Dell EMC Deal’s 1st Anniversary – Reasons for Celebration

By Charles King, Pund-IT, Inc.  September 6, 2017

How can you tell if a technology acquisition is a success? That’s not always easy to say, partly due to the inherent complexity of such transactions and the constantly changing nature of the industry. But you can boil down a few potential problem areas to examine and questions to consider, including:

  • Did the purchase cost more or delivered fewer benefits than anticipated?
  • Has it led to unexpected challenges for the involved organizations, their partners or customers?
  • Is there evidence of corporate friction—usually in the shape of significant downsizing or key executive departures?
  • Can the combined organizations pursue new business opportunities or capture additional value that the individual companies could not?

In the case of Dell’s purchase of EMC which closed on September 7, 2016, the answers appear to be largely if not entirely positive. That is a remarkable point given the deal’s size – at some $67B, it was nearly double the previous largest acquisition, HP’s 2001 purchase of Compaq for $33.6B (adjusted for inflation—it was $25B at the time). Given the broad pressures and uncertainties besetting the IT industry when Dell proposed the EMC deal, servicing the massive debt required to finance it seemed difficult if not impossible.

At the same time, while the two companies appeared highly compatible technologically, with minimal product overlaps, there were significant cultural differences. For many, EMC typified “old school” East Coast corporate thinking and tech firm performance. In contrast, Dell was and is a Western (though not West Coast), entrepreneurially-minded organization led by its visionary founder.

In other words, it was far easier to imagine the deal faltering or failing than achieving its remarkable aspirations. After all, hadn’t much smaller deals fallen flat on their face? HP alone, with its failed, massive deals for Compaq, EDS and Autonomy qualifies as a sort of trifecta for why making big IT bets is an inherently bad practice.

So a year after the fact, how is Dell EMC doing?

Dell at VMworld 2017

People celebrate anniversaries differently, but on the approach path to September 7th Michael Dell warmed-up by attending VMworld 2017 where he mixed informally with conference attendees, partners, media and analysts.

During a panel discussion with VMware CEO Pat Gelsinger, Dell was asked about the state of the merged companies and noted, “The biggest surprise is that we’ve had no surprises.” He also noted that “revenue synergies” between Dell and EMC  have arrived sooner than expected. Plus, both clients and partners are reacting positively to dealing with a company whose broad portfolio of end-to-end solutions addresses most or all their business technology needs.

As a result, Dell EMC is capturing more large-scale deals, often spanning a range of its integrated products and services. That’s also helping drive the company’s efforts in multi-cloud environments and emerging market opportunities, including the Internet of Things (IoT). Of the former, Dell noted that while “multi-cloud is the reality of the market,” customers continue to struggle with concerns about data security and related issues.

Dell EMC is already moving forcefully into the IoT space with its Edge Gateway offerings and new solutions, like the weatherproof “micro modular data centers” it previewed last October. Interestingly, the company is successfully leveraging innovations in other product lines, such as its ruggedized notebooks and tablets, in IoT solutions. Its OEM organization is also working with numerous partners on industry- and workplace-specific IoT offerings and services.

This is not to say that integrating Dell and EMC has proceeded perfectly. As Gelsinger quipped, “Getting everyone aligned around the wrong answer is not the right answer.” Dell noted that the company used “facts, logic and customer-orientation” to deal with issues, including revenue recognition and how customer engagements proceed. Given how critical those points are for Dell EMC’s salesforce members, some friction was bound to occur so it’s good that the company found ways to resolve them.

Some will say that Michael Dell’s comments qualify as little more than PR boilerplate that should be taken with more than a grain of salt. That’s a reasonable point, especially since the now privately-held Dell EMC’s finances are largely opaque. As a result, it’s worth considering how the company performed during the most recent quarter by considering rcent IDC announcements on worldwide (WW) server, storage and PC markets.

In WW server sales, Dell EMC ranked #2 (behind HPE) but was the only one of the Top 5 vendors to grow its revenues (by 4.7%) year over year (YoY). In WW storage, Dell EMC maintained its #1 standing in total enterprise storage system sales with a 21.5% market share and $2.3B in revenues. In WW PCs, the company placed third (behind HP and Lenovo) but increased shipments by 3.7% YoY and continued positive growth in every global region with strong notebook volumes.

Final analysis

So on the first anniversary of the IT industry’s largest – by far – corporate acquisition, how is Dell EMC doing?

Pretty darned good, overall. Though the combined company is naturally dealing with the same pressures (decreasing margins in PCs and increasing pressure from ODM-direct server and storage makers) as competitors, it has maintained its leadership positions and/or is gaining share and revenues. The company is also profiting from VMware’s continuing growth and success, and appears well-positioned to compete in new market opportunities, including multi-cloud environments and IoT.

Additionally, it’s worth noting that during what is typically a tumultuous post-acquisition period for most companies, many of Dell EMC’s competitors were weathering tumults of their own. In particular, HPE continues its slow-motion reorganization (or train wreck, depending on your viewpoint), and the recent revivification of PC markets has led to second-guessing about the wisdom of the company’s HP spinoff. IBM, Lenovo, Oracle and others are also undergoing transformations designed to enhance their business and pursuit of new markets.

While it’s never wise to assume competitors will make unforced errors, it is sensible to take advantage when they do. Dell EMC has certainly done that, and though the company’s first year of business has not been free of challenges, it has also succeeded and prospered during the process. If the past 12 months indicates what Dell EMC can achieve under substantial pressure, the coming year and years should be full of positive surprises.

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