Dell buys EMC & Tucci wins

by Robin Harris on Friday, 16 October, 2015

EMC’s Joe Tucci has long been the smartest CEO in storage. While not every one of his bets has paid off, enough have done well, while the VMware $625M buy was a monster smash. Since VMware accounts for some 70% of EMC’s market cap, it is really the only deal that matters.

So what to make of his selling EMC to Dell? Another win for Tucci, turmoil for both EMC and Dell, and Dell and Silver Lake have been royally outfoxed.

Tucci has taken Dell to the cleaners. Dell bought a group of declining storage businesses (XtremeIO and – maybe some day soon – DSSD will help, but they’re small compared to the larger VMAX and VNX businesses), one highly profitable high-growth business (VMware), and promising but small Pivotal and Atmos businesses. I’ll be surprised if Dell/Silver Lake can hang onto VMware when interest rates start to rise and their debt load becomes a liability.

EMC’s core businesses are under long-term pressure from the cloud and from a host of startups whose modern technology is challenging EMC’s tired iron. EMC’s cloud initiatives are still in early days and, while promising, are also subject to intense competitive pressure from larger web-scale initiatives. The inevitable disruption due to the purchase won’t help these nascent cloud-related products either.

What Dell is getting – and what it sorely needs – is an aggressive executive team, deep enterprise experience, and a company big enough to change their parochial culture. If I were a Dell exec I’d be dusting off my resume because the EMC guys will be gunning for you.

What about everybody else?
HP, despite its current split up pains, will, on balance, gain due to the uncertainty around EMC’s post-sale product plans and sales and channel disruption.

IBM will continue its long-term retreat from hardware towards services (Cleversafe is the latest buy, and a good one for a services strategy), and won’t see much impact.

Oracle is niche-focused and may decide to broaden their storage portfolio – Sun’s was historically weak, and that hasn’t changed – by making an AFA buy.

Cisco is the big question mark. They could easily buy NetApp, but NetApp is grappling with years of poor product strategy. How does the new CEO prioritize growing the UCS business against the other challenges they face?

HDS continues to quietly reposition themselves and while they’re too quiet, their strategy is sound.

The startups – including Pure, Nutanix, Nimble, Infinidat and others – will also gain, though Nutanix may lose Dell’s support in favor of Atmos. OTOH, Nutanix may clobber Atmos. Stay tuned!

The StorageMojo take
Tucci made a great deal for EMC stockholders – and for himself. He’ll get to continue to run EMC for a few more years, and without the hassles of quarterly reporting and insurgent investors he’ll be having a lot more fun.

The larger issue is whether the industry needs another hardware heavy enterprise IT company. The pendulum swung towards the big guys when a “best of breed” buying strategy led to unsustainable integration costs. But now that everything IT is based on one processor, two operating systems, a couple of databases and one network – with cloud vendors handling spikes and many new tools – it is now feasible for enterprises to buy modern best of breed products with features the Old Guard can’t match.

In any case, EMC will have a bigger impact on Dell’s culture than the reverse, and that could be a very good thing for Mr. Dell.

Courteous comments welcome, of course.

{ 7 comments… read them below or add one }

Jeff Darcy October 16, 2015 at 12:21 pm

Why do you think EMC will have a bigger impact on Dell’s culture than the reverse? Dell is, after all, the acquirer. They also have nearly 50% more employees and more than twice as much revenue. Both businesses have their share of dinosaurs making it hard to keep up with industry trends, perhaps even more so at EMC than at Dell. These are all of the factors I know of that feed into which culture becomes dominant, and they all point toward Dell. Perhaps more significantly, how do the employees feel? Are Dell employees afraid they’ll have to change their ways? Are EMC employees? My contacts at Dell are few, but I know a *lot* of people at EMC and there’s definitely some worry there. The EMC brand might have more cachet than the Dell brand – premium vs. economy and all that – but *culturally* I’m pretty sure the result of this is going to be more Dell than EMC.

Business-wise, I think selling whole storage systems is going to be a difficult thing for a long time. Big, small, fast, slow, whatever. The big cloud providers are either using open-source storage software on commodity hardware (disclaimer: I’m a Gluster developer) or rolling their own, or some combination of both. Many users are either paying for that, or doing the same thing themselves. The knowledge is out there, and so are the components – drives, boards, interconnects, and so on. Given the choice, people would rather buy (or build) software, skipping the huge markups on hardware, and now they have that choice. The only plays left are cost and convenience. That’s the only way Dell can make this work, and good luck to them.

Robin Harris October 16, 2015 at 12:36 pm

If Dell’s current management team had the moxie to make a major enterprise play, they would have. I’ve watched Dell fumble the storage market for the last decade, and if Mr. Dell doesn’t want to do that again, he’ll put EMC execs in to call the plays.

The who acquires who is not decisive. It’s what top management wants that decides. And clearly, Mr. Dell wants EMC’s expertise to drive Dell forward.

Jeff Darcy October 16, 2015 at 12:44 pm

It’s true that who buys whom isn’t decisive. One of my first jobs was at Encore, which bought Gould only to have the Gould culture predominate. However, there usually has to be some other factor – some *strong* factor – pointing the other way for that to happen. In the Encore/Gould case it was sheer size. They had 8x as many employees. Even if you’re right about how Mr. Dell intends to do this, will executive fiat be enough to overcome every other factor? I guess we’ll find out.

Scott October 16, 2015 at 3:09 pm

Hi Robin,
Rather than NetApp, why wouldn’t Cisco buy EMC? That would bring NSX in house and, as I recall, they own or did own some of VMware. They have credible server and networking business; this could help them recover from the Whiptail pain and provide a completely integrated stack. Cisco’s market cap is about 3 times what EMC’s is right now. From what I have seen, EMC can continue to shop around for a buyer for about 60 more days. Maybe Cisco pulls an EMC/Data Domain/NetApp replay?

whatever October 18, 2015 at 7:39 pm

“I’ll be surprised if Dell/Silver Lake can hang onto VMware when interest rates start to rise and their debt load becomes a liability”

“No rate renormalization during my lifetime” – Bernanke 2014

I think it is a great deal for Dell. Dell correctly interpreted Fed policy, that yelling rate increases every fubaring trading day is showing that the fed is losing credibility, and you will see that Dell’s timing with regard to recent dollar weakness is impeccable. But I do agree that dumping VMware is a winning strategy, but not because of the interest rates.

Robin Harris October 23, 2015 at 9:47 am

Bernanke is an economist, but the real power in DC is the banking lobby, and they are having trouble making money with rates so low. Obviously, they don’t care if higher rates tank the economy as long as they get their bonuses. So, sadly, rates will be going up sooner rather than later.

While we’re at it, can someone explain the strategic advantage that comes from owning VMware? Yes, it is a profitable business, but since it has to treat all vendors the same to keep in everyone’s good graces, what is the advantage to Dell – or EMC for that matter – to owning it?

TimC November 25, 2015 at 8:38 pm

“If Dell’s current management team had the moxie to make a major enterprise play, they would have.”

Dell did try to make a major enterprise play – they tried to buy 3PAR and lost. Their mistake was thinking they could do the same thing with Compellent which was never a true enterprise player. With where the market was at the time though, there really wasn’t any other option.

Leave a Comment

Previous post:

Next post: