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After all the questions about whether or not EMC CEO Joe Tucci should sell up, spin off or break up his self-styled federation of companies, hardware giant Dell has signed a definitive agreement to acquire the majority of the firm for $67bn.
While EMC shareholders will undoubtedly be happy with this outcome, what does the news mean for everyone else?
The deal is the largest technology acquisition ever, by some margin, and comes just as Dell has emerged from taking itself private and reinventing itself as a services-led IT company.
Swallowing a complex entity such as EMC will be no easy task and puts Dell, as far as its customers are concerned, back into a position of uncertainty.
The hardware proposition
EMC II, its storage arm, still sells a lot of hardware, but it is faced with a lot more competition these days. In the past, the company played at the high end with IBM, HDS and – what was the new kid on the block – NetApp. Since the emergence of flash-based storage, EMC has found itself needing to compete on raw power against companies such as Pure Storage, Nimble, Violin Memory and Kaminario.
In response, EMC II acquired XtremIO and DSSD, but moving its installed base of customers over to an all-flash estate would not be easy, despite pushing the view that adopting a hybrid estate, featuring flash and spinning disk storage, would be the best strategy for them.
This can work for a while, but those expensive disk arrays will start to look dated and business-constraining very quickly when the customer’s competition adopts a predominantly flash-based storage environment.
EMC: Is software the answer?
EMC could have responded by developing a software play. The challenge with this approach is finding a way to do it, while also maintaining revenues and margin, and the EMC Federation certainly provides the building blocks needed to do this.
With EMC II offering domain expertise in data management, VMware covering off virtualisation, RSA contributing the security piece and Pivotal playing in the big data management and analytics space, it looked like the firm was positioning itself as an information management company.
This would have proven a painful move, but the decision to merge with Dell is likely to bring its own problems too.
As mentioned in the previous article, the federation has always been a strange thing. VMware will remain a publicly listed, independent company, with Dell owning a controlling stake. How long for is anyone’s guess.
It is likely Dell will sell off its VMware stake to recoup some of the $67bn its financial partners are stumping up to cover the cost of the EMC acquisition.
In the meantime, Dell could draw on its ownership position to make itself more VMware-friendly, compared with the likes of Hewlett-Packard (HP), but this runs the risk of being anti-competitive.
Dell will also need to address EMC’s two joint ventures. The first is Pivotal, a joint venture with VMware and General Electric, which adds more to Dell than it can really afford to lose – as well as its big data platform. It is also the curator of Cloud Foundry, an off-premise DevOps platform that underpins many public clouds, and it would suit Dell to maintain a degree of ownership in this area.
Next up is VCE – the VMware, Cisco and EMC joint venture that designs, builds and sells hyperconverged systems. It is a bit redundant against Dell’s own FX2 platform and other hardware products, and trying to keep a newly autonomous VMware and a competitive Cisco happy is more than Dell should bother itself with.
This makes VCE a prime spin-out opportunity, where Dell can recover a very small part of the acquisition costs. Pivotal could be maintained in the Dell environment – but the VMware portion may need to be sold off for it to work.
Reaping the rewards
So what does Dell stand to gain from this audacious merger? At a basic level, all the standard stuff, including a sizeable customer base, a massive patent portfolio and a large ecosystem of suppliers and channel partners. At a more nuanced level, it will get a lot more on the software, rather than the hardware, side of things.
EMC has developed a strong software-defined datacentre (SDDC) play, and had been building up a strong platform for pulling all the disparate software components together.
Alongside its acquisition of Virtustream, it had ViPR, a software-defined storage (SDS) capability for managing mixed storage estates across large and complex IT platforms. It also had RSA for security, the remnants of Documentum for information management and a host of other software capabilities that Dell can use to create a new top-to-bottom IT stack.
Will this be enough, though? The deal is going to be difficult, and it is unlikely to be finalised before the end of 2016, and when it is Quocirca expects to see EMC’s senior executives leave at a fairly rapid pace.
Tucci has already announced his retirement, and Davie Goulden is unlikely to stay on, when it was assumed he was odds-on to become Tucci’s successor.
VMware CEO Pat Gelsinger is well-positioned to be the ultimate head of a very valuable, completely autonomous company, and won’t be looking for a new position in Dell.
Dell also has to decide how to run the new business. Quocirca hopes the federation idea is canned. Dell has to unpick the various threads of this complex and labyrinthine structure and create a newly integrated cohesive single business.
Dell has taken a major gamble with this deal. In the new world of IT, however, it probably had little choice, as the stresses on the big players are becoming increasingly evident.
IBM is busy reinventing itself around SoftLayer and Power, while HP is caught up in splitting itself into two separate units. By choosing now to make this leap into a relatively unknown environment, the decision could be seen as a canny move on Dell’s part.
While its two largest competitors are also in periods of turmoil, Dell is unlikely to lose customers to them. However, its biggest future competition is unlikely to come from these companies, but from the new players which have little in the way of legacy customers to support.
How Dell negotiates this will be telling – more so than how it deals with the integration challenges that come from its largest technology acquisition to date.
Read more about Dell and EMC
- With reports suggesting some major changes may be afoot at EMC, Clive Longbottom looks at the reasons why.
- Two years after his audacious bid to reinvent the company he founded by re-privatising it, Michael Dell has put in a bid for storage giant EMC.