EMC and Dell: Best or Worst Idea of the Century?

puzzle pieces

The upcoming EMC/Dell merger is huge and highly complex, and no one can be certain what will happen – including EMC and Dell. That hasn’t stopped the industry from weighing in on the big news.

Acquisitions run the gamut of failure and success, with gradations in both. For example, success isn’t always about successfully merging the acquired company with their buyer. Sometimes the acquisition happens because the acquiring company wants a particular product line or technology sub-segment and is willing to let the rest go. Sometimes that’s not they want at all: they want to let the acquired product die a natural death by ceasing to develop it. (Sometimes the company will even let it die an unnatural death by refusing to sell or support it.)

Failure too is not often straightforward: even the HP/Compaq merger, which destroyed Compaq and deeply damaged HP, resulted in some value for HP.  And HP managed to survive, even thrive.

What about EMC and HP? No acquisition is perfectly executed, certainly not on this scale. The fundamental question is: how much value does it create and for whom? The stakeholders in the deal are numerous: employees, customers and shareholders of both companies. What benefits one of these groups may not benefit another, with massive layoffs an example of a move that might benefit shareholders but will deeply damage employees.

Arun Taneja offered one of the more insightful analyses in his post “Dell Buys EMC—Now What?” Taneja has worked with EMC and Dell as an analyst and consultant for decades. He wrote, “In spite of statements that it is all done for the benefit of customers, more often than not such transactions are done to stem a decline, to fight for survival or to expand into new segments of the market.” Joe Tucci and Michael Dell did not engineer a massive merger simply because of “customer benefit.” That would have been a factor or the merger cannot succeed but there is much more to it than that.

EMC’s larger enterprise expertise fills out Dell’s SMB and mid-sized company success. Both companies have tried to add the missing tiers to their product lines but haven’t gone very far: EMC tries to reach mid-size and occasionally succeeds while Dell has some enterprises under its belt but it widely considered a mid-sized company. The merger will help to fill in those gaps.

EMC also missed a server product line. This is not necessarily a bad thing — EMC is a storage vendor and they partnered with server makers. However, what they could not do is manufacture a converged or hyper-converged offering without a server partner like Cisco, which is getting increasingly sensitive as Cisco made competitive moves against EMC. With Dell servers, EMC is in a better competitive position for hyperconverged offerings.

Dell is also doing the right thing with VMware by acquiring EMC’s major stake in VMware but keeping it independent. This is quite similar to what EMC did when they acquired VMware; they publicly and privately asserted that VMware would remain independent in its development and continue to serve the entire virtualization market. EMC kept that promise and it looks like Dell will do so as well. Michael Dell personally called 12-14 of VMware’s biggest users and his largest competitors to reassure them that this would be the case.

There are, of course, cautions ahead. Massive layoffs are near-certain to happen, especially in the overlapping storage and data protection lines. Product deaths will also occur. Nor does either company have a public cloud offering and are losing some data center business to cloud competitors. And the size and complexity of the merger, which will not officially happen until 2016, will let major competitors like HP and IBM move ahead, and let smaller competitors make real progress in customer companies that are nervous to spend money with Dell and EMC.

Let’s end with Arun Taneja’s closing thought: “I think Tucci is happy to leave EMC in good hands and call it a day. This is as much about changing of the guards as anything else, as I see it. Michael Dell has a big task ahead. I wish him lots of luck.”

So do I.