EMC CTO: Merger with Dell Will Drive Innovation

John Roese is refuting the idea that Dell's $67 billion acquisition of the storage giant will distract the combined company from its R&D efforts.

Dell EMC deal

An EMC executive is pushing back at the idea that the company's acquisition by Dell will reduce innovation or distract the company from R&D efforts.

In a post on the company blog, CTO John Roese said the combined company will build on EMC's legacy of innovation through investments in R&D, acquisitions and startups, and that going private will open up even more opportunities.

"EMC, and going forward Dell+EMC, will continue to leverage a dual track innovation model where we internally invest in incremental and disruptive technologies AND aggressively seed, cultivate, acquire and scale disruptive startups," Roese wrote. "This model has worked extremely well given that we are generally viewed as one of the more innovative technology companies even though we compete with companies many times our size."

The CTO was responding to comments at the recent Structure 2015 event by Vinod Khosla, the co-founder of Sun Microsystems and now head of Khosla Ventures. Khosla said during an interview onstage that Dell's $67 billion bid to buy EMC and its array of federated companies will be a "good financial move" for Dell CEO Michael Dell, but that it "will set back innovation and distract from innovation."

Rivals have been playing up the idea that the challenges posed by a merger of two top-tier tech companies will distract them from their businesses, opening an opportunity for other vendors to steal customers. Meg Whitman, CEO of Hewlett Packard Enterprise, said hours after the deal was announced in October 2015 that Dell will be taking on almost $50 billion in debt, and that paying interest on that 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 an email to HPE employees, adding that integrating EMC and Dell "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."

EMC's Roese countered such thinking, saying that, in regard to Khosa, "Vinod is a smart venture capitalist and I don't doubt his ability to recognize innovation in startups, but his view on our ability to innovate at scale is not entirely accurate."

In addition to EMC's history of innovation and investments, the CTO said that going private will help the company's efforts around R&D.

"Dell+EMC will actually remove one of the disadvantages EMC has had versus startups, the artificial quarterly cadence with short term expectations that dominate public company culture," he wrote. "Under a privately-controlled structure, the combined company would have more time to execute on innovation and more scale in R&D. It would also allow for the reassignment of $3.5 [billion] on average which currently goes to share buybacks and dividends each year."

The deal, which is expected to be completed later this year, will create an $80 billion company. Dell officials have said the acquisition will accelerate the company's efforts to become a major enterprise IT solutions and services provider, better able to compete with the likes of IBM, HPE and Cisco Systems. Along with EMC, Dell also will get the storage giant's federation of other companies, including VMware (virtualization), VCE (converged infrastructure), RSA (security), Pivotal (application development) and Virtustream (cloud computing).

Officials with both Dell and EMC also are looking for ways to reduce the debt burden after the deal goes through. For example, Dell is looking to sell some businesses, including SonicWall, Quest and its services unit that is based on the Perot Systems business the company bought in 2009 for $3.9 billion.