The Dell-EMC Deal

Brendan Morse
Oct 20, 2015

The Deal
Though a little sticker-shock—to the order of $67 billion—is certainly in order, we should not be entirely surprised that Dell acquired EMC and its 81% stake in VMware. After all, it was an open secret that EMC was actively seeking buyers after the recent struggles with shareholders, and the failure to conclude a deal with HP. Though the acquisition includes a 60-day ‘go-shop’ provision that allows EMC to seek other bids with minimal penalty, competing bids seem unlikely. Dell has offered a substantial bid, and the number of other companies that would be seriously interested in acquiring EMC’s business is limited. Under the terms of the deal, EMC will go private as part of Dell, and VMware will remain a publically traded company.

The Strategy
Michael Dell and private equity firm Silver Lake Partners acquired the outstanding shares of Dell almost two years ago, as part of a strategy to transition the company from a consumer and SMB-oriented business to an enterprise player. Dell still needed a more complete portfolio and market entry point to effectively compete with the likes of IBM and HP. With EMC and VMware, Dell is poised to leverage complementary product lines, services, and market presence to deliver a full set of IT and services to larger businesses and enterprises. Going forward, EMC will now be spared public scrutiny of its quarterly results, and can focus on R&D to regain a competitive advantage in the storage market. EMC can also leverage the relationship with Dell to develop new business. Dell and EMC leadership indicated that, in the future, this new company will leverage its strength in the servers, storage, and virtualization markets to develop a go-to-market strategy around high-growth areas; including hyper-converged infrastructure, hybrid cloud, software-defined datacenters, and security solutions and services.
Why this Deal, Why Now?
Many of the challenges surrounding both companies’ legacy businesses (a shrinking PC market and mature server market for Dell, along with slowing and increasingly competitive data storage market for EMC) are only going to intensify. Dell and EMC’s business models have been disrupted by mobile and cloud technologies and services. While Dell has managed to maintain its PC market share during a period of overall declining shipments and prices, the shift to anywhere, anytime computing on mobile devices is clearly the future. EMC’s primary business has been negatively impacted by high rates of cloud adoption. Enterprises are moving increasing quantities of data from on premise storage systems to datacenters owned by the large cloud service providers (AWS, Microsoft, Google, IBM, and others). The price war among these large cloud providers, combined with their increasingly popular databases is putting immense pressure on EMC’s business model. These trends show few signs of abating, as these cloud providers are profitable and businesses just keep signing up. A short time before the Dell-EMC deal became public, Amazon Web Services (AWS) revealed it has over one million active business customers; and $7.3 billion in revenues (with solid operating margins) over the last 12 months. The AWS news is not an isolated event; IBM recently boasted $8.7 billion in cloud revenues in the past 12 months.
Implications for the Document Industry
Any industry concerned with IT, from vendors to end-customers, should be evaluating what this acquisition means for their business. While Dell is clearly a global player in print and imaging, EMC and VMware also have customers, partnerships, and other connections through the document industry. In addition, there is an on-going convergence of the document technology and traditional IT space.  Most imaging and print vendors see building out IT capabilities and partnerships as an essential part of keeping their hardware, document solutions, and professional services competitive. Some vendors have been even more aggressive. Xerox entered and then exited the enterprise IT services space, and Konica Minolta and Ricoh are in the midst of a global push into managed IT and cloud services for SMBs. Konica Minolta and Ricoh IT services subsidiaries in particular are undoubtedly pondering the benefits and challenges that might emerge as a result of the Dell-EMC deal.

Probably the key question that many vendors in our industry are considering: What does the EMC acquisition mean for Dell’s competitiveness in the document industry? In the near term, the market landscape probably will not be dramatically changed because Dell has yet to complete the acquisition and absorbing EMC will be an on-going challenge. Though in the medium or long term, we may see effects in both the direct and indirect channel. Dell has traditionally found success by cross selling MFPs and printers alongside PCs and servers to major accounts, through their VAR partners, and to a lesser extent through online retail and IT distributors. As the acquisition goes forward, it will be interesting to see the amount of focus Dell places on cross selling print and imaging products to EMC’s customers. In the channel, Dell’s wider product line and channel program efficiencies may draw more partners and/or make those partners more competitive. Such developments in the direct organization or channel (should they come to pass), would likely help protect the device install base and could lead to an uptick in Dell’s print and imaging sales. We are still at a stage where there are many more questions than answers, but in the coming months we should hear much more from Dell regarding the acquisition and strategy going forward.

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