Industry's biggest buyout leads to questions over reseller strategy Dell has agreed to buy EMC in a cash-and-stock deal valued at about $67bn. EMC shareholders will get $24.05 per share in cash as well as tracking stock linked to some of EMC's interest in VMware. The deal will probably close in mid-2016, but there remain many questions over future direction and prospects for the likes of VMware, VCE and both organisations' channels. IT Europa has been sounding out opinions on likely outcomes.
EMC has been looking for a future plan for a while with CEO Joe Tucci (below) looking to retire again, while Dell is flush with funds and free to make its own way after going private. Both organisations started with direct selling and were later converts to the channel, both professing indirect as the way forward and investing in channels in recent years. EMC once had a very profitable relationship with Dell, and some look back to this as an important indicator of cultural fit.
But both have been hardware-oriented, and while Dell has tried to diversify, and EMC has moved steadily into smaller units and markets, both are aimed mainly at enterprises. With this market moving increasingly to cloud, there is a danger that the only buyers in town will be the huge data-centres and global cloud hosters such as Google, Amazon and the like. And these companies do not buy from Dell, EMC or anyone like that; they have their own special servers built.
In many ways, the other remaining giants of the industry are facing the same position: HP, Oracle and IBM have also proved keen to supply cloud, but reluctant to move too quickly for fear of cannibalising existing sales.
So the channel position has to be one of wait and see; in a market where brand become less important, and open standards rule, does having a badge on a box from any of the big vendors still matter? It seems to in the PC market, where big brands have grown, but we're not so sure about boxes hidden in data-centres and software.
Leadership at the Global Technology Distribution Council (GTDC) responded favourably to Dell's planned acquisition of EMC, confirming that both companies rank among the fastest growing in distribution, but this was based mainly on their latest perfomance in the channel.
"Dell and EMC stand out as 'Rising Stars' in technology distribution," commented GTDC CEO Tim Curran. "Both of these powerhouses coming together can mean many advantages for the channel. Their successful partnerships speak for themselves. Dell has embraced distribution and the overall solution provider channel in ways that are literally unprecedented. We are optimistic about their planned future with EMC."
Victor Basta, managing partner at Magister Advisors, M&A advisors to the technology industry, was downbeat about a missed oportunity: “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 $67bn 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. Pure consolidation in 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, he says: 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 wreckless 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, he concluded.
On the VMware question, where EMC will still hold a controlling interest, the channel is also thinking longer term, says IT Europa. While there is still a lot of virtualisation to be sold, the emphasis and discussions seem to be moving onto containerisation, which ironically, is much easier for cloud and hybrid ways of working, but where open standards also seem to be winning. Virtualisation and VMware may have a limited shelf-life, say some. VMware's share price fell sharply this week.
And looking at previous grand mergers such as HP-Compaq, will this mean management in both companies slowing channel investment and drive for the next year or so, just as both had been building momentum? There is real channel concern here.
With the rise of new vendors without an installed base to protect and using cloud to give scale, the large technology companies are in a historically precarious position. Either they use their resources and R&D to forge ahead, or waste their time on the internals and reorganising management. Reviewing previous engagements and how long it takes to get back into gear, the channel may hedge its bets and increasingly look to other solutions in the mean-time.