Why did Dell pay £44bn for EMC, at a time when rivals seem to be breaking apart their companies to tackle the changing landscape of enterprise IT?
Dell’s $67 billion (£44bn) acquisition of storage giant EMC, the largest technology acquisition in history, speaks volumes about the industry’s frenetic race for cloud computing supremacy.
Michael Dell’s decision for his private company to make acquisition comes at a time when rivals seem to be favouring separation to deal with the great technological shift happening in the enterprise – take HP and eBay for instance.
But by being private, Dell doesn’t have to worry about the eagle eyes of investors and quarterly results to appease customers.
“I think the combined company is well positioned to address the move to the cloud,” said Dell in a media conference call this week.
Dell and EMC are both old timers in today’s fast, startup market. The acquisition should even be seen as a banding together, a reformation of the guard preparing to take on the new world of cloud computing, where companies like Amazon Web Services (AWS) hold the higher ground.
AWS, for example, only starting offering its public cloud services in 2006, and has in that time become a company making $7 billion a year with thousands of customers.
Dell is still highly reliant on making money from its PC hardware, but EMC’s storage offerings, which are used in data centres, are still on the up as opposed to worldwide declining PC sales.
Future of VMware
With EMC, Dell is also getting cloud and virtualisation player VMware, a company that is well placed for the hybrid cloud future.
“VMWare is of course is quite well positioned in hybrid cloud, and I think what you’re seeing with the whole software-defined data centre [market] is the ability to take the benefit of the public cloud and bring it into an on-premise data centre,” added Michael Dell.
EMC and VMware are already in their own coalition of sorts – the EMC Federation. EMC II, Pivotal, RSA, VCE, Virtustream and VMware form the Federation of strategically-aligned businesses.
“[We’ve] got us to know the organisation, and how the Federation works, we look forward to enhancing that,” added Dell.
But the acquisition is certainly one that shouldn’t be described as disruptive. EMC already generates almost 10 percent of its annual revenue from its sales relationship with Dell, with EMC accounting for half of Dell’s storage revenues in turn.
A lot of this money comes from Dell’s reselling of EMC’s midrange storage products, with some high-end systems thrown in to make up around five percent of Dell’s storage revenue.
What Dell is trying to do here is promote the idea of integration made easy for customers up the stack.
“Our customers will continue to have wide set of choices,” said Dell. “We believe customers increasingly like integration.”
The EMC purchase will also work wonders for Dell’s data centre business. EMC’s share in the storage systems market stood at 30.2 percent in 2014. In the second quarter of 2015, research house IDC pointed out: “EMC was the largest external storage systems supplier during the quarter with 29.9 per cent of worldwide revenues.” Dell’s share in the quarter was just over 10 percent, despite shipping the most amount of storage in terms of capacity, said IDC.
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