Can Dell Clear the Nebulae Around the EMC deal?

Does size matter? It looks like it does when it comes to acquisitions in the tech industry. The recent EMC deal by Dell sent the shock waves in the industry. Everyone including peers, analysts, competitors and partners, among others, had a fodder to discuss, speculate, predict, and pronounce. After Facebook acquired WhatsApp for $19 bn, it is the only deal that stands to change the market dynamics. While Facebook-WhatsApp deal may have not done anything exceptional for end users, the Dell-EMC deal is expected to do so. With $67 bn, the acquisition is a far cry and stands to change the market dynamics for the enterprise IT world.

A lot has been written, debated, and reiterated about the impact of the deal. However, it is important to quantify the impact of the deal on customers from both sides, especially when deals of this size are categorized 'cursed' for the higher chances of being failed. Certainly, customers are expected to go through a confusing situation for sometime, or at least till the time Dell finds out a clear-cut path to utilize EMC capabilities.

Dell began as a consumer company whereas EMC was always an enterprise solution provider. Both have been into rough waters and struggling to grow. Their challenges grew further as the market demand was disrupted by the changing consumer sentiment. While Dell had previously faced problems in the consumer business which forced it to focus big time on the enterprise business, EMC was facing heat from the cloud players such as AWS which were eating into its business.

Definitely the EMC deal empowers Dell and gives it more capabilities in areas such as data storage, virtualization and the cloud. It certainly gives Dell greater traction in large enterprises which it eyes as the next growth hotspot. The deal automatically makes Dell a more significant competitor with the likes of HP, Oracle and IBM. These are sureshot capabilities and benefits that come along with a deal of this size. Historically, acquisitions have both failed and succeeded. So does this acquisition has to pass the test of time. Dell faces the challenge to drive this acquisition for its growth and empowering customers for multiple capabilities it boasts to have.

Acquisition vs Expectations

Big things attract appreciations, expectations, and apprehensions. Dell needs to merge with the acquired company in the best possible way and streamline the product portfolio to meet the expectations of the industry and so customers, since it's not just the biggest tech acquisition ever, it's actually twice as big as the previous largest, which was the Compaq-HP deal, valued at $33.4 bn. “Dell's acquisition of EMC is undoubtedly the biggest deal in the tech history. On the positive note, Dell can offer consolidated solutions to the customers for all their business requirements. However, Dell has to identify ways to make use of EMC in the best possible way which is a challenging task,” opines Akhilesh Tuteja, Practice Head of Technology at KPMG.

Another biggest challenge would be to make a decision whether to continue EMC's brand image or dilute it with that of the Dell. EMC has a strong brand image which has a greater influence on the CIOs and enterprises for most of its companies such as EMC, VMware and RSA. “At present, Dell has done what its management found right for the future of the company. This is Dell's move to position itself as an enterprise company after its consumer business hit the roadblock. EMC has a strong enterprise connect and brings its own virtues,” shares Ramesh Mamgain, Area Vice President (India & Saarc) at Commvault.

As true in every case that acquisition entices a lot of expectations which, if not fulfilled, result into negativism, the Dell-EMC deal also needs to run through a lot of phases. Interests of employees from both entities will correspond at every step.

Keeping the marriage-time shorter

The biggest deal in terms of revenue in the tech-history might lose its sheen if the merger takes longer than the announced or expected time. Right now, it is nothing more than an announcement. More than the deal price, what is of interest is how the operations of these two giants merge together, clear the nebulae around the products, employees, partners and, above all, customers. Experts do also agree that Dell must chalk out a clear plan to merge EMC into it. “Time lost in merging the operations, products, and employees will dilute the purpose of the acquisition. If Dell spends more than three years, it might prove a waste of money since the competition will quickly embark upon the customer-base,” says Harish HV, Partner, Grant Thornton India LLP.

Consolidation of pure-play IT organizations

The Dell-EMC deal adds fuel to the conversations around consolidation of the pure-play IT industry and players. In fact, many have begun to believe that the enterprise IT segment has reached maturity state – at least for the hardware business – which now needs consolidation.

There are myriad opinion on this. Experts merely see it as an attempt by Dell to bring in a few enterprise IT capabilities. However, competition likes to embark upon the consolidation theory. Maybe, this is the reason Hitachi Data System did not take time to officially send out a statement which says, “While the Dell/EMC news is not a done deal yet (expected to close in May-October 2016), we expect further consolidation, churn and turmoil amongst the pure play IT organizations to better find a way to stay relevant in an ever-changing landscape.”

It might be too early to say whether this is the sign of consolidation or not, since HP is splitting into two business next month. HP is putting its consumer business and enterprise business apart. Keeping in mind the moves by two tech giants—HP and Dell—a strange paradox surfaces. While one is splitting its businesses, other is trying to strengthen its enterprise business along with consumer business.

What it means to the customers

Historically the initial few days of such mergers have resulted into confusion for customers. But customers love to do business with one player for most of their business requirements. They do not need to deal with multiple players for multiple needs. This gives wings to the consolidation theory. This has gone true in Oracle's case which acquired Sun Microsystems. Although it took Oracle sometime to merge the Sun into it, it is now paying dividends. It has been able to go to the customers more strongly than ever.

Dell has the similar opportunity to become a one stop shop for all customer needs in the enterprise space because EMC brings virtualization and security capabilities along which are driving the market globally. VMware empowers Dell on many fronts and allows it to cater to the Software-Defined Data center market. “The merger also seeks to bring to the enterprise customers a single point solution for all forms of deployment – whether cloud based or otherwise. Not only would the merger integrate server and virtualization capabilities of the two companies, it would also bring on board security solutions (through RSA a company owned by EMC); thus placing Dell on equal footing as HP and IBM,” says Subroto K Panda, CIO, Anand And Anand, which is a law firm.

Analysts do also conform to this thought. “Today enterprise customers do not want to deal with multiple players for their IT needs which is normally the case. Given this, Dell will be able to face customers strongly and draw their interest in far bigger manner,” further regards Akhilesh Tuteja, Practice Head of Technology at KPMG.

Not all believe so. HDS which is a competitor likes to place confusion and believes that the merger might not “bode well for customers who need partners that are focused on helping answer the challenges facing their business.” HDS further believes that the merger will confuse the companies for a good long time. “In this case, we can expect this merger to keep both companies distracted for a good period of time and we can’t expect too many innovations that will help customers in the near term,” speculates Hitachi Data Systems.

In short, while the Dell-EMC deal is attractive and calls on a lot of hopes, it casts innumerable doubts around the future of industry-known products at both ends, keeps employees guessing, leaves partners in doubt and makes customers hopeful. Doubts will and should remain unless the right path is discovered. Let this merger not be considered as cursed as we have witnessed historically.