So Hewlett-Packard Co. and Symantec are going the ways of Xerox, IBM and other large IT companies. They soon will be trying to becoming lighter and more agile by hacking off parts of the tree that aren’t growing quite as well as some others.
Huge isn’t always good, especially in the IT products and services business. Huge invariably means slow, and slow-to-move IT companies are the ones that most often lose out in the markets. Even companies with large installed bases and outstanding track records eventually will lose business if they cannot evolve well enough or quickly enough to provide for changing requirements.
It’s all about “What can you do for me now?”
HP, which is renaming its enterprise software/services business Hewlett-Packard Enterprise, is breaking off its PC and printer businesses into a separate company called HP Inc., a far too-similar name that’s sure to confuse people for a long while.
HP, EMC Have Been Talking
It has been reported that HP and storage giant EMC have been talking secretly for months about the possibility of a merger. The idea would be to synergize two historically successful companies that both need a jolt of energy and also need to enter new markets to keep that growth coming. At first glance, the idea looks interesting, and the companies apparently came close to actually doing it a few months ago.
But the deal fell through, largely because each of them didn’t think their shareholders would ultimately approve it.
Now that HP is splitting up, the idea is said to have been revived in both headquarters. Upon a deeper look, however, it still doesn’t appear to be a smart move for either company.
Merging two huge players such as HP Enterprise and EMC brings to mind three immediate thoughts:
1) It would be very tenuous and complicated to structure.
2) The merger of two old-school companies does not necessarily equal an efficient 21st century IT company.
3) The cultures and personalities of the two mature companies would have trouble melding — not unlike an older couple thinking of marriage, with each person set in his/her own ways. East Coast establishment-type EMC already should know this, due to its longtime tempestuous relationship with Californian VMware, and they still have flare-ups 10 years later.
Some Possible Advantages of Such a Merger
On the other side, here’s the potential high-level good that would come of such a deal:
–A combined HP-EMC would bolster EMC’s position in a big way as the world’s No. 1 external data storage vendor, despite several overlapping-market products. HP itself is among the world’s top five storage vendors. HP would bring services and solutions — and customers — that EMC does not have to augment that leadership.
–It takes away the possibility of IBM merging with EMC for the same reasons. IBM also wants to be the world’s go-to company for storage. For all we know, those talks are also pending.
eWEEK asked some respected industry analysts about this potential mega-deal, and they are fairly consistent with their thinking: probably not a good move.
“Too much storage overlap,” Henry Baltazar, storage analyst at Forrester Research, told eWEEK. “EMC and HP have way too many pieces that compete, including VMAX vs. XP, VNX vs. 3PAR, Data Domain vs. StoreOnce, ScaleIO vs. StoreVirtual. A merger of EMC storage and HP probably would not work out.”
But there are many other assets each company brings to the deal, Baltazar said.
“HP could be interested in other EMC assets, such as Pivotal or maybe even RSA [Security] and, of course, VMware. Pivotal is moving toward an IPO, and that could be a big payday for EMC, similar to VMware,” Baltazar said.
Why It’s Still Not a Great Idea for HP and EMC to Merge
How the ‘Elliott Effect’ Plays In
There’s another aspect to all of this that may play prominently. That would be the “Elliott Effect,” he said.
“This is all being driven by Elliott Management,” Baltazar said. “In their letter yesterday, they suggested that EMC would have multiple suitors for their assets or the federation as a whole. Elliott is correct that EMC storage is undervalued; no one has done a better job of making acquisitions in storage [Data Domain, Isilon, XtremIO, ScaleIO], yet the stock price has been stagnant.”
The bottom line, Baltazar said, is that “it looks like Elliott wants to carve out VMware and Pivotal, but EMC really can’t afford to lose these assets since they represent the future of cloud and big data.”
Rob Enderle of the Enderle Group told eWEEK: “The biggest problem I see is structuring the deal. It would be hard to work out how they’d handle VCE [the co-op of EMC, Cisco Systems, VMware and Intel that makes converged Vblock systems, which are selling well]. VCE would totally have a conflict.”
What a tangled legal mess that would entail. Lawyers are probably already in strategy sessions over that possibility.
Storage Product Overlap a Key Issue
Charles King, principal analyst with Pund-IT, told eWEEK that he has trouble taking the rumors of talks between EMC and HP very seriously.
“While it’s true that the two companies together would effectively create a global storage behemoth, the same would be true if EMC merged with any of its other competitors,” King said.
He also agrees with Baltazar that there’s too much storage-product overlap—that products would cannibalize each other in the marketplace.
“The two companies have numerous similar or analogous solutions, so whose would predominate, how would the customers of eliminated solutions react and what would happen to employees laid off as a result of the consolidation would be problematic?” King said.
“In fact, HP encountered this very issue after its acquisition of Compaq, a deal many believe could have been managed far better than it was,” he said.
Culture Clash Shouldn’t Be Downplayed
Lastly, King agrees with eWEEK that the other important problem is one of culture.
“That may not seem like a big deal, but East and West Coast IT companies are often far different from one another in terms of management and employee methodologies. Toss in the 3,000 miles between Hopkinton [Mass.] and Palo Alto, and that distance soon becomes a chasm,” King said.
In summary, HP and EMC should be advised not to do it; it stands to be a dangerous move on many fronts, based on experience from past IT deals.
Mergers of equals are much more jeopardous than a large company annexing a smaller one. They should look for other partners to fill the gaps they need filled.
Chris Preimesberger is editor of features & analysis at eWEEK. Twitter: @editingwhiz
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