Through the Looking Glass with Dell-EMC
- Summary:
- How many impossible things can you believe before breakfast? You might need to work up to it in the wake of the Dell-EMC merger announcement.
Not so’s you’d notice, but then there are still a lot of unanswered questions.
For Michael Dell, speaking on an analyst call yesterday, this is all pretty obvious:
Dell brings strength in the small business and mid-market. We have led this segment of the commercial it market for decades... [this will be combined] with EMC's strength in the enterprise.
EMC has best-in-class products for the largest customers in the world. They also have technology that is applicable against the mid-market. Dell has a much stronger go-to-market [engine]. The combined salesforce strength and channel strength of the two businesses is unmatched.
Simple, huh? But the questions remain.
What happens to VMware? And to VCE - the joint-venture between EMC, VMware and Cisco?
The former remains independent, but with Dell declaring his intent to increase his own holding in the firm. The latter, well, it’s going to come under some pretty intolerable strain with Dell and Cisco directly competing in certain areas.
Much will depend on Dell’s pragmatism here. Yesterday the party line was:
We will be thoughtful about how we do that to make sure we do it in the right way. We do have a history of working together in the past and I think that will accelerate our ability to bring solutions to customers in a faster way.
For his part, VMware CEO Pat Gelsinger insists:
We are committed - and Dell has demonstrated this commitment over decades at the company - to the independent ecosystem of VMware [that] is overwhelming and significant, just as we are committed to this partnership with each other.
With an eye to the VCE alliance, Gelsinger added:
As we move to hyper-converged products we can use more of the Dell technology… but for the networking products we intend to stay with Cisco for the time being.
As well as VMware and VCE, EMC’s federated model contains the likes of Pivotal and RSA. Dell went out of his way to speak of his “respect” for this structure, but will the federated model survive the takeover? Dell said:
We've certainly studied this capability and have gotten to know the organization and how the federation works [and] we look forward to enhancing that. Within Dell we have some fantastic new businesses we've been incubating ourselves. SecureWorks would be one [and] we have another one called Boomi, which is a fast-growing cloud data integration company. I think there are some great aspects to this structure and as we come together as a combined company, I think we will be even more powerful.
Then there’s the combined entity’s workforce. On a conference call yesterday, there was a statement that there were no immediate plans for lay-offs. If you believe that’s going to remain the case, then I’ve a large London bridge for sale that I’m about to stick on eBay. Note that execs at both EMC and Dell are talking about $1 billion revenues in “synergies”. Certainly it’s a touchy subject with Dell himself, who snapped on the conference call:
I think there are other companies in our industry who are far better at reducing headcount than we are, so jump on their calls.
He added:
There certainly are some cost synergies, we are not going to tell that there aren’t…In the last six months at Dell we have added about 2,000 new salespeople. With our privately controlled structure we can make investments that do not need a return within a 90-day period.
Here comes the FUD
In the meantime, it’s going to be open season on EMC sales people. If Oracle, IBM and HP haven’t got head-hunters on the case by now, I’d be astonished. Fear, uncertainty and doubt (FUD) leads inevitably to an uptick in resume updating.
And that FUD has already begun being spread by rivals of course. Falling into the ‘well, she would say that, wouldn't she? ‘ camp is HP Enterprise CEO Meg Whitman, who emailed staffers to declare the Dell-EMC merger, at a time when she’s breaking up her own company, to be:
a good thing for Hewlett Packard Enterprise and an opportunity for us to seize the moment.
Integrating EMC and Dell, which combined have more than $75 billion in revenue and nearly 200,000 employees, is no small feat. This 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.
Hmm, well if any company knows about integration indigestion it’s HP, with the still undigested remains of Compaq, Tandem and EDS lurking in the bowels of the organization.
Whitman adds:
To pay back the interest on the $50 billion of debt that the new combined company will have on their balance sheet, Dell will need to pay roughly $2.5 billion a year in interest alone. 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.
Mind you, Whitman’s FUD messaging is resonating. Among the market watchers, there’s also considerable skepticism and uncertainty. In a research note, Toni Sacconaghi, a senior analyst at investment bank Bernstein, said:
Near term, we see some potential benefit to EMC and Dell’s competitors from distraction and customer uncertainty – particularly for Hewlett-Packard Enterprise, NetApp and Lenovo. Our experience with historical mergers (HP/Compaq; Lenovo-IBM; etc.) suggests that newly merged companies typically lose share in the first 12 – 18 months, though they often evolve stronger thereafter. We expect uncertainty and integration to create near-term opportunities for Hewlett Packard Enterprise, NetApp and Lenovo to gain share.
That theme of uncertainty is the lasting inheritance from the past 24 hours - and with the merger’s conclusion months off, will linger a long time yet. Geoff Woollacott, Practice Manager/Principal Analyst at Technology Business Research (TBR) suggests that :
Customers will take the EMC-Dell tie-up in stride. However, loyalty will be tested in the short-to-medium term. HP Enterprise, IBM, Lenovo, Cisco, Oracle and others will immediately launch customer take-away campaigns.
He adds:
The business, which emerges in approximately 18-24 months, will be far different than present day Dell or EMC. TBR believes the combined entity offers a far greater ability to deliver solutions to both large and medium-sized business customers. Dell and EMC, separately, have sought to move away from hardware sales to software-lead solutions selling. The combination creates a complementary suite of products and compatible sales/market coverage, allowing the deal to potentially extract a greater share of wallet from end customers.
However, TBR believes that it remains to be seen if the companies are truly better together, given the ability to address the as-a-service transition. Time will tell whether the combination of Dell and EMC leadership, products, sales and go to market will provide new value to end customers, give that the tie-up between companies does little to capitalize on the as-a-service economy.
My take (with apologies to Lewis Carroll)
"I can't believe that!" said Alice.
"Can't you?" the Queen said in a pitying tone. "Try again: draw a long breath, and shut your eyes."Alice laughed. "There's no use trying," she said: "one can't believe impossible things."
"I daresay you haven't had much practice," said the Queen. "When I was your age, I always did it for half-an-hour a day.
“Why, sometimes I've believed as many as six impossible things before breakfast."