Dell buys EMC in a big deal with a big question mark

Dell_EMC_HandshakeWith Dell announcing it will acquire EMC, there’s a lot to unfold and it will only get more interesting.

First things first. Is the deal good for EMC? I say yes. Finally, the enterprise software and storage giant will be owned by a private company and not a group of investors itching to sell the company or its components off for a tidy return. EMC’s considerable R&D team can continue to innovate and push the industry forward without distraction.

Is it good for Dell? Of course. No longer the leader in the consumer PC market, Dell has its sights set on storming the software-defined data centre, converged infrastructure and hybrid cloud computing markets. With EMC on their bench, they now have the strength to take on IBM and HP in the enterprise arena.

It was just a little over a year ago that HP made a failed bid to merge with EMC, a $60 billion deal that was scuttled in part by EMC’s investors. The next month, HP announced it would split in two. Obviously, HP’s plan was to bring EMC’s dominance in the enterprise to the new HP Enterprise half of the company. Well, that didn’t happen.

So, here’s another question begging to be answered: which is better, smaller or bigger? HP created its two separate, smaller companies so each would be more nimble, more focused. In contrast, Dell is creating the largest independently held tech company in the world with the EMC acquisition.

Speaking of big, let’s talk about Dell’s spend. At $67 billion, the EMC acquisition is the largest in the history of the industry. And it’s giving structured finance enthusiasts vertigo, as it will add around $49 billion to Dell’s existing $11 billion debt load.

HP Enterprise CEO Meg Whitman believes it’s too big a load. “To pay back the interest on the $50 billion of debt … Dell will need to pay roughly $2.5 billion a year in interest alone,” she says. “That’s $2.5 billion that they will allocate away from R&D and other business critical activities, which will keep them from better serving their customer.”

Some speculate that virtualization software leader VMware, which will remain an independent, listed company majority owned by EMC/Dell, will be sold to net some cash. I don’t think so. It will remain a part of the big company’s competitive advantage, and ongoing revenue stream.

Same goes for security solutions company RSA, which EMC owns. They’ll remain a part of the family.

Pivotal is another story. The EMC-VMware joint venture (10 per cent owned by GE) is on its way to the block. EMC plans to sell about 20 percent of its ownership stake in the cloud computing software and services company as an IPO, with Dell’s blessing.

When the deal’s complete, longtime EMC CEO Joe Tucci will take his overdue and much-deserved retirement and the corner office will continue to be occupied by Michael Dell, who started the company in his dorm room in 1984 as a 19-year-old college student, and took Dell private two years ago to own 70 per cent of the company.

With compatible entrepreneurial cultures and complementary product lines and R&D investment strategies, Dell should take its place out front in the highest growth areas of the industry.

Is IBM concerned? Of course not. CEO Ginni Rometty says IBM sets its strategy on its own terms, not in response to what the competition is doing. She added that IBM’s investors allow the company the same kind of freedom that Michael Dell says his privately-held status allows.

What about companies like Cisco, Oracle, Hitachi Data Systems and NetApp? Should they be concerned? I hope so. This acquisition is creating a formidable competitor, which will drive innovation all around.

What do you think? Will the bigger Dell rule, or will we see EMC spun out again in the future?

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About johnjblair

John J. Blair is the President and CEO of Blair Technology Solutions responsible for technology, innovation, and providing customized IT strategies to strengthen operations for enterprises across various industry verticals. His reputation is renowned as a results-driven leader, whose effective team-building skills and strategic development expertise have helped his clients achieve IT business success with cost-effective solutions. With almost 35 years in the IT industry, John has established a highly skilled team with expertise in providing personalized and customized IT solutions to a variety enterprises across Canada. Under his tutelage, his company is committed to customer service excellence, providing IT professional technicians to support the ongoing growth and needs of any IT department. Always on the leading edge of emerging technologies, John entered into the Managed Services field early and developed a Managed Services division under the Blair brand. John holds a Bachelor of Commerce from Concordia University and has many industry certifications.
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