By Charles King, Pund-IT, Inc. September 7, 2016
The formal closure of Dell’s purchase of EMC ties a finishing bow around a package effectively sealed weeks ago. Some industry watchers cautioned that the lengthy approval process by China’s Ministry of Commerce (MOFCOM) could stymie or even derail the plan. However, that seemed unlikely for a number of reasons, especially considering Dell’s years of efforts in the country, including its support and promotion of Chinese manufacturing partners.
In any case, the largest acquisition in the history of the IT industry is done, so what happens next? A few final details will be sorted out. EMC investors will receive $24.05 per share in cash, along with a new tracking stock (which will trade on the NYSE under the symbol DVMT) linked to EMC’s interest in VMware; receiving approximately 0.111 shares of DVMT for each EMC share they held. After the close of trading on September 7, Kraft Heinz will replace EMC in the S&P 100, and Charter Communications will replace EMC in the S&P 500.
Then the real work begins, along with the fun of integrating and building a new organization from two of the IT industry’s preeminent vendors. Let’s consider that process, along with how the new company will eventually appear.
Evolving Dell Technologies
As announced on May 2, 2016, the first day of EMC World, the combined organization will be renamed Dell Technologies and led by CEO and chairman, Michael Dell. The company will be organized into an operations and Client Solutions group led by Dell president and vice chairman, Jeff Clarke, and an Infrastructure group led by David Goulden, formerly CEO of EMC’s Information Infrastructure organization.
The “cross-fertilization” of executives doesn’t stop at the very top of Dell Technologies but instead extends throughout its senior leadership. Those from Dell’s side include Rory Read (chief integration officer), Marius Haas (president and chief commercial officer), Karen Quintos (chief customer officer), Steve Price (chief human relations officer), Rich Rothberg (general counsel) and Tom Sweet (chief financial officer).
Long time senior EMC executives on the team include Howard Elias (services), Bill Scannel (enterprise sales), Rodney Rogers (chief executive officer, Virtustream), Amit Yoran (president, RSA), Rohit Ghai (president, Enterprise Content Division) and Jeremy Burton (chief marketing officer).
In addition, Dell Technologies will be enriched by the experienced chief executive officers leading its strategically aligned businesses: Pat Gelsinger (VMware), Rob Mee (Pivotal) and Mike Cote (SecureWorks).
Comparisons with past deals
These are all talented executives with decades of success among them, making their appointments completely sensible. But Dell’s willingness to include so many EMC leaders in positions of deep responsibility demonstrates that this deal is likely to proceed in a singular fashion compared to many past IT industry acquisitions. Why so? As an example, contrast Dell/EMC with IT’s prior “biggest deal”—HP’s 2002 purchase of Compaq.
HP talked a great game of fully integrating Compaq’s leadership and innovative products, not just its PC assets which allowed HP to avoid being eclipsed by Dell. However, in the weeks and months following the deal’s closure scores of Compaq executives and managers were let go or forced out, and its product lines (outside of PCs) were decimated. By 2005, when CEO Carly Fiorina was finally ousted by HP’s board, Compaq had been largely subsumed and forgotten.
That sort of outcome seems highly unlikely in the Dell/EMC deal. For one thing, Dell fully recognizes the brand and market value EMC has built among tens of thousands of enterprise customers since its 1979 founding. Eroding that in any way would be a foolish waste of intellectual capital and good will which aren’t practices ever associated with Michael Dell.
There is also far less overlap between the two companies’ portfolios than there was in HP/Compaq and other tactically-focused acquisitions designed to solve narrow, short term problems. In essence, EMC provides a broad range of assets Dell needs to complete its transformation into a market leading, desktop-to-datacenter- and-cloud enterprise systems vendor; a vision Michael Dell has pursued since his return to the company’s CEO position in 2007.
There is clearly more work to be done and the new leadership is well suited to the task. Dell’s recognition of what EMC’s human and intellectual capital will contribute to the process is clearly reflected in the organization it is pursuing and the executive corps it has assembled.
