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Dell-EMC acquisition gives channel plenty to think about

Why, in the immediate aftermath of the mega-acquisition, uncertainty goes hand in hand with opportunity

Two interconnected puzzle pieces overlaid on a top-down cityscape

Dell’s planned acquisition of EMC has been a major talking point for our channel partners ever since it was first announced last October. The $63bn merger of the major hardware vendor with the global leader in storage, security, virtualisation and cloud computing will make Dell one of the world’s largest IT companies, just behind Microsoft and IBM. The EMC portfolio includes major IT companies and technologies such as VMware, RSA Security, Pivotal and the acquisition raises questions about the future of all these brands.

Strategic sense

According to the McAfee 2016 Threat Predictions report, storage needs and network bandwidth will continue to grow extremely fast, as will the need for data deduplication. This will lead to a fivefold increase in storage market in five years. In light of these conditions, the Dell-EMC merger seems strategically correct for both parties. The deal will help the hardware provider broaden its product lineup to penetrate the enterprise market and respond to enduring threats from big tech giants like Hewlett-Packard, IBM and Cisco. For EMC, the combination may calm investors, particularly those demanding to see more growth. Since practice shows that big customers are more likely to buy from fewer suppliers, the company has a better chance to position itself in large enterprise sector, if it has “everything under the same roof”.

VMware status

Despite the positive overall outlook, the deal is not without its problem areas. The first one is the status of conflicting projects, namely, VMware. The greatest concern for VMware shareholders is that this data-center software subsidiary of EMC might become a victim of the deal’s complexity. No wonder that VMware stock price has fallen sharply by about 25 percent in the weeks since Dell first announced the acquisition of EMC. Further consternation followed EMC’s own announcement that the two companies’ cloud-computing offerings would be reorganized into a subsidiary named Virtustream. Ultimately, the key question about whether VMware will stay independent along with its commitment to working with other vendors, or be turned into another Dell reseller, remains unanswered. Analysts point out that the industry has a long history of companies collaborating and competing against each other; therefore, Dell will most likely explore ways to integrate its hardware products into VMware sales without sacrificing its independence.

Non-core software assets face an uncertain future

A more immediate concern for Dell’s customers and stakeholders is the question mark hanging over the company’s software business. Rumors about the possible selling of previous acquisitions like Quest Software, SonicWall, Perot Systems and AppAssure are rife. Some say that disposing of these would be a logical step, helping Dell to focus on its most valuable assets and get the scale it needs to dominate the large enterprise storage segment. However, while the very existence of EMC’s software businesses remains uncertain it causes considerable strain for customers and the resellers that serve them.

This is not just true for existing customers looking for reassurance about the continuation of products they have been using for a long time, but also for new customers who might be thinking of purchasing these systems for the first time. In consequence, both current and potential customers of Dell are probably interested in exploring alternatives, which gives competitors carte blanche to fight for Dell’s current market share.

Peter Smith is regional sales manager for Europe at Netwrix

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