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Business Management

Expert Comment: The Dell-EMC deal

The tech and business worlds have been abuzz with the news that Dell is buying EMC. For $67bn. The biggest IT combination in history deserves a bit of coverage, so we at IDG Connect have been working on just that. You can read Martin Veitch’s simple guide as well as his What happens next and how will rivals respond?

Here, we bring you comment from the experts, the ones in the know, so check out what these tech connoisseurs think, and feel free to add your own opinion below in the comments section.

 

Nick Braund, Head of Technology & Innovation at PHA Media

The tech world was alight as the news broke of the biggest tech deal ever. However, in spite of this huge news, I’m struggling to get excited about it. Dell was once a key player in the industry but recently they’ve been overtaken by the majority and are no longer synonymous with success or consumer desire.

The move away from PCs has been happening for a long time now and Dell needed to react much quicker than this huge deal in order to impact the sector. They have, I believe, rightly identified data storage as a key area but at the cost of this deal, it is a huge risk for both parties. On the other hand, shareholders should be rubbing their hands in glee. EMC traded at over $100 per share a decade ago, whereas that has been cut down to just one-third of that today.

Neither company was small to begin with but this deal will see two big companies be forced to work together, potentially against their previous plans. Managing to stay nimble and fast-moving, as is imperative in tech, will be even more of a hurdle than ever, which could aid rival companies trying to steal a march when the collective Dell-EMC back is turned arguing the toss over whose name goes on the press release.

 

Victor Basta, Managing Partner at Magister Advisors

This is the largest ever pure-play technology deal but it is not about technology. It is about industrial concentration rather than transformation, which says a great deal about soaring valuations in the tech industry. You would expect a $67 billion deal to shift the plate tectonics of the industry, but this is far from that. 

Neither Dell/EMC nor the recently announced Avago/Broadcom deal is about significant transformation, as was IBM’s move into software years ago. In fact EMC’s VMware software business – the only potentially transformative element - is left out of the Dell deal altogether. The big bet Dell/EMC are making is that corporate IT budgets remain healthy, and there are enough economies of scale to increase margins for the combined company. Dell must also be betting that they can apply their proven sales and marketing nous from their days at the height of the PC trade to the enterprise storage market and become a top tier choice.
 
In the current environment transformational deals are very expensive, so companies are opting for affordable extensions. In this case the deal extends both companies’ product lines (Dell to storage, EMC to enterprise devices) rather than adding market share in existing categories, which is the hallmark of consolidation. Industrial concentration also drove the $40bn Avago/Broadcom deal, adding Broadcom’s wireless expertise to Avago’s existing business lines. Pure consolidation is hard to do in tech, as value ‘leaves work at night’ and pure consolidation and cost cutting can drive out the best talent. Witness the HP/Compaq PC consolidation deal which destroyed so much value.
 
Dell had three options available to it: go headlong into mobile to address the flight from the desktop, do a transformative software deal, or do what they’ve done, which is to buy what is essentially a commodity business. The other choices – mobile and software – would have been reckless and unaffordable in turn. Microsoft’s acquisition of Nokia and the wreckage of BlackBerry are instructive on the risks of mobile – and quality proven software assets are simply unaffordable even at this price, especially for a PE-backed firm.
 
If we pull back the lens and factor in the forthcoming Avago - Broadcom deal, we see two transactions with a combined value of more than $100 billion. What is telling is that even at these colossal levels, transformational industry deals are simply unaffordable.

 

Jerome Lecat, CEO at Scality

I think this is a bold and smart move from Michael Dell. This kind of merger reminds me of HP and Compaq, or the Acaltel-Lucent merger. The IT industry is changing at a very fast pace, and adopting cloud-architecture based on software deployed storage on industry standard servers. Dell used to be strong in the consumer business, and in the SMB market, which will not be buying much IT in the future because it will be buying cloud services. So, in order to stay competitive, Dell needs to move into the enterprise segment. EMC has incredibly good relationships within the enterprise, but its typical product line is getting old, and the revenue in traditional storage is shrinking. By buying EMC, Dell acquires the relationship with the enterprise that they need and can sell software-based storage using the relationships that EMC has already made with enterprise players. Looking at it in that way, the merger makes a lot of sense.

 

Chris Field, Technology Industry Analyst and MD of Fieldworks

You can’t help noticing that some of the media are saying this is like two drowning men hanging onto each other, and expecting to float to safety. It all depends on whether you believe that the Internet giants’ version of the truth will be the winner – that companies will increasingly buy their hardware and software and shun Oracle, IBM, Dell and EMC – or whether they can all co-exist and make money in the new Cloud world.

While I don’t really want a small handful of Internet players with virtual monopoly market positions to dictate the future of enterprise computing, I suspect they will be successful because they will do it more cheaply, with more scale, implement faster and generally give customers more flexibility. Who doesn’t welcome that?

 

William Fellows, Research Vice President, 451 Research

Though Dell has been on a path to build a 'better together' story for almost a decade, it clearly hasn't been enough. In its effort to buy its way out of the commodity PC business, the company stitched together a patchwork of properties. However, the resulting 'big picture' has still not materialized. Dell has lacked a core focus point, as well as the heft and scale in any one market to dominate. Further, it has so far not sufficiently penetrated the large enterprise segment, or moved beyond its two longtime key verticals of healthcare and the public sector. Against this backdrop, it's easy to see the attraction of EMC, which brings large enterprise credibility in storage, perhaps the industry's most focused and effective sales operation and, in VMware, still one of the most strategic entities on the market.

Read 451’s in-depth analysis [gated] of the Dell-EMC deal.


Also read:

Dell-EMC: What happens next and how will rivals respond?

Dell-EMC: The simple guide to a complex deal

Dell-EMC: An old-school coupling

Software at heart of Dell’s attempted renaissance

Accenture scales a luminous summit with Cloud Sherpas deal

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Kate Hoy

Kate Hoy is Editor of IDG Connect

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