The EMC Elephant Stomps Dell World

AUSTIN, TEXAS: While will enable to join IT’s 800-pound-gorilla club, pretty much everybody at Dell World 2015 — especially a really pumped Michael Dell and his executive team — is talking about the proposed acquisition, and speculating on what it means for the companies involved, their customers and prospects, and their competitors. So now the gorilla can keep company with the elephant-in-the-room metaphor.

The stomping began on October 12 when Michael Dell, MSD Partners and Silver Lake announced the proposed acquisition of EMC in a deal valued at $67 billion, dwarfing all other previous IT mergers and acquisitions. Michael said the transaction will unite Dell’s ‘strength with small business and mid-market customers with EMC’s strength with large enterprises to fuel profitable growth and generate significant cash flows.’

“Our new company will be exceptionally well-positioned for growth in the most strategic areas of next generation IT including digital transformation, software-defined data center, converged infrastructure, hybrid cloud, mobile and security,” he said in a prepared statement. His EMC counterpart, Joe Tucci, was equally optimistic about the new company’s prospects, and why the acquisition was necessary: “… the waves of change we now see in our industry are unprecedented and, to navigate this change, we must create a new company for a new era.”

The combination of EMC and Dell will create an $80-billion company, said Michael at a press event on Tuesday. For its most recent quarter EMC reported consolidated revenue of $6.07 billion, with contributing $1.59B, and a meager $64 million. That would put Dell’s share at $56 billion, which is in keeping with the best guesstimates for the private company.

“Go big or go home, baby,” said Michael, talking about how EMC addresses the issue of a privately held company making aggressive acquisitions. However, from a financial perspective, the acquisition is expected to add more than $40B — as part of the $50B-plus EMC will cost — to the $12B still outstanding from the $25B it cost to take Dell private.

“Dell and EMC are a dream combination,” he said. “We complement each other beautifully.” Combined, the two companies lead in 22 Gartner Magic Quadrants, said Michael.

As an added bonus, EMC will now be private and out from under the 90-day financial proctology exam that is the norm for public companies. “As I like to say, EMC, $67 billion. Being master of your own destiny, priceless!”

In an open letter, Michael shared his thoughts and intentions on VMware, basically committing to ‘continue to offer choice and multiple partner offerings as we always have and always will.’ VMware will remain an independent public company, and there are no plans to do anything proprietary nor place any limitations on its ability to partner with any other company.

‘VMware is a crown jewel of the EMC federation. Our intent is only to continue to help it thrive, innovate and grow, as an independent company with an independent and open ecosystem.’

Concerns about VMware, were only part of the controversy raised by this deal. Overlapping storage and security businesses, and issues arising from existing vendor relationships top the list.

CEO Chuck Robbins expects the deal to be a huge challenge to Dell.  “When you look at a deal like this, it’s going to take — or you look even at what ’s doing — think about the length of time that the discussion [around those deals] has been going on. Think about the length of time between now and when this deal gets done,” Robbins said. “I think it just creates this massive period of instability in a world that’s moving faster than we’ve ever seen,” he said.

A similar observation was provided by rival HP CEO Meg Whitman, who will officially divide her $100B-plus company into two $50B-plus enterprise and device businesses next month. “This move is going to cause chaos in the channel as they bring together two different programs and approaches,” she said in an email to HP Enterprise employees.

That’s certainly a valid concern, but then she goes on to say the Dell-EMC deal is a “validation” of HP’s decision to split in two. “I wanted to take a quick moment to tell you why I (and you should too) believe this is a good thing for Hewlett Packard Enterprise and an opportunity for us to seize the moment,” said in the email. “This is validation for the strategy that we have laid out and I am not surprised that others would try to emulate it. But, the reality is that we are two years ahead of the game and it will be difficult for others to catch up.”

Opinions about the pending acquisition vary widely:

-Rob Enderle, Enderle Group: ‘If Dell buys EMC, HP is left spurned at the altar – gutted and looking more and more like Sun did.’

-Charles King, Pund-IT: ‘For Dell, the purchase constitutes both a milestone in the company’s remarkable journey since founder Michael Dell returned as CEO in 2007, and an ignition point for its next phase.

-Roger Kay, Endpoint Technologies Associates: ‘The deal itself has spawned great controversy. On the one hand, the merger creates a monster provider of enterprise solutions that should be better able to compete with the likes of . On the other, it will saddle the company with enormous debt, on the order of $60 billion.’

For EMC, the deal stands as the best chance to preserve and grow the unique organization that has evolved under the leadership of CEO Joe Tucci, and will also allow the company to leave behind the second guessing and obsession with quarterly earnings that is increasingly common in the financial industry and among institutional shareholders.’

One relationship drawing a lot of interest is , the converged infrastructure appliance business — $2B/year run rate — started by VMware/Cisco/EMC, and now a part of EMC, with the other two partners having mainly a strategic interest. According to Michael, the acquisition could pave the way for a closer relationship with rival Cisco Systems.

“I do think VCE is a great business, and it sets the stage for a potentially much stronger partnership with Cisco going forward, which you might be surprised to hear me say,” Michael said, “but their new CEO Chuck Robbins and I had a lot of good discussions in the last day.” In a previous interview Robbins said he expects “that when Michael and I chat that we will talk about the need to continue our partnership.”

Michael called the deal version 1.0 of the “unifying theory of the universe”. “We’ll talk about version 2.0 when the deal closes.” EMC is expected to become part of Dell next summer.

During a Q&A following his press conference, Michael was asked about HP and Whitman’s comments. He said Dell has a different strategy. “First of all, we believe scale is important.”

He called HP a great VMware partner, and said he had no other comment. Brief pause, and then: “I think she got some of the facts wrong. We’ll let the facts speak for themselves.”

Regardless of how this deal will impact the… well, potentially everything, work has already begun on the integration process, said Michael. A couple of heavy hitters are on the job: Rory Read, former AMD CEO, and head of Dell’s enterprise technology, and EMC COO Howard Elias, with previous stints at HP and Compaq, is his partner in crime.
DISCLAIMER: Dell paid for airfare and accommodations.

Author: Steve Wexler

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