Dell’s Oct. 12, 2015, announcement of its intention to acquire EMC Corp., reverberated throughout the IT world, with the details of the deal itself. Now, IT organizations are turning their attention to Dell’s expanded product portfolio – what it means for their business, and their IT future.
An IT Transformation Opportunity
In our opinion, Dell views the EMC base as an IT transformation opportunity.
By acquiring EMC, Dell is also acquiring access to EMC’s extremely large installed base of storage arrays, and EMC scale-up storage systems.
The transformation that Dell has long advocated to its IT customers – moving from a scale-up, siloed IT world to a scale-out, modular world – will be translated into a new marketing approach for some of the world’s largest IT shops. Rack-based scale-out infrastructure will, in many cases, replace older, cabinet-based scale-up storage systems.
It’s worth noting here that some of EMC’s base is co-installed with IBM mainframes and Unix servers in highly mission-critical computing environments. Dell will now have the opportunity to bring new x86-based infrastructure solutions to those IT sites, in some cases surrounding scale-up servers – and in others, replacing them.
Dell CEO, Michael S. Dell, explained during the announcement call that Dell’s products and services were going to help IT organizations and businesses to transform their data centers with new solutions resulting in a software-defined data center, and hybrid clouds – linking the enterprise data center with cloud service provider data services. The move to digital transformation on a data-center level, will require planning, and partnership with Dell and its ecosystem of partners.
Dell will be able to position its scale-out servers and storage, its converged infrastructure and software-defined infrastructure solutions as eventual replacements for much – but not all – of EMC’s current scale-up systems base. That transition will not be instantaneous: Rather, it will take years to accomplish, and along the way, Dell will be able to sell hardware, software, and services to help that scale-up base transition to the new world of scale-out, modular, cloud-based IT.
A Three-Front Go-to-Market Strategy
The acquisition, which will likely face regulatory attention due to its sheer size, is expected to be completed in the latter half of 2016. Dell can view its next steps in what amounts to a three-front go-to-market strategy:
- Transform – Transform scale-up installations to scale-out installations. EMC and its Federation of companies – EMC Information Infrastructure (or core EMC), VMware, Pivotal, RSA and Virtustream—all lend technologies for end-to-end business solutions. Many will be software-defined, building on virtualization and automation software.
- Move Up – Help the “Move Up” market of mid-market companies and business units within large companies, by growing their scale-out systems to take on more demanding enterprise applications and databases. The large
“Move Up” crowd is already deeply invested in VMware virtualization technology and Dell products. Now, Dell will be better positioned to help those customer sites to “grow” into a more highly available, secure set of applications.
- Cloud Build-Out – Dell is already successful at helping large cloud service providers (CSPs) to build out their IT infrastructure for cloud workloads. Now, it can work with CSPs, managed service providers (MSPs) and hosters to build more data-center infrastructure that will take on heavier enterprise workloads. Each year, customers will, by their own choice, shift more of their vast inventory of traditional enterprise workloads to be run by hosters, MSPs and CSPs. This shift is taking place, over time and around the world, in an effort to contain IT-related Capex costs, and to improve in-house Opex costs (e.g. data center space, IT staff, maintenance).
Changes in the Portfolio
Clearly, Dell’s product portfolio will be expanded, de facto, from Day One of the newly merged Dell/EMC company, following completion of the acquisition next year. By acquiring EMC, Dell will gain a broader and deeper storage portfolio, along with important storage management software that spans the enterprise for distributed data storage; deployment/management; high availability; back-up and restore; archiving; data protection and security. Until now, Dell’s storage was known more for the SC Series (Compellent), PS Series (EqualLogic) and Dell PowerVault offerings, with an emphasis on rack-based and scale-out computing. Neuralytix believes that, following the acquisition, Dell’s storage portfolio will be more far-reaching and comprehensive, including storage products ranging from entry-level systems to high-end enterprise storage.
