Why a Dell, EMC Merger Would Be Awash in Irony

By Chris Preimesberger  |  Posted 2015-10-08 Print this article Print

NEWS ANALYSIS: Could this be a desperation move between two legacy tech companies, like Microsoft-Nokia? Maybe, maybe not.

Dell and EMC apparently are in merger talks, according to an Oct. 8 report in The Wall Street Journal. It's early, and who knows yet what will happen.

Dell has been reported to be talking to banks so it can raise $40 billion. That's a lot for a $25 billion company.

We know what you're thinking: Could this be a desperation move between two legacy tech companies, like Microsoft-Nokia? Probably not. These are two already successful companies; Nokia was flailing at the time it was bought by Microsoft.

If EMC+Dell doesn't take place, then no harm, no foul. Life will go on. But if it does happen, it would result in one of the largest mergers in tech history.

Reasons why it might happen:

--Dell wants VMware, owned by EMC. Thirty-five percent of EMC's $52.55 billion market cap (or about $18.3 billion) belongs to VMware alone.

--Dell also wants Pivotal to add to its growing Dell Software division. Pivotal is one of the most promising young software companies out there.

--EMC wants to stay intact, no matter what.

--Both companies need help right now against an onslaught of younger, imaginative, fast-moving newcomers in cloud storage, cloud computing, security and a number of other sectors. When lots of piranhas are constantly biting at a bigger but slower target, eventually they will consume it. EMC and Dell joining forces at this time would fortify themselves for a longer period against these adversaries.

--Both are veteran, been-through-the-wars companies that once owned their respective markets (EMC in storage, and Dell in PCs). Actually, EMC is still the global storage hardware leader, but with the advent of cloud infrastructure and a long list of new-gen competitors, sales have leveled off in the last two years and the big ship is listing. Dell remains in the world's top 3 in terms of selling desktop and laptop PCs. So both companies aren't exactly destitute.

One of World's Largest Tech Companies Could Result

The merger of these two giants would result in one huge—and unwieldy—corporation. It would entail Dell, EMC, VMware, RSA Security, Pivotal, Documentum and a bunch of smaller entities within the same corporate garden.

Reasons why it may not happen:

--C-suite ego issues.

--SEC thinking it might be too big.

--Too costly for Dell. It could cost $40 billion, give or take a few hundred million dollars. Remember, Michael Dell and his financial backers bought the company back for $25 billion two years ago.

--EMC finds another suitor. The storage giant is the needier of the two at this point.

Don't get us wrong. Both companies are profitable, though laden with debt ($11 billion for Dell). These two are looking squarely to the future.

Relationship Is a Complicated One

If this deal eventually does come to fruition, the irony will be astounding.

From 2003 to 2011, EMC and Dell were partners selling data center hardware. It was a mutually beneficial relationship, because with the combination of Dell servers (plus some lower-end storage) and EMC storage, almost any customer could be served.

Then, in 2007, with his company stagnating financially, Michael Dell returned to retake his CEO job from Kevin Rollins. One of the first things Dell did was to buy two smaller but progressive storage companies: EqualLogic in 2007 and Compellent in 2010. They made good products; these turned out to be deals that eventually were going to make reselling another company's arrays redundant—especially in the low-margin IT hardware business.

As one might imagine, EMC wasn't particularly pleased at this development, since Dell was one of its largest resellers. A disagreement between two powerful and headstrong men—Dell and EMC CEO Joe Tucci—ensued. The result was the dissolution of the 10-year agreement, two years shy of completion in 2011.

There was great acrimony in 2011 when they broke their contract and bid each other adieu—and probably not in a nice way. Now they are looking at living together under the same roof again.

Just another lesson in why one should never burn a bridge; you never know with whom you might have to work in the future.

Oct. 8 is merely Day 1 of the EMC-Dell watch here at eWEEK. We'll keep you up to date.


Chris Preimesberger

Chris Preimesberger is Editor of Features & Analysis at eWEEK. Twitter: @editingwhiz
Join us for our next eWEEKChat Oct. 14: "Can They Pivot: Huge Challenges Facing Legacy IT Companies."


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