The record $67-billion definitive agreement for Dell to buy EMC announced yesterday is a deal that could significantly shake up the technology market because, while other large tech companies such as HP and IBM have announced divesting or becoming smaller in this market, Dell and EMC together will be creating a mega-technology company.
This is the view of Craig Stice, computer and server electronics analyst at IHS, who says that since Dell went private two years ago, it has been able to at least maintain its market share within both its respective server and PC business, but has struggled to grow within the large enterprise, and higher margin markets.
“EMC is a long-time leader in enterprise storage solutions, but has been challenged to keep up with new trends and cheaper data centre storage costs in this rapidly changing and dynamic market,” says Stice. “IHS believes that together as one entity, Dell/EMC will have one of the most complete and unified portfolios, which should provide them additional reach into larger business opportunities they may have not had access to as individual companies.
“This will allow them to better compete against the likes of IBM, HP and Cisco in the growing trend of unified IT solutions,” he says.
On paper, Stice adds, IHS sees the deal appears to be the best path for both companies.
“Financial success, of course, is still a question mark,” he says. “Both companies individually are considerable in size, and both already have extensive product portfolios. Integrating these portfolios will likely require change and some amount of scaling back in any doubling of efforts. IHS doesn’t believe initially this will drive divesting in lower margin server or PC business from Dell but, if down the road and financially the low margin business becomes too much a burden, then it is possible.
“The immediate challenge, of course, will be in the integration of the two massive companies, maintaining cash flow to pay off the debt they will be accruing, while still being limber enough to react and adjust to this market as a leading mega-technology provider will be required to do,” Stice says. “Being a private company under Dell does allow them greater flexibility as they won’t have to disclose or answer to shareholders, but the bigger the ship becomes, the harder it is to turn.”