How an EMC Buyout Will Make Dell a More Capable Enterprise IT Player

The Dell-EMC deal sent shockwaves through the industry and could have a profound effect on cloud service providers as well as top enterprise IT companies.

The EMC acquisition will help Michael Dell achieve his ambition of heading one of the top full-service IT companies in the industry. While Dell has been among the larger server makers for decades, the EMC deal expands the company’s product line into storage and virtualization, giving him significantly more power in markets where Dell hasn’t been a player.

The EMC deal ensures that Dell can now be an end-to-end IT systems provider to companies and government agencies of all sizes. While Dell has been a prominent computer maker since the 1980s, data released in July by research firm Gartner showed that the business sectors where EMC is most successful—namely, big data, storage systems, data analytics and others—are high-growth businesses where Dell is weak. With EMC’s help, Dell will become a far more well-rounded company.

Dell was founded as a PC hardware maker. But Dell has been trying to become much more than a PC hardware maker for years. With the EMC acquisition, sales of PCs and even servers by themselves will become even less important to the company. After all, PCs today are a low-margin commodity business and no longer drive the growth of any IT company.

One of the important features of the Dell deal is that it doesn’t include a VMware acquisition. Instead, Dell will trade some shares with VMware owners and keep that company public. Trip Chowdhry, managing director of Global Equities Research, said that Dell’s lack of interest in VMware shows that “super clouds,” such as Amazon Web Services and Microsoft Azure, “have won.” VMware is in deep trouble, the analyst said, because it is “sandwiched” between cheaper cloud services that small and midsize companies want and high-end platforms, such as Azure, that enterprises are signing up with.

Dell has been trying to scale itself up to become a full-service enterprise IT company for years before the company went private in early 2013. By acquiring EMC, Dell will have the storage and virtualization tools to become more competitive with enterprise IT giants, such as IBM, Hewlett-Packard and Oracle.

According to market analysts, Dell’s decision to acquire EMC will deliver far more value to the corporate world, in general. At the lower end of its product line, Dell will continue to be a major producer of PCs and server hardware, while on the higher end, it can offer the EMC services that larger enterprises want. In total, Dell’s value to the enterprise will rise significantly with this acquisition, analysts say.

Since the deal with Dell might not close until October 2016, depending on the pace of regulatory review, there is plenty of time for customers and both companies to prepare for the changes. EMC will remain a separate company now and even after Dell takes it over. There likely won’t be that many near-term changes.

Data storage and virtualization are among the largest and most important growth areas in the enterprise, market data shows. Unfortunately for Dell, it has been largely on the outside looking in with those areas. Dell’s deal seems to show a strong understanding of the importance of data storage and virtualization, and the acquisition will only improve the company’s standing in those critical markets.

Nearly every analyst who has evaluated the deal between Dell and EMC said that the computer maker will sell or spin off some EMC components to reduce its debt burden. Dell won’t necessarily rush to sell off EMC assets, but will look for the company to sell off some divisions that may not fit into its enterprise business strategy. Although neither Dell nor EMC have committed to selling any units, there has been some speculation among analysts that EMC’s security division and the Pivotal joint venture could be on the cutting block. One other interesting report: Dell partner Silver Lake explored selling its PC division to fund the EMC deal, according to “Re/code” sources.

There’s never any guarantee that corporate buyouts of this scale will close. A variety of regulatory or due diligence issues could derail the deal. If Dell gets cold feet for any reason, other suitors may be waiting in the wings to entice EMC with an even better offer.