The Wall $treet Journal carried a story last week about Dell Computer possibly buying EMC, the big storage vendor, and this morning the New York Times confirmed it, pinning a price of $65 billion on the deal. There’s a lot to wonder about in this combination, which I think is pretty brilliant on Dell’s part even if I’m not generally in favor of mega-mergers. But it seems to me most of the experts commenting on the deal have it ass-backwards as Wall Street once again proves it doesn’t really understand technology business.
EMC has this large but aging storage division and a valuable subsidiary in VMware, of which EMC owns 80 percent. Activist investors have been rumbling that EMC should spin-off VMware to EMC shareholders because that’s the best way to realize the value of the asset and share it tax-free. Michael Dell appears as something of a white knight except he is expected, too, to get rid of VMware to finance the deal. The only thing wrong with this picture is that all the people who want to spin-off or sell VMware don’t seem to realize that’s where the value of this EMC deal lies for Dell.
It’s as simple as this: if Dell owns VMWare everyone else who makes servers for VMWare will be contributing to Dell’s profits. If Dell chooses to get into the cloud, by owning VMWare they could become a powerhouse in the industry with a price advantage no one else can match. Most of the corporate world is on VMWare and that market needs a VMWare based cloud. It doesn’t exist today because of the software cost of VMWare. Dell could fix that…. but only for themselves.
And EMC is no slouch. They are a big maker of storage and are making inroads against IBM. They have a disk based backup (Data Domain) and IBM doesn’t. They have a great NAS product (Isilon) and IBM ended its partnership with NetApp. EMC will put Dell in many new corporations which could help their PC and server businesses, too.
The big loser in this is HP. IBM will be hurt, too, especially in the cloud and storage businesses.
The key differential between Dell and those other two companies is Dell is privately held and therefore immune to activist investors or — for that matter — any investors at all who aren’t Silver Lake Partners or Michael Dell, himself.
IBM’s storage products have been really constrained by the company’s now derailed quest for $20 EPS. IBM has neglected this business for years and it is hurting sales. EMC has under-invested in its business, too, because of Wall Street pressures. But Dell being privately owned changes that. This deal could be very good for EMC’s products and very bad for IBM’s.
Ironically, both IBM and HP could have bought EMC but walked away. Big mistakes.
Whoever owns VMWare next could control and own the future of the cloud.
The way I am writing suggests the deal isn’t sealed and something could still happen to take EMC away from Dell. That would be smart. Several companies would be wise to try grabbing EMC away from Dell but I don’t think that will happen.
What if a Chinese or Indian firm stepped in and bought EMC? The USA has already pretty much screwed up its IT industry. If ownership of EMC left the USA that could be the tipping point where the USA loses its position in the technology part of IT. It would be like the electronics industry in the 1960’s when everything went to Asia.
It is interesting to hear all the financial press chatter on this story. They’re still following the default thinking — buy EMC, spin off and sell VMWare to make the acquisition better financially. They’re even discussing how to do it with the least tax implications. What they are not thinking about is the possibility of a bidding war for VMWare. It is equally likely someone would buy the whole company and spin off EMC.
Next column: Now what will Dell do with EMC?
Just to clarify, Bob, when you say “activist” investors, you really mean “corporate raider” investors, yes? That is, investors who only look out for maximum profitability, fundamental business factors be damned. In fact, now that I think further on it, I think they could be named “anti”-investors, as they’re concentrating on their own profit, not the strength of the company they’re buying into. Someone should write a column…
KS Augustin, He does mean “Activist Investor”. These are people who have an opinion of what a company should be doing or not doing. An Activist Investor might not even have profit/money as a motive.
I should really learn to use that “/sarcasm” tag more often…
I call them Stock Trolls (like Patent Trolls)…
VMware is old tech that I’ve used for far too many years. Proxmox is better.
It’s not about old or new tech. VMware is fully entrenched in the Enterprise and is growing there. A Dell, EMC, VMware integrated appliance would be a powerful private cloud product.