What comes next
What sort of market presence can customers and partners expect from Dell Technologies? Practically speaking, purchasing EMC provides Dell the solutions, services, assets and experience and personnel required to successfully engage a wide range of private and public sector customers and commercial opportunities. Consider the combined sales rankings of Dell and EMC (including its 80% share of VMware) solutions according to recent market research conducted by IDC:
- #1 in U.S. PC sales (#3WW)
- #1 in WW PC monitors
- #2 in WW x86 servers
- #1 in WW x86 virtualization/virtual machines software
- #1 in WW cloud systems/systems management software
- #1 in WW enterprise storage systems (combines entry level, mid-range and high end)
- #1 WW scale-out NAS
- #1 WW scale-out object storage
- #1 WW all-Flash arrays
- #1 WW hybrid Flash arrays
- #1 WW open SAN
- #1 WW NAS
- #1 in purpose-built backup appliances
- #1 in storage software
- #1 in cloud IT infrastructure
- #1 in integrated systems
- #1 in data center automation software
- #1 in enterprise mobility management software
Plus, the companies’ integrated solutions and services portfolios will allow it to comprehensively pursue rapidly expanding markets and sales opportunities, including hybrid cloud and converged infrastructure. By virtually any measure, Dell Technologies is starting its life in an excellent position.
Despite these impressive rankings, the deal is not without critics who generally fall into three camps:
- Those who say that despite their individual strengths, the combination of Dell and EMC will inevitably fail due to IT marketplace shifts, including continuing commoditization and the eventual dominance of cloud computing services,
- Others who suggest that the amount of debt required to finance the deal will effectively cripple the new company, and
- Some, including competitors like HPE, who claim the complexities of integrating two vastly dissimilar companies will injure customers and strategic partners.
Let’s consider these in turn. In the first case, commoditization and the emergence of new computing and use case scenarios have always been parts of the IT industry. In fact, Dell’s earliest successes and much of what followed resulted from the company synergistically leveraging commodity components and supply chain processes far more effectively than its competitors.
Both Dell and EMC have proactively adapted to industry and marketplace changes, and remained solidly profitable while doing so. But those successes did not inspire much enthusiasm among easily distracted, headline-chasing investors. Going private in 2013 allowed Dell to fully focus its assets and acumen on successfully completing its transformation. EMC’s innovation and billions in earnings to the mix will substantially speed and enhance that process, not harm it.
In the second, yes, Michael Dell and his investors have secured a notable amount of debt to finance the acquisition of EMC. In fact, it’s arguable that the deal likely would not have been pursued were it not for an historically low interest rate environment which works in the deal’s favor. In any case, the combined assets of Dell Technologies, and the long time profitability of its two component organizations suggest that Dell and company will not face significant, let alone insurmountable problems servicing their accrued debt.
The final claims are little more than the shallowly predictable fear, uncertainty and doubt (FUD) mischief that competitors attempt to stir up amidst customers unnerved by changing circumstances. However, it’s especially ironic in the case of HPE whose CEO Meg Whitman has radically downsized what was once one of the IT industry’s most stellar systems firms by stripping or spinning out various products, services and business units. HPE’s attempt at FUD is doubly ironic since Whitman’s broader strategy appears aimed at winnowing her company down to a size that would be attractive to private investors.
The question enterprise customers should be asking themselves isn’t whether Dell Technologies can successfully complete a highly complex acquisition and integration process—something the company has done time and again since Michael Dell returned as CEO. It’s whether they will be better served by a vendor that is working to strengthen and extend its innovative portfolios of solutions and services or by those that are selling off themselves a piece at a time.
Now that the financial, investor, media and regulatory dust has settled and Dell’s acquisition of EMC is complete, it’s time to give Michael Dell his due. He hasn’t just been remarkably successful in business; he’s done it by taking difficult, often counterintuitive paths and proving naysayers wrong time and again.
It happened in 1984 when Dell left his pre-med studies at UT Austin to see if he could turn his PC customizing service into a real business (he sold $180k worth of products during his first month). It happened when he shifted ordering processes to the phone, then moved to Internet-based direct sales while competitors like IBM, HP and Compaq continued to focus on bricks and mortar retailers, achieving massive revenue spikes with each effort.
It happened again in 2007 when he resumed the CEO position at Dell and began transforming the company from a PC powerhouse into an end-to-end systems vendor. And again in January 2013 when Dell and the company’s board announced a leveraged buyout plan to take the company private, a deal that closed in October of that year. Finally, it happened last October when Dell announced its $67B buyout of EMC.
Given that history, the innovative solutions and services that the two companies bring together and the quality of the leadership team Michael Dell has assembled, Dell Technologies looks like a winner on a global scale.
© 2016 Pund-IT, Inc. All rights reserved.