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Sale, spin-off or stay put? What should EMC do next?

With reports suggesting some major changes may be afoot at EMC, Clive Longbottom looks at the reasons why

With a run of recent reports suggesting that storage giant EMC could be on the cusp of being sold, spinning off its divisions, or – in the case of VMware – selling up to one of them, it is time to take a look at why the firm and its management would even consider any of these scenarios. 

EMC used to be a company selling high-cost, proprietary storage, and its acquisitions of Data General, Avalon and Legato before the turn of the 20th century played up to this image.

But then Joe Tucci, EMC’s CEO, started to make acquisitions that were outside its core areas of business. For example, document management company Documentum was scooped up, followed by virtualisation supplier VMware and then security firm RSA. 

Sure, plenty of storage-related companies were also picked up along the way, with Data Domain bringing in deduplication capabilities; Iomega offering lower-end storage features; while Isilon Systems gave it a chance to play in the scale-out storage market and, in turn, helped EMC to create a better-managed storage platform.

From a distance, it appeared Tucci was making excellent acquisitions around the core of EMC storage that would allow the firm to create highly virtualised environments, with built-in document management and security, with storage volumes minimised and managed across a single, powerful platform.

But that didn’t happen. VMware was kept at arm’s length. RSA continued to operate as a separate company.  Documentum continued on its merry way, even as enterprise content management withered on the vine.

Even later acquisitions and joint ventures didn’t seem to be embraced as expected. Cloud computing was paid a bit of lip-service with EMC’s acquisition of Mozy, along with a couple of other start-ups in this space. Big data was covered through the acquisition of Greenplum, which was later spun off as a joint venture between EMC and VMware, in which GE also had a 10% stake.

Then there was VCE – another joint venture - set up between VMware, Cisco and EMC (with additional investment from Intel), to provide converged compute platforms, initially as a private cloud computing platform.

Hitting the acquisition trail

The result of all this M&A activity was an incredibly complex and confusing corporate spider’s web, with EMC a major shareholder in a raft of other, essentially autonomous companies. Any enterprise requiring a system for its information needs still had to deal with a range of organisations that were, to a greater or lesser extent, all owned by the same umbrella company.

Things came to a head at the end of 2013, when long-running rumours of EMC being acquired by a company – such as HP, Dell or Oracle – appeared to have some substance.

Quocirca’s belief was that the way EMC was structured, there were far too many potential ‘poison pills’ in place for this to happen, and unravelling all the joint ventures and co-ownership deals would be too costly, and possibly litigious, for a deal to proceed. 

So, Tucci starting taking steps to make it clear what EMC stood for in 2014. Building on several software and hardware strategies, such as ViPR, EVO:RAIL and a reasonably well-messaged approach to pulling all its ‘software-defined’ ideas together under a ‘software-defined datacentre’ banner, Tucci showcased a much stronger corporate structure , which he dubbed ‘The Federation’.

His idea was that The Federation would be able to go into potential deals with all the bits and pieces of an EMC solution, and act as if it was all coming from a single supplier.

This was on the back of his observation that it was rare for an organisation’s technology shopping list to ever have more than five suppliers on it. As separate, autonomous companies, EMC already exceeded that number on its own.

The Federation explained

So what is The Federation? Under EMC comes EMC II (Information Infrastructure), which is essentially the storage hardware part of the organisation, coupled with the information management capabilities of Documentum and the software-defined aspects of Data Direct, Legato and others. Together, these create a strong, software-defined storage system beneath the ViPR banner.

EMC II is headed up by David Goulden, a long-serving EMC employee with a strong financial background, while VMware is looked after by ex-Intel CTO and EMC COO Pat Gelsinger. It is still a major player in the hypervisor virtualisation space, but builds on this concerted platform management focus through areas such as its hybrid cloud platform, vCloud Air. 

Meanwhile, former VMware CEO Paul Maritz takes care of Pivotal, the big-data part of The Federation, and, collectively, these formed the main pillars of The Federation.

However, there remained a couple of outliers – VCE and RSA. RSA has been brought into the fold, with Amit Yoran heading up the division, as has VCE under Praveen Akkiraju. Both RSA and VCE report in through EMC II, so nominally to Goulden.

Although each company still operates autonomously to a great extent, they also undertake cross-company research and development work, where the heads of the companies regularly get together to ensure that EMC’s overall strategy is being supported by the various divisions. 

This enables EMC to play with a box of jigsaw pieces, putting together a suitable ‘solution’ for a prospect, created from the different pieces available, in a highly integrated manner.

The problem Tucci faces is that prospects still see The Federation as separate companies. Push too far with the ‘one company’ vision, and then the question has to be – well, why not just one company? Try to maintain the companies as separate entities, and end up with different power bases fighting over which one is the ‘real’ EMC. The latter scenario also leaves the door open for any acquirers looking to capitalise on the confusion.

Read more about EMC

EMC Corp’s current market capitalisation is around $52.5bn – a lot for any company to come up with, but not completely insurmountable. A stock or stock-plus-debt deal could swallow EMC – and then gain access to its various majority-owned divisions.

VMware’s own market capitalisation is around $36bn, and although VCE and Pivotal are privately owned, the joint-venture nature of these two companies makes them nice entities in which to have a large holding.

Tucci has already spoken publicly about how it will soon be time for him to take a back seat at EMC, and Goulden seems to be emerging as his natural successor, leaving a space at EMC II that would need filling.

Gelsinger and Maritz have both been big players here before, but moving either of them over would still leave a space at VMware or Pivotal. Bringing in an outsider may upset several people, but there are others holding high rank within its various divisions that could step up to the job.

But where does all this leave EMC? It has certainly had its ups, and more than its fair share of downs. Tucci has managed to pull the divisions together in a way that makes sense, but more is needed to ensure the messaging is crisp and that prospects fully understand how The Federation works.

Quocirca doubts this will be work for Tucci to finish off, and will be the undertaking of whoever replaces him, but the foundation Tucci has put in place should keep hungry acquirers from the door for a while yet.

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