But the packaging and selling of those point-products from EMC may change in the combined portfolio. Neuralytix believes that, as with the 2002 HP/Compaq merger, the combined Dell/EMC may go with an “adopt-and-go” strategy for deciding which point products to keep, and which to sell or spin out. It’s too early now to predict which products would be retained – and which would go away. But the process can be a successful aid to merging two companies’ extensive product lines.
Of course, Dell’s greatest opportunity now, and into the future, is associated with technology refresh, and with deeper-level services for these customers. The worldwide IT opportunity generates more revenue from software and services than it does from servers (more than $50 billion worldwide) and storage (less than $50 billion worldwide for disk-based and flash-based arrays) alone.
Pure cloud opportunities will be high on Dell’s priority list, because CSPs are hungry for systems that support rapid build-out of their infrastructure. Fueled by cloud services aimed at consumers (e.g. Social Media sites) and cloud services aimed at business and enterprises (e.g. IaaS, PaaS and SaaS), CSPs will continue to build up IT inventory, while traditional enterprises will look to consolidate their systems.
Following the EMC acquisition, Dell is estimated to be a roughly $80 billion+ revenue company, based on combined revenue from today’s Dell and EMC, but not including VMware, which is today 80% owned by EMC.
A combined Dell/EMC would find itself competing with two global IT suppliers of similar size – IBM, with $80 billion+ in revenue and HP Enterprise (following the split of Hewlett-Packard into enterprise and PC/printer companies), with $50 billion+ in revenue. Oracle, a strong Dell partner for database and applications software with $40 billion+ in annual revenue, will sell its Oracle enterprise engineered systems – which combine and optimize hardware and software – although we note here that Oracle’s revenue is heavily software-based.
As Dell expands its product portfolio, it can, and should, retain multiple product lines in its traditional server and storage spaces. That will help it to expand its customer base. At the same time, it must take care to stay nimble – while making changes in business units that are not aligned with its new go-to-market strategies.
Because Dell is a private company, and the deal would take EMC private, as well, any changes in the organization would be decided outside the glare of public quarterly reports and Wall Street commentary. That gives Dell time to consider how it will integrate the business units of EMC’s Federation – and when it would make changes.
One sign of what may happen in the future Dell/EMC organization is a new cloud-services business, based on an agreement between VMware and Virtustream, a business that EMC acquired in May, 2015. The new business – jointly owned by VMware and Virtustream – will provide what the companies called “a comprehensive cloud portfolio.” Following so soon after the Oct. 12 announcement of Dell’s acquisition of EMC, it signals an energetic effort to build up EMC’s hybrid cloud capabilities, even before the Dell acquisition is completed. Virtustream is a member of the EMC Federation of companies, and the Virtustream financials will be rolled into VMware’s financial statements as of Q1 2016.
As it looks to 2016, Dell has identified the IT spaces in which it plans to lead. In its Oct. 12 press release about Dell’s acquisition of EMC, Dell named the areas of digital transformation, software-defined data center, hybrid cloud, converged infrastructure, mobile and security. That implies that Dell will leverage the EMC business units that take it closest to those goals, especially leveraging Pivotal for cloud-ready workloads, VCE, for converged infrastructure, and RSA for secure infrastructure, to do so. Those offerings, combined with solutions and services – from Dell and its partners – will be aimed at moving customers to use Dell’s products and services more intensively.
But how Dell organizes the combined company, and what it emphasizes in its industry and enterprise solutions, remains to be seen. It will take time for its organizational plans to develop, and to be communicated widely.
Neuralytix believes that software and services are two of the most important aspects of IT transformation for any company – and that Dell must communicate more about its plans in those spaces.
Given the size of the deal announced Oct. 12, all constituencies will want to hear more about the details of the deal. That process will begin at Dell World 2015 in Austin, Texas, where Dell will continue its dialog with the IT industry, IT professionals, and the hardware/software/services ecosystems that have grown up around its technology.