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Dell will become a debt-ridden company overwhelmed by the multiple challenges of integrating two massive tech vendors after it completes its $67 billion acquisition of EMC, the world’s top storage technology maker, according to Hewlett-Packard CEO Meg Whitman.
The result will be confusion among customers and channel partners, and an opportunity for Hewlett-Packard Enterprise, one of two companies that will be created next month when the company officially breaks in two, Whitman said in an email to employees Oct. 12.
The email was sent only hours after Dell CEO Michael Dell and EMC Chairman and President Joe Tucci announced the deal, which is expected to close in mid-2016.
“This [Dell-EMC deal] is validation for the strategy that we have laid out and I am not surprised that others would try to emulate it,” Whitman wrote in the email. “But, the reality is that we are two years ahead of the game and it will be difficult for others to catch up.”
Dell’s bid for EMC represents that largest acquisition ever in the tech industry and should give Dell a significant boost in its efforts to build out a top-tier enterprise IT solutions and services business that can compete with the likes of HP and IBM. Michael Dell noted during a conference call with journalists and analysts that his company has a strong presence in the small and midsize business (SMB) and midmarket spaces and that EMC will bring with it enterprise expertise, particularly in the storage market.
In addition, the deal will bring VMware and other assets to Dell, including RSA, Pivotal and VCE, all parts of EMC’s federation business model. Dell may look to sell some of those assets as it looks to pay down its debts, to which the EMC deal could add $50 billion.
That debt and the integration challenges will make life difficult for Dell, Whitman said, noting that to pay the interest alone on the $50 billion of debt will account for about $2.5 billion a year.
“That’s $2.5 billion that they will allocate away from R&D and other business critical activities, which will keep them from better serving their customers,” Whitman wrote. In addition, “integrating EMC and Dell, which combined have more than $75 billion in revenue and nearly 200,000 employees, is no small feat. This will be a massive undertaking and an enormous distraction for employees and their management team as two very different cultures come together, leadership teams shift and an entirely new strategy is developed.”
Industry analysts are saying the meshing of people, products and corporate culture will not be easy, and that being able to retain key talent will be important.
“The $67B size of the Dell/EMC deal mirrors some of the complexities the two companies face, but the fact that they have worked together closely in the past and share many mutual partners should help to mitigate some challenges,” Charles King, principal analyst with Pund-IT, wrote in a research note. “Over the past decade, EMC has built one of the deepest management/executive teams in any industry. Many of those men and women are probably wondering what a future at Dell holds, so engaging and assuring them about their value to the combined companies is a critical task.”
Roger Kay, principal analyst with Endpoint Technologies Associates, told eWEEK that with such large a merger, “they will have about two years to see if they can make it work.”
All that work will distract the combined company from being able to serve its customers and channel partners, HP’s Whitman wrote.
“Customers simply will not know if the products they are buying today from either company will be supported in 18 months,” she wrote, adding that “this move is going to cause chaos in the channel as they bring together two different programs and approaches.”
Whitman’s email shouldn’t be surprising. It’s a time-honored tradition in the tech industry to view significant transitions within competitors as opportunities for themselves. Dell rivals made similar statements during Michael Dell’s months-long—and ultimately successful—$25 billion bid in 2013 to buy his company and take it public, and HP took shots at Lenovo in early 2014 when it bought IBM’s x86 server business for $2.1 billion.
Later last year, both Dell and Lenovo went after HP after Whitman announced plans to break the company in two, creating Hewlett-Packard Enterprise to sell enterprise IT solutions and services and HP Inc. to deal in PCs and printers. That split is scheduled to be complete Nov. 1, and Whitman will become CEO of Hewlett-Packard Enterprise.