With reports from the Wall Street Journal and the New York Times that EMC has been shopping itself to HP, Dell and perhaps Cisco and Oracle (pretty please!) it’s clear that the “EMC Federation” concept has cratered.
Why did it take so long?
While an activist investor – hedge fund Elliot Management – has pushed EMC to divest VMware, reports say that discussions with HP started before that. As StorageMojo noted 5 months ago: “. . . maybe things look more dire inside EMC than we know.”
Back in the go-go 60s the corporate LSD was the conglomerate: a mashup of portfolio theory and the Cult of Management. Put enough unrelated businesses together, the hallucinogenic thinking went, and they can’t all tank at once.
Until they did. Sorry, stockholders!
Joe Tucci, EMC CEO, never called EMC a conglomerate – he gets the optics – but the benefits touted for RSA, VMware and VCE have never materialized. VMware has been a super investment, and the others have been OK, but they’ve left EMC a technology conglomerate, not a synergistic juggernaut.
Architectural lock up
Vendors are always working to lock-in customers, but that cuts both ways. EMC’s key architectures date from the early 1990s. It’s gotten hard to gloss over their decreptitude.
Bigger problem: EMC has made massive investments in the software atop these platforms. As long as they could count on keeping most customer corralled by unique features this was smart.
But now it’s an albatross: with declining sales and margins EMC’s ability to invest in new features also declines, while the need to maintain existing code remains. Now it’s the vendor who is locked-in. The leverage cuts both ways.
It’s the software analog to the telco’s copper problem in the age of wireless: copper’s competitive advantage declined, but the 20 year bonds sold to build them remained.
The StorageMojo take
Joe Tucci, EMC’s CEO, sees all this and – as the strong executive he is – has taken action. He knows EMC can no longer go it alone.
Sure, they can stumble along for years with creative accounting, layoffs and asset sales before reality knocks. But Tucci is doing the right thing by seeking a partner.
Courteous comments welcome, of course. Surprised that IBM isn’t on the list of suitors?
There was the oil shock, of course, though Nixon took us off the gold standard before then, so the Arabs debased the dollar (Thaler, is the derivation, it took two wars to finally close down the last German daily newspaper in the US*) by raising the price of oil (dollar inverse relation to the Prime Consumable) and Paul Volker to float the exchange rates.
But really there was a effective, if unintended, war, on conglomerates. Interest Qualization Tax and many other codes, created the antithesis of the way US conglomerates or multinationals work, taxing overseas earnings and holdings. Then there was the scandal attached to behemoths such as ITT, whose chairman, Harold Genteel was the primus inter pares of conglomerate managers. Reading him n the subject of matrix management is fascinating. Matrix management may have gone the way of seventies fads, such as time and motion studies, in the very early rise of the notable consultancy shops, but Geneen attracted unfortunate attention. Talk and mire, of coups engineered to further far flung interests. At the time, us Brits, produced quite a few movies about mercenary action for big conglomerate interest, of which The Wild Geese, with Richard Burton amid a great cast, is the most notable, and transparently based on the real activities of “Mad Mike” Hoare. Highly recommended, but harrowing, film.
*I am a brit, but I feel like we got left behind, as the rest of our family got the heck out, after the last big war..
Anyhow, conglomerates got a bashing from every which way, and one of the biggest was floating interest rates.
Because Black Scholes and Modigliani Miller theories had only just come in, to value the net present of a stock by discounting interest rates, and wonderfully, VisiCalc bparrives this timescale almost in dramatic perfection, all these factors became multiplied, see above for how this would affect in compound.
I’ve always, I was going to say I have always been fascinated by compounding factors in business, but I think it can be attributed to a banker father who grew up in the Depression, for much of my attention, however for all the other factors I could include, conglomerates were up against it.
I think storage vendors are in a epochal bind, as well, with not only multiple forces building against very cushy moat based models, but effects, some from consumer space, tearing apart expectations.
I joke, but the only way to save the big tin storage guys, is to sabotage all HD content, and stop 4k broadcast in its tracks. The moment consumers get storage headaches, at scale in miniature, I think that will wag the dog. How many businesses really run on more data than your average geek’s home entertainment data volume.?
Ironically, also, the borrowing madness returned, in a zero rate world, only a real life blink, earlier. If any telco had merely sat on their hands, and, as GOOG did, bought their competitor’s dark fiber, and geared up again into declining interest rates, we’d see a “national champion” at the top of many games. I cannot see how this wholesale movement matching is not caused by short term executive remuneration. A incumbent Telco, without, even just say European 3G wireless auction debt, would have been cleaning up. Just as the story if railroads, the overall economy eventually benefits from the multiple parallel paths, from sunk capital written off, but we went into comparable pain with overweighting in Telco for too long, and DWDM had to be recognized for the potential by someone, but who? Imagine a unencumbered Telco who had played this right, and they might be in storage for real now.. now that I look at the DSLAM cabinet for our building, and noticed the new optical loom left about enough space for 10U or so of filers…
I am certain we’ll see incredible technical volatility soon, whipped up by the cheapo money chasing any return at all, and the entire financial disconnect… and it is totally about time. I am optimistic, because the cycles to innovate, if pushed, are really compressing fast, and though the word “disruptive” might as well mean “no we don’t have a plan”, in brochureware, I am expecting a good old fashioned bake off of what is actually doable. Some will call that a bloodbath or a crash. It will certainly burn off the dead brush. I am still waiting for cloud to start moving to multi utility, as in networking to catch to disperse datacenter concepts. Right now, location, electricity supply, scale economy of facilities, is dominating the game, look at any new datacenter, few cost less than a billion…. storage has to be more resilient, and deal with broken networks, broken meaning just slower, or sub optimal, or you just moved your tablet a few blocks down the street.
My apologies, it is too easy to rant about what seems all wrong, and i’ll try to come back with “what could be better”, but my bedtime beckons for today. Here’s the last thought though: I don’t think that the next truly bug storage company will have meant to become one. I think they’ll be solving some other problem, possible with software defined networks, and accidentally unlock a facility for accessing storage in a sufficiently better way, the bits and bytes will follow that least oath of resistance, like water they will flow to find a comfy equilibrium, and the job of the company who find themselves thus flooded (or, like a desert, refreshed and recreated) will be to ensure that they are not a deep silent reservoir.
IBM? good grief, they don’t want their own server business, why would they want another dead-end storage company when their own offerings are falling off a cliff?
Storage has gotten “easy” where any tom, dick, or harry can get major funding (at irrationally cheap prices) and do the SSD or tiered thing, There are opensource software solutions to what the big boys do, so from an IP point of view, their advantage is “over”.
Disk speeds hit a brick wall a good 5-10 years ago. Bus, interconnect, and CPU/mem speeds continue to leap ahead but it stopped mattering. There is little compelling reason to upgrade heads any more – software updates suffice. And forget having to re-buy all your hundreds of spinning rust – the old enclosure works just fine even if it’s an embarrassment of inefficient space and power use. EVERY storage unit these days should be shipping 48-80 drive units instead of the total joke that is the 24’s.