Envision this — big Dell data center with lots of VMWare systems and EMC storage. Corporations link to it and replicate their business data and VM’s. They extend their storage and VMWare clusters. Need more cheap capacity? Need a DR? Need to get out of the data center business? Using the rock solid features of VMWare many things become possible.
that already exists with many servicers. called the cloud, enterprise solutions, maintenance, lots of line items. sign on all of them and you have it.
as for Wall Street, they don’t get and won’t get and never will have a clue about tech. the so-called wizards only know companies as merge and divest objects, highly leveraged of course, with every third item in the contracts a place to steal money for doing nothing.
You completely missed the point of the article. How many cloud service providers do you know offer VMWare as the hypervisor?
.
Bringing VMWare to a major cloud service would be disruptive to the market, a game changer. It hasn’t happened yet because of VMWare licensing costs. However a new owner of VMWare could change that.
.
If the existing big cloud providers are not making a serious bid to Dell for VMWare, they’re stupid.
Dell already has a cloud offering, although obscure; and my company uses VMware vCloud as the basis of our IAAS cloud offering. We are currently using Cisco UCS gear, which I personally hate due to the complicated configuration as opposed to our HP Blade systems. An integrated Dell solution could be a compelling option. They have some very cool products in the mini chassis space and in storage. I still prefer HP for their architecture and support, but Dell is getting their. They have also amassed quite an arsenal of enterprise software, like the Quest products, that are best in class. As long as they don’t sacrifice EMC support in pursuit of paying for the company, it’s probably the genius stroke that finally puts them comfortably ahead of HP and IBM.
I too laugh at the idea of spinning off vmware to pay for this. Why would you sell the future to pay for the present?
A VMWare cloud could be interesting, but most the industry has moved onto Docker. Granted we use VMWare instances as the containers. VMWare knows this and has been working on making vmware the best choice for docker.
I’d love to see demcll come up with a service to get all those huge centera’s (and the like’s) dataset into the cloud for you, for free (to make $ on the monthly fees) and have that data ready for you to consume in your new demcll virtual cloud. One of the hardest parts of getting those enterprise systems out of the private data center into the cloud is that huge anchor of data on the backend. They should leverage that anchors weight and tie them to the demcll cloud just like they were tied to their data center the last decade.
This is funny. I work for a large hospital group in Northern Burbs of Chicago. We use hundreds of HP x86 servers. Storage is all IBM. But – we also have a large VMWare installation as well as Data Domain and Isilon. Basically every vendor Bob mentioned is in our Data Center(s) in a big way.
This deal is real mismatch of business models and channels the history of mega mergers in tech is littered with disasters. I can remember Micheal Dell banging a desk and roaring that accusation was not the successful route to expansion and he listed off a list of bad tech marriages to prove it .That was when Dell where venturing into the printer market in an effort to disrupt the HP ink cash cow at the time. . I wonder was it the case that Cisco could see this merger coming last year maybe this is why they ran away from their VCE joint venture .
on the 15th Cisco will buy Dell. on the 23rd, Apple will buy Cisco. on the 25th, IBM will buy American Apparel out of bankruptcy in hopes spiffy T-shirts will turn their spiral around. on Novermber 5th, Heathkit will buy IBM. after all, Heathkit is back with a $150 TRF radio.
if there is money running loose and weasels looking for a bonus pool bump, any silly thing makes sense. I have probably started the next gold rush in tech right here. silly or not, somebody will talk about it at the club.
https://www.kb6nu.com/a-new-heathkit-so-why-am-i-not-excited/
I used VMWare for six or seven years, then gave up in frustration and went to VirtualBox a few years ago.
VMWare typically lagged several revisions behind the Linux kernel, and often required patching the OS source and recompiling to make it work… if they even bothered with a patch for that kernel.
Not that VirtualBox is entirely trouble-free, but its quirks are much smaller and more easily dealt with than running on the VMWare hamster wheel.
Virtual server clusters require storage requisition systems. EMC storage products provide the storage configurations required by VMware virtual servers.
I think this is a brilliant move by Dell. And I totally agree that spinning off VMWare is a dumb idea. It’s more likely that VMWare is the jewel that Dell wants.
