The mega-deal between Dell and EMC for $67 billion looks to be the best path for both companies as individually they are of considerable size with extensive portfolios, but together they are a mega-technology company that will be able to compete with the likes of Cisco, HP and IBM.
After going private two years ago, Dell has been able to at least maintain its market share in the server and PC business, but have struggled to grow its business within the large enterprise and other higher margin markets. EMC is a long-time leader in the enterprise storage market, but has been challenged to keep up with new trends and cheaper data center storage costs. Together as one entity, the merged companies will be able to compete and unify portfolios to address the growing trend of unified IT solutions, according to market research firm IHS.
“This move should help Dell become more relevant as they can now control both the storage and server space as well as give them a leg up with its part now in VMWare,” says Craig Stice, senior principal analyst for the compute and server electronics at IHS.
The financial success of the deal is still in question and there will be challenges in integrating these portfolios and the amount of scaling back in any doubling of efforts. However, this is a natural progression in a merger of this size, IHS says. IHS believes initially Dell will not need to divest its lower margin server or PC business, but if down the road this becomes a burden, divestiture of some parts of its lower margin business is a possibility.
IHS also believes that one of the immediate challenges will be 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. Being a private company does give Dell a greater flexibility as they will not have to disclose or answer to shareholders, “but the bigger the ship becomes, the harder it is to turn,” he says.
The mega-deal is also important for Dell as the PC business has become problematic in 2015 after suffering a first half where sales have faltered. Intel went as far as to predict the entire year of 2015 would decline by a mid-single digit percentage and would depend upon its other markets to make up the difference. While IHS does not believe the acquisition of EMC is a direct result of the decline in the PC business, it helps.
“The move does certainly broaden its portfolio to become an all-inclusive IT solutions provider while detaching the link of being just solely a consumer PC provider,” he says.
One thing is for sure, a deal of this size has the real possibility of shaking up the technology market in a significant manner especially given that other large technology companies—including HP and IBM—have announced divesting or becoming smaller in the market while Dell and EMC together will be creating a mega-technology company.
Questions or comments on this story? Contact email@example.com