Dell on Monday announced it would acquire EMC in a deal valued at $67 billion, maintaining VMware as a publicly traded company.
EMC shareholders will get $24.05 per share in cash, as well as 0.111 shares of new tracking stock per share of EMC linked to the company’s economic interest in the VMware business.
EMC owns 80 percent of VMware.
VMware share prices fell when the deal was announced, and there’s speculation that VMware users are getting a raw deal, as VMware sales are expected to grow strongly. However, that may not necessarily be the case.
Competition from the cloud could be a major threat, suggested Andreas Scherer, managing partner at Salto Partners, as Dell and EMC are viewed as old-world companies.
“It feels like the marriage of a couple that met in a retirement home, and the groom is clearing out his 401K and selling off his assets to pay for the wedding,” he remarked.
The Cloud Factor
The merger “consolidates the market, allowing the combined company to become more efficient and profitable in the long run,” Scherer told the E-Commerce Times.
However, “more and more businesses are moving towards cloud solutions, eliminating the need for in-house data storage solutions,” he pointed out, so “even a combined Dell and EMC doesn’t have a compelling growth story facing these market dynamics.”
Companies are closing down data centers and moving to the cloud. GE will reduce its current 34 data centers to four within three to five years, and it already has moved 50 percent of its oil and gas business workloads onto Amazon’s AWS, Trip Chowdhry, managing director at Global Equities Research, said in a note to investors.
Capital One will slash its eight data centers to three by 2018.
“Our research indicates more workloads are going into Azure and the AWS clouds,” Chowdhry told the E-Commerce Times.
Further, almost 30 percent of businesses are deploying IoT, according to Strategy Analytics, and that creates even more demand for cloud storage.
The move to the cloud will affect VMware as well — slashing its total available market by 80 percent — and Pivotal, created jointly by EMC and VMware, is headed for total failure, Chowdhry predicted.
Dell, EMC and VMware “are yesterday’s companies,” he said. “They can’t grow.”
Short-Term Gain but Long-Term Pain
The market for traditional storage “is still enormous,” said Andres Rodriguez, CEO at Nasuni.
Dell-EMC “will find enough synergies to make plenty of money and margin for the short term,” he told the E-Commerce Times, but “it’s clear that the future of storage is the cloud.”
Data is growing at about 40 percent annually. The traditional three-year buying cycle for big iron storage “just doesn’t work, because IT either has to buy more than twice as much storage as it actually needs up front, or it will have to buy additional storage just 18 months later,” Rodriguez pointed out.
Meanwhile, many of the largest VARs and resellers see Dell as their primary competitor, and that “poses a conundrum for EMC, because they depend on the channel to sell their mid-range equipment,” he added.
The channel might not be willing to continue selling EMC in the future.
Light at the End of the Tunnel
The situation might not be quite as bleak as painted, because both Dell and EMC “have decided to sell into the cloud — not compete with it, like IBM is doing with SoftLayer,” noted Rob Enderle, principal analyst at the Enderle Group.
Dell resells Azure, he noted.
“With the right mix of technologies, Dell could become a kingmaker for the cloud vendors that use them and, with increasing reports of outages by the major cloud vendors, moving to a more robust branded solution should become more attractive,” Enderle told the E-Commerce Times.
Companies supplying public cloud operators with hardware, software and data center facilities made $10 billion in quarterly revenues in Q2, according to Synergy Research Group. Dell, Cisco, HP, IBM and Equinix had the biggest share of these revenues.
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Every conversation about "the Cloud" begs the question about high-altitude electromagnetic pulse risk-mitigation. I suspect that if Dell-EMC were to publibly pursue options to simplify hardening their technology, they (we) would benefit.