Relatedly, Bob, i’d like your take on the ramifications of the EU court ruling which judged the US-EU safe haven to be void.
You’d think this would have a major impact on the cloud.
One thing you have to admit – this is a great move by Michael Dell. The PC hardware business is a sick horse on its dying legs. They are commodities pure and simple. I really like the huge investment. If you are going to war, get cannons, not pistols. HP and IBM have already lost the race. I want to see how he goes up against Amazon.
We shall see….
“Potentially” a great deal for Dell. I agree, VMware is critical.
The EMC storage stuff is strategic, the security stuff is a major bonus The problem is, they can’t actually execute. No matter what they do – acquisitions, privatize, etc, the only thing in their heads is how to ship more PC’s. From the outside it looks promising, but I’ve seen it from the inside.
FINALLY a smart comment. Dell has typically been weak in enterprise servers. Low quality servers, not capable of heavy lifting. Not much engineering goes into them. Really just glorified PCs. Typically mated with re-branded EMC storage from EMCs obsolete models.
–
The cloud business is not likely to be profitable — too commoditized. But it does sell servers. Lots of them.
–
This merger could get them back in the game for high end servers. They will have to do a lot more engineering of the kind that HP does. They will have to add vmware as a cheap inducement to sell clouds.
–
Will they succeed? Probably not. I don’t see much execution ability in Dell. Being bigger doesn’t help with that.
Can’t dispute this analysis but hanging onto the VMW position would sure run counter to Silver Lake’s previous track record?
(For spinning off a software company at or near the peak of it’s valuation, selling the newly private company’s fat equity position in same and thus getting an iconic hardware company almost for free out of the deal.)
See Veritas/Seagate in 2001. The deal made several people Billionaires, I think, and even the ownership ratios are eerily similar too.
When you say What will Dell do, is it going to be filled with wacky predictions like your Apple columns?
[…] my last column I wrote that Dell buying EMC is a great idea (for Dell) and left it to this column to more fully […]
https://www.nesekmek.com/ olarak tebrik eder yazılarınızın devamını dileriz.
Agree. Dell got a great deal.
Kadınların vazgeçilmez tutkusudur anne olmak! Anne olma yolunda katettiği yol ve sabır ile gebelik haftalarını geçiren anne adayları için, Gebelik Hesaplama ve jinekoloji konularında size yardımcı olacak tek adres: http://jinekolojivedogum.com
Çizmeye başlamak ilginç ve bazen de yıldırıcı bir iştir. Giderek yeteneklerinizi geliştirerek çizim alanına ilginizi arttırabilirsiniz. Bakırköy resim kursu olarak yüzlerce çeşit çizim tekniğini sizlerle paylaşarak çizim alanında ilginizin arttmasına resim kursu muz ayrıcalıkları eşlik etmekteyiz. Gerek duvar sanatı olsun gerekse karakalemi, yağlı boya, kuru boya gibi alanlarda sizlerin gelişimine olanak sağlamaktayız.
http://ruyaavcisi.com/
Vita Şişli Tercüme Bürosu , başta İngilizce tercüme, Almanca tercüme, Fransızca tercüme, Rusça tercüme ve Arapça tercüme olmak üzere tüm dünya dillerinde tercüme hizmeti veren bir bürodur. Vita Tercüme olarak, etik, profesyonel ve hızlı çeviri hizmetimizle siz müşterilerimizin memnuniyetini esas alırız. Tercüme bir sanat olduğundan , her dil bilenin tercüme yapması söz konusu değildir. Bu nedenle, Vita Şişli Tercüme olarak alanında uzman ve profesyonel kadromuzla tüm çeviri ihtiyacınızı karşılamaya hazırız.Basit belge çevirilerinden, edebi ve sanatsal tecümelere, noter tasdikli resmi belge çevirilerine, teknik çevirilere ve yerelleştirmeye kadar çok çeşitli alanlarda Vita Tercüme Bürosunu tercih edebilirsiniz.
https://www.vitatercume.com/