The costly acquisition of EMC will drive innovation insists Dell’s CTO, after venture capitalist expresses doubts
EMC has insisted that its planned $67 billion (£44bn) acquisition by Dell, will drive innovation, following comments to the contrary made by Vinod Khosla, the billionaire co-founder of Sun Microsystems and now head of Khosla Ventures, a venture capitalist firm.
Speaking last month at the Structure Conference in San Francisco in November, Khosla said that the Dell-EMC deal will ‘set back innovation.
“EMC and Dell merging is a really good financial move for Michael, but it will set back innovation and distract from innovation,” Khosla was quoted as saying by PC World.
Good For Innovation
But John Roese, Chief Technology Officer (CTO) at EMC published his rebuttal in a blog post, and insisted that despite the doubts of Khosla, the deal will be good for both companies.
“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,” wrote Roese, before he lapsed into pure marketing speak. “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 said that when the two tech giants combine, it will remove one of the disadvantages EMC has had versus startups, as the privately held company will have “more time to execute on innovation and more scale in R&D.”
On this point Roese is addressing concerns, raised previously by HP’s Meg Whitman, that the Dell EMC deal will lessen the ability of the combined company to invest heavily in R&D. Soon after the deal was announced, Whitman alleged that as Dell would be taking on close to $50 billion (£35bn) in debt, it would have to pay $2.5 billion (£1.7bn) annually on interest, meaning less money for R&D spend.
But Roese pointed out that as a private company, Dell does not have to satisfy investors and pay dividends. “It would also allow for the reassignment of $3.5 billio on average which currently goes to share buybacks and dividends each year,” he wrote.
“We also spend billions of dollars each year on R&D internally to keep the acquired technologies in the lead and to invent new products and technology where we see gaps,” wrote Roese. “I am glad that leading VCs are watching EMC as we benefit tremendously from many channels of innovation. As a roughly $80 billion entity, Dell+EMC will need more than just one source and method of innovation. Our model provides exactly that.”
“There will never be an end to the opportunities for organic growth and strategic external investment as long as innovation remains core to being successful in business and IT,” he concluded.
Dell’s proposed acquisition of EMC would be the largest acquisition in tech industry history and create a massive company that could challenge the likes of IBM and Hewlett Packard Enterprise (HPE) in the competitive IT services and solutions sector.
But confidence in the deal has not been helped by the sliding stock price in EMC’s subsidiary VMware, since the proposed merger was first announced last October. And there are also concerns over a possible hefty bill from the taxman.
Essentially, it all comes down to how the American Internal Revenue Service (IRS) will treat the ‘tracking stock’ in VMware. It could help drive the tax bill up to as much as $9 billion, according to reports.
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