Dell Technologies has officially brought top-tier storage vendor EMC and its federated businesses into the fold, 11 months after announcing the $60 billion-plus deal that will create a massive company that will compete across all segments of the enterprise IT landscape.
Dell closed the deal Sept. 7, a week after Chinese antitrust regulators gave their approval to the acquisition, removing the final barrier to merging the two companies. The acquisition creates a $74 billion company with 140,000 employees spread over 180 countries—including a 40,000-person sales force and 30,000 more in services—and with reach into everything from PCs and data center infrastructure to hybrid clouds, security, the internet of things (IoT) and virtualization.
It’s a company that has a combined annual R&D budget of $4.5 billion, 98 percent of the Fortune 500 organizations as customers and an extensive supply chain that will help drive efficiencies and allow Dell to compete in a broad range of market segments, according to Chairman and CEO Michael Dell. In a conference call with journalists and analysts, Dell noted the company’s capabilities to offer “seamless technology infrastructure from the edge [of the network] to the core to the cloud.”
The deal comes as the technology industry continues to undergo significant and rapid change driven by the rise of such emerging trends as cloud computing, data analytics, the proliferation of mobile devices, virtualization, the IoT, virtual and augmented reality, and artificial intelligence. At the same time, the global PC market has contracted over the past several years, infrastructure sales—such as servers and storage devices—continue to shift to cloud environments and organizations are increasingly embracing the idea of software-defined data centers.
Like other established vendors, Dell and EMC have been trying to quickly adapt to the new business realities while continuing to expand their traditional product portfolios. It’s a challenge Michael Dell addressed during an interview on CNBC.
“There’s no question the technology industry is characterized by these sort of changes, and companies have to adapt,” he said. “This is a change-or-die business. We absolutely know that and are prepared to change.”
Over the past several years, Dell has invested billions of dollars to buy companies and develop technologies to build out its capabilities in everything from the cloud to software to security. Over the last three years, the company has spent $12.37 billion in R&D, Michael Dell told CNBC.
The move to buy EMC and its associated companies—including VMware, Pivotal, RSA and Virtustream—marks a significantly different strategy than competitors are taking to address the changing tech landscape. Hewlett-Packard addressed the challenges by splitting in two in November 2015, creating Hewlett Packard Enterprise (HPE) for enterprise IT solutions and HP Inc., which sells PCs and printers. Since then, HPE has continued to restructure the company, including spinning out its services business and reportedly shopping around its software unit. IBM over the years has shed such commodity products as its x86 server business—which it sold to Lenovo for $2.1 billion—to grow the reach of its Power architecture and pursue such efforts as cognitive computing.
During the conference call, Michael Dell reiterated his belief that scale matters, adding that other vendors “are reacting to what we have done and that’s informing a lot of their strategies.”
An important part of the equation is being a private company, he said. Michael Dell and equity firm Silver Lake Partners took the company private in 2013 in a $25 billion buyout, and the CEO said the move has allowed Dell to be innovative and responsive to market shifts even as a large company. Dell officials no longer have to worry about shareholders or financial analysts when making decisions.
“We don’t have to cater to short-term thinking,” he said during the conference call. “We can think in decades.”
Still, because of the complexity of the EMC deal—particularly the fact that current EMC shareholders will have tracking stock for VMware shares—Dell will continue its recent practice of filing quarterly finance reports to the Securities and Exchange Commission (SEC). The most recent report was released the day before the deal closed, and shows Dell in the second quarter generating $13.1 billion in revenue—a 1 percent bump from the same period in 2015—and $752 million in operating income, a 32 percent increase. The company saw a loss from continuing operations of $264 million, better than the $292 million lost in the second quarter last year.
Dell Technologies Finally Closes Massive Deal for EMC
The new Dell will include the PC business—which will retain the Dell name—Dell EMC Infrastructure Group and Dell EMC Services. In addition, there will be other businesses—Boomi and SecureWorks from Dell and Pivotal, RSA and VMware from EMC. The company’s headquarters will remain in Round Rock, Texas, but the IT infrastructure business will be based in EMC’s hometown of Hopkinton, Mass.
Throughout the past 11 months, competitors like IBM and HPE have courted Dell and EMC customers, noting the potential disruption that will be caused by the integration of the two large companies and offering a safe haven for organizations that are worried about the deal.
Lenovo officials in a statement said the Dell and EMC deal “creates significant business opportunities for Lenovo” because data center customers “will face tough choices, not only about how to transform their data centers to capture the benefits of cloud computing and next-generation IT, but also about how to transition their current infrastructure with the integration of two complex product portfolios. We believe these customers will be open to new options.”
Charles King, principal analyst with Pund-IT, wrote in a research note that Dell is well-equipped to manage the integration challenges, and noted that the company has done well by ensuring that EMC executives—such as Howard Elias, Rohit Ghai, Jeremy Burton and Bill Scannel—are part of the new company. King compared it to HP’s $25 billion acquisition of Compaq more than a decade ago, when “following the deal’s closure scores of Compaq executives and managers were let go or forced out, and its product lines (outside of PCs) were decimated. By 2005, when CEO Carly Fiorina was finally ousted by HP’s board, Compaq had been largely subsumed and forgotten.”
He also said there is less product overlap between Dell and EMC than there was with HP and Compaq.
King also pushed back at competitors’ claims that customers and partners will be hurt by the complex integration of the two large companies, calling it “shallowly predictable fear, uncertainty and doubt (FUD) mischief that competitors attempt to stir up amidst customers unnerved by changing circumstances.”
He took particularly aim at HPE CEO Meg Whitman, calling her criticism of the deal “especially ironic” given her continued downsizing of “what was once one of the IT industry’s most stellar systems firms by stripping or spinning out various products, services and business units. HPE’s attempt at FUD is doubly ironic since Whitman’s broader strategy appears aimed at winnowing her company down to a size that would be attractive to private investors.”
Customers should be less concerned about Dell’s ability to integrate EMC into the business and ask themselves “whether they will be better served by a vendor that is working to strengthen and extend its innovative portfolios of solutions and services or by those that are selling off themselves a piece at a time,” King wrote.