What the Dell/EMC acquisition means to the tech market

Here's a look at the impact of the Dell and EMC merger on the storage market, its users, major vendors and the employees of the two firms.

Impact on storage

EMC and Dell already have a deep relationship. Annually, EMC garnered 8% to 9% of its revenue from its relationship with Dell. For Dell, the partnership accounted for 50% of its storage revenue in years past -- about 90% of that coming from the resale of EMC's midrange Clariion line of SAN arrays and 10% from high-end systems.

Over time, however, Dell brought more upscale storage to the market; at the same time EMC moved downstream with products, creating hotter competition between the two technology giants. Prior to the dissolution of the partnership in 2011, Dell invested more than $2 billion to expand its own family of storage products, much of which focused on storage virtualization and cloud-based data centers.

Layoff potential for EMC and Dell employees

How disruptive layoffs and any losses of key personnel will be on both firms is still unknown. EMC reported 70,000 employees last year, and Dell had nearly 110,000 before it went private in late 2013. Michael Dell, on a media call about the acquisition, clearly indicated some job cuts.

"There are certainly some cost synergies -- we're not going to tell you that there aren't," said Dell, who declined to get into specifics, other than to say this: "I think there are some other companies in our industries that are maybe far better at reducing headcount then we are." It may have been a reference to HP's announced plans to cut its roughly 300,000 workforce by 30,000.

Impact on Dell, EMC customers

Dell is banking on the idea that customers want products that are easily integrated, and this merger gives it "extraordinary opportunities to bring together and integrate technologies for customers," said Dell. "We believe customers increasingly like that integration," he said.

The acquisition makes Dell "the largest player in storage," said Crawford Del Prete, an analyst at IDC, but customers "have more options than ever before," including moving to cloud-based services.

"You are not losing a lot of customer choice as a result of the deal," said Del Prete. The products made by Dell and EMC "are largely complementary."

With EMC, Dell may get some more pricing power, said Del Prete, but Oracle, HP and IBM all have "some real compelling products as well. I don't see where a lot of my choices go away," he said.

For its part, VMware remains an independent and publicly traded firm, but Dell will be the controlling force. One competitor to VMware, Citrix, is reportedly up for sale. Dell was a rumored buyer, but there was no mention of Citrix today. On the call, Dell touted his firm's strong relationship with Microsoft, which makes a competing virtualization platform, and there's no reason to suspect this will change.

Impact on HP and IBM

As Dell works to create an ever-larger firm, Hewlett-Packard is splitting itself in two, creating a high-margin enterprise business and low-margin PC business.

Analysts believe the Dell and EMC merger is bad news for HP. With EMC, Dell improves its ability to compete well beyond the SMB market into higher-end enterprise markets, which increases HP's competition.

The acquisition gives Dell direct access to large enterprises, said Charles King, an analyst at Pund-IT. Dell is "growing at time that HP is pulling back and fragmenting."

According to Craig Stice, computer and server electronics analys at HIS, the record $67-billion definitive agreement for Dell to buy EMC announced yesterday is a deal that could significantly shake up the technology market because, while other large tech companies such as HP and IBM have announced divesting or becoming smaller in this market, Dell and EMC together will be creating a mega-technology company.  “Since Dell went private two years ago, it has been able to at least maintain its market share within both its respective server and PC business, but has struggled to grow within the large enterprise, and higher margin markets.”

“EMC is a long-time leader in enterprise storage solutions, but has been challenged to keep up with new trends and cheaper data centere storage,” says Stice. “IHS believes that together as one entity, Dell/EMC will have one of the most complete and unified portfolios, which should provide them additional reach into larger business opportunities they may have not had access to as individual companies.

“This will allow them to better compete against the likes of IBM, HP and Cisco in the growing trend of unified IT solutions,” he says.

On paper, Stice adds, IHS sees the deal appears to be the best path for both companies.

“Financial success, of course, is still a question mark,” he says. “Both companies individually are considerable in size, and both already have extensive product portfolios. Integrating these portfolios will likely require change and some amount of scaling back in any doubling of efforts. IHS doesn’t believe initially this will drive divesting in lower margin server or PC business from Dell but, if down the road and financially the low margin business becomes too much a burden, then it is possible.

“The immediate challenge, of course, will be in the integration of the two massive companies, maintaining cash flow to pay off the debt they will be accruing, while still being limber enough to react and adjust to this market as a leading mega-technology provider will be required to do,” Stice says. “Being a private company under Dell does allow them greater flexibility as they won’t have to disclose or answer to shareholders, but the bigger the ship becomes, the harder it is to turn.”

IBM's strategy, increasingly, is to invest in software platforms and artificial intelligence, a direction that is "profoundly futurist," said Glenn O'Donnell, an analyst at Forrester.

The bottom line, is that Dell-EMC combination will give Dell what it needs to compete with the likes of HP, Cisco, IBM and, increasingly, lower-end players such as Huawei, said O'Donnell.

 

Adpated from articles by Computerworld.com and ITonline.com