” Dell has primarily been a personal computer company. Over the years, they have acquired different products and expanded into other areas like networking and storage, but their identity hasn’t really changed all that much. Industry forces and market trends have made this type of company unsustainable. Of Dell’s $56.9 billion revenue in 2013, their personal computer division generated merely half that income.
Their only option to stay relevant was to greatly invest in the storage and virtualization markets. Hence the EMC deal. Still, it is curious to see a company as large as Dell make an active attempt to grow larger. Other tech companies have found their mammoth sizes to be unwieldy in an era where a startup can emerge quickly and almost immediately disrupt the market. Companies like eBay and Hewlett-Packard are fracturing their enterprise in order to remain agile enough to combat these threats.
Michael Dell, Founder and CEO of Dell, argues that, in the data center space, companies want fewer vendors. They want to work with a mammoth who can solve all their needs regardless of size and scope. Furthermore, Dell cites that companies who have succeeded in the volume data market have always been PC vendors as well. So by that logic, Dell appears to be the perfectly suited to wield EMC’s resources.
Cui Bono — Who Benefits?
Both companies are poised to benefit from this merger. First, the acquisition of EMC brings Dell’s storage division into the enterprise market. Furthermore, EMC, a company that traditionally operates at the enterprise level, now has easy access to the SMB market. Their customers at the SMB level will also benefit from Dell’s new resources. Additional services available at lower costs is never a bad thing.
Beyond expanding into new markets, EMC will become a more agile and flexible company now that it is the property of Dell. EMC was a publicly traded company and has been operating more slowly because of it. Often, appealing to investors and shareholders means they are late to capitalize on new technology. EMC is now answerable only to Michael Dell and his handful of partners.
Finally, Dell is now, at least for the moment, the primary shareholder of VMware. Previously, EMC owned approximately 80% of VMware’s stock. Now, this ownership has transferred to Dell.
The Aftermath of the Deal
Much is still up in the air about the logistics of the merger, but there are initial reports covering some key areas of the new company’s infrastructure. According to USA Today, we can expect the following after the dust has settled.
- Most Executives will Remain: Joe Tucci, longtime CEO and Chairman of EMC, will remain at his position until the final closing. As of this moment, there are no immediate plans to replace anyone else at the executive level.
- No Layoffs at this Time: In addition to keeping the executive staff on board, there are no plans for layoffs of EMC staff.
- NOTE: While that is the official report from USA Today, a Forbes article on the deal mentions that the company will be “removing duplicate functions.” So, we can certainly expect some layoffs simply from overlapping departments.
- Three Technology Hubs: Through the merger, the company will now have three major technology hubs across the country.
- Austin, Texas
- Silicon Valley, California
- Hopkinton, Massachusetts
Criticisms and Responses of the Dell / EMC Merger
Dell and EMC are excited for what the future holds, but not everyone across the industry is as convinced. A survey of responses from leaders and professionals across the industry reveals both optimism and concern.
John Brod, co-Founder of AOL Ventures — Issues of Federation
Brod brought up concerns of federation in a recent interview with “Squawk Alley.”
“One of the things I’m concerned about is from the structure standpoint. One of the knocks on EMC is their ‘federation’ approach. In the proposed structure, you still have VMware acting independently, you’ve got Pivotal acting as is, you’ve got EMC still in Massachusetts. So the question is, is this just additional federation under the Dell umbrella, or will they really be able to unify and take market share?”
Rob Enderle, Technology Analyst — VCE and Partner Relations
Concerns have arisen over the “duplicate functions” of the merger. Dell already occupied the storage space and has holdings that directly competed with EMC. So, what happens to these sub-companies like converged infrastructure company, VCE? Some reports suggest Dell will completely dissolve the asset or absorb it into its own converged infrastructure division.
Enderle says almost the exact opposite. He states that Dell has an acquisition process designed to identify key assets and make sure they benefit in the new company landscape. Enderle cites the Alienware, a gaming PC company, acquisition in the early 2000s. Alienware competed with Dell’s XPS unit. Instead of blowing up or absorbing Alienware, it was sustained and the less successful XPS was transitioned to fill a new niche. Enderle believes we can expect the same from Dell.
What Enderle does not address is that VCE involves a partnership with Cisco. The VCE converged infrastructure makes use of VMware hypervisors, EMC storage, and Cisco compute. Does Cisco want to maintain this relationship now that Dell is in the picture? The answer has yet to be seen.
Erik Gordon, Michigan Ross School of Business Professor — Industry Trends and the Cloud
Gordon brings up an entirely different, but more ominous point. The industry is moving away from hardware. Why create an enormous hardware-based mega enterprise? Companies like Amazon, Microsoft, and Oracle have moved on to big data strategy, cloud security, and network coverage.
NetApp — EMC You Later
NetApp, a storage competitor of EMC, seemed pleased with the purchase as well but for a more cynical reason. Their conference Insight 2015 featured the launch of a campaign titled “EMC You Later” and boasted a tagline “switch to NetApp and get 3x the performance, guaranteed.” The message here is that EMC is in danger of being dissolved and absorbed by Dell, and with EMC out of the picture, NetApp is the clear favorite.
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