Dell to Buy EMC for $67 Billion in Enterprise Push
At the same time, demand for storage increasingly is being driven by hyperscale cloud players like Google, Facebook and Amazon, organizations that tend to look for lots of low-cost data center resources, which cuts against the grain of the high-priced enterprise systems that made EMC a wealthy company. The hyperscale companies "only want the barest of storage [appliances], and they want lots of them," Endpoint's Kay said. "Given the proliferation of bits [of data], there's got to be some place to put them all." That place is increasingly the cloud. The deal with Dell opens up opportunities for EMC, according to Patrick Moorhead, principal analyst with Moor Insights and Strategy. The company—which reportedly over the past year or so has talked with HP and IBM about being acquired by them—has partnered with such server vendors as Lenovo and Cisco Systems, but such partnerships have not given EMC the reach it needs to expand its position in the data center. Dell is the world's second-largest server maker, and now when Dell is talking to potential customers about servers, EMC will be part of those conversations on the storage side. For Dell, buying EMC enables it to further expand its reach beyond small and midsize businesses (SMBs) and the midmarket and into larger enterprises, and grows its capabilities in data storage. At the same time, both EMC and VMware bring in a lot of money, which will help Dell—which went private in a $24.8 billion buyout in 2013—to pay down even more of its debt.For all its complexities, the Dell-EMC merger is about storage—how Dell can grow its storage capabilities and how EMC can find new business opportunities for its portfolio, he said. "Everything else is secondary," Moorhead said. During the conference call, Michael Dell, Tucci and other executives talked a lot about the compatibility of a wide range of their businesses—such as security, with EMC's RSA business and such Dell units as SecureWorks—and the savings the combined company will bring in terms of sales and operations. The officials did not delve too deeply into details, though Michael Dell said his company's server business will be folded into EMC's data center operations to create a $30 billion business that will be based at EMC's Hopkinton, Mass., headquarters. Michael Dell also said he has "great respect" for EMC's federated business model—which, in units like VMware, VCE, Pivotal and RSA, operate as cooperating and sometimes competing businesses. While Dell plans to keep that model, Moorhead said he is unsure whether that type of model can hold together within the combined company, and how EMC's relationships with Lenovo, Cisco and others will play out after the deal closes. Relations inside the combined company also will be a challenge, Kay said. As with any merger—particularly one of this size—meshing not only the product portfolios but the employee roles and corporate culture takes time and work, he said. However, as far as products are concerned, the deal is a better fit than other massive mergers, such as HP's $25 billion acquisition of Compaq Computers in 2001, which involved two companies with significant overlaps in offerings. Kay noted that one of the disagreements that led to Kevin Rollins leaving as Dell's CEO in 2007 and Michael Dell's returning to the position after three years away was Rollins' desire to have the company buy EMC. Michael Dell didn't want to do it then because he saw EMC at the time as an old-school "big iron" company, he said.
"EMC had to do something," Moorhead told eWEEK. "I think Dell got EMC at the lowest conceivable price. For Dell, they see the ability to pay down debt, because EMC and VMware are both cash companies."