Dell EMC acquisition to create ‘mega-tech’ company

Dell Inc. and EMC Corporation have signed a definitive agreement under which Dell, together with its owners, Michael S. Dell, founder, chairman and chief executive officer of Dell, MSD Partners and Silver Lake, the global leader in technology investing, will acquire EMC Corporation for approximately $67 billion, while maintaining VMware as a publicly-traded company.

In an announcement yesterday, Dell said the combination of Dell and EMC would create the world’s largest privately-controlled, integrated technology company. It said "The company will be a leader in the extremely attractive high-growth areas of the $2 trillion information technology market with complementary product portfolios, sales teams and R&D investment strategies. The transaction combines two of the world’s greatest technology franchises with leadership positions in servers, storage, virtualization and PCs and it brings together strong capabilities in the fastest growing areas of the industry, including digital transformation, software-defined data center, hybrid cloud, converged infrastructure, mobile and security".

Craig Stice, Computer and Server Electronics Analyst for IHS, comments: “A deal that could shake up the technology market in a significant manner as 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.

Since Dell went private two years ago, they have been able to at least maintain their market share within both its respective server and their PC business, but have struggled to grow within the large enterprise, and higher margin markets. EMC is a long-time leader in enterprise storage solutions, but have been challenged to keep up with new trends and cheaper data center storage costs in this rapidly changing and dynamic market. IHS believes that together as one entity, Dell w/ 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. Allowing them to better compete against the likes of IBM, HP, and Cisco in the growing trend of unified IT solutions.”

Stice adds: “On paper, IHS sees the deal appears to be the best path for both companies. Financial success of course is still a question mark. 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.  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.”

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