Analysis: Dell swallows EMC in blockbuster deal
Speculation turns to reality as Dell announces bid to acquire storage giant EMC in a $67 billion deal
The blockbuster deal that's been brewing for months is official: Dell is acquiring storage giant EMC for as much as $67bn.
The melding of the two IT titans will reshape the storage market, transform Dell from a PC-based vendor to an enterprise powerhouse, and send ripples through the channel.
The Dell-EMC deal will be one of the largest acquisitions in IT history. The addition of its storage, virtualisation and security businesses will inject $30bn into Dell's revenue stream, greatly diversifying its existing sales source. Dell's last reported full year revenue was 2013, in which it posted $57.2bn in sales.
Since entering the channel in 2007, Dell has spent between $10bn and $15bn on enterprise acquisitions. Some of the more notable include storage companies EqualLogic and Compellent, professional services firm Perot Systems, security hardware vendor SonicWall, networking upstart Force10 Networks and desktop virtualisation specialist Wyse Technologies.
Despite these acquisitions, Dell still earns most of its revenue through PC sales, which are under tremendous downward pressure. Overall PC sales are down by as much as 10 per cent in 2015, and average sale prices are compressed. The impact on Dell is not known, given that the company went private two years ago and no longer reports revenue.
The EMC deal will effectively make Dell the world's largest hardware and software storage vendor. But that's not all Dell is getting in the deal. Under the EMC umbrella is VMware, the world's largest virtualisation software vendor, RSA Security, a leader in security, encryption and identity management, and Pivotal Software, a startup in cloud systems management.
In acquiring EMC, Dell is greatly diversifying its revenue sources, moving from as much as 70 perbcent coming from PC sales to 54 perbcent coming from enterprise products and services. It will also greatly transform Dell's channel, which ranges from large distributors and volume resellers to small VARs and managed service provides. The addition of EMC will infuse the Dell channel with new enterprise-oriented systems integrators and storage, virtualisation partners and security specialists.
The deal does not come without its warts. To finance the acquisition, Dell will take on a huge amount of debt on top of the $25bn in leveraged borrowing it did to go private in 2013.
While EMC will diversify Dell's revenue, the acquisition will put huge pressure on Dell to perform to meet its debt service obligations. The risk comes because EMC isn't necessarily a cash-generating machine; it operates several lines of hardware and software storage products, some of which are redundant. And storage isn't exactly a robust category, as prices have fallen through the floor as more data is pushed into cloud environments.
EMC has been under pressure to diversify, divest of certain divisions or merge with a competitor for some time, mostly by activist investor group Elliot Management. It tried to merge with HP, but the deal was a non-starter as HP was going through its own breakup.
The immediate ramifications on channel partners and customers is effectively nil. The Dell-EMC deal will have to pass several regulatory hurdles before it closes some time in 2016. Even then, history has shown that it will take at least two years before any major changes to products, go-to-market strategies and channels happen.