Year One – Dell EMC Celebrates Its 1st Anniversary

Telling if a technology acquisition is successful isn’t always easy. That’s partly because of the inherent complexity of such transactions, as well as the constantly changing nature of the industry. However, if you want to dig into the details here are a few potential problem areas to examine and questions to consider:

• Did the purchase cost more or deliver fewer benefits than anticipated?
• Has it led to unexpected challenges for the involved organizations, their partners or customers?
• Is there evidence of friction, either in significant downsizing or key executive departures?
• Can the combined organization pursue new business opportunities or capture value that the individual companies could not?

Since Dell’s purchase of EMC closed on September 7, 2016, this a good day to consider those points and what the company has achieved in Year One. Frankly, the answers appear to be largely or even entirely positive.

That is a remarkable point given the deal’s size: at $67B, it was about double the size of the IT industry’s previous largest acquisition –  HP’s 2001 purchase of Compaq for $33.6B (adjusted for inflation—at the time, HP paid $25B, mostly in stock). But given the broad pressures and uncertainties besetting the IT industry when Dell proposed the EMC deal, servicing the massive debt required to finance it led many analysts to doubt Dell’s plans.

In addition, while the companies were highly compatible technologically and had worked closely together as strategic partners, there were also significant cultural differences. For many, EMC typified “old school” East Coast corporate thinking and tech firm performance. In contrast, Dell was and is a Western (though not West Coast), entrepreneurially-minded organization led by its visionary founder.

As a result, it was easier for cynics and pessimists to imagine the deal faltering or failing than achieving its remarkable aspirations. After all, hadn’t other major acquisitions fallen flat? On its own, HP’s purchases of Compaq, EDS and Autonomy qualifies as a trifecta proving why making big IT bets is an inherently bad practice.

So a year after the fact, how is Dell EMC doing?

Dell at VMworld 2017

People celebrate anniversaries individually and on the approach path to September 7th Michael Dell kicked-off at VMworld 2017 where he mixed informally with conference attendees, partners, media and analysts.

At a panel discussion with VMware CEO Pat Gelsinger, Dell was asked about the state of the merged companies and noted, “The biggest surprise is that we’ve had no surprises.” He also noted that “revenue synergies” between Dell and EMC have arrived sooner than expected.

Plus, customers and partners are reacting positively to dealing with a company whose broad portfolio of end-to-end solutions addresses most or all their business technology needs. In fact, Dell EMC released the details of a study in which 91 percent of customers said they believed the company had delivered on the promises it made regarding the acquisition.

Dell also said the company is capturing more large-scale deals with customers that span a range of Dell EMC’s integrated products and services. That’s helping drive the company’s efforts in multi-cloud environments and emerging market opportunities, including the Internet of Things (IoT).

Of the former, Dell noted that while “multi-cloud is the reality of the market,” customers continue to struggle with concerns about data security and related issues. Dell EMC is already moving forcefully into the IoT space with its Edge Gateway offerings and new solutions, like the weatherproof “micro modular data centers” it previewed last October.

Interestingly, the company is successfully leveraging innovations in other product lines, such as its ruggedized notebooks and tablets, in IoT solutions. Its OEM organization is also working with numerous partners on industry- and workplace-specific IoT offerings and services.

This is not to say that the Dell/EMC integration has proceeded perfectly. As Gelsinger quipped, “Getting everyone aligned around the wrong answer is not the right answer.” Dell noted that the company used “facts, logic and customer-orientation” to deal with issues, including revenue recognition and how customer engagements proceed.

Given how critical those points are to its salesforce, some friction was bound to occur so it’s good that Dell EMC found ways to resolve them. The company also divested three substantial businesses – Dell Services, the Dell Software Group and the Enterprise Content Division – though the process was less disruptive than it might have been.

Some will say that Michael Dell’s comments qualify as little more than PR boilerplate that should be taken with more than a grain of salt. That’s a reasonable point, especially since the now privately-held Dell EMC’s finances are largely opaque. As a result, it’s worth considering how the company performed during the most recent quarter by considering recent IDC announcements on worldwide (WW) server, storage and PC markets.

• In WW server sales, Dell EMC ranked #2 (behind HPE) but was the only one of the Top 5 vendors to grow its revenues (by 4.7 percent) year over year (YoY).
• In WW storage, Dell EMC maintained its #1 standing in total enterprise storage system sales with a 21.5 percent market share and $2.3B in revenues.
• In WW PCs, the company placed third (behind HP and Lenovo) but increased shipments by 3.7 percent YoY and continued positive growth in every global region with strong notebook volumes.

Final analysis

So on the first anniversary of the IT industry’s largest – by far – corporate acquisition, how is Dell EMC doing?

Pretty darned good, overall. Though the company is dealing with the same pressures (decreasing margins in PCs and increasing pressure from ODM-direct server and storage makers) as competitors, it has maintained its leadership positions and/or is gaining share and revenues.

Dell EMC is also profiting from its strategically aligned businesses, VMware, Pivotal and SecureWorks. VMware’s continuing success is especially gratifying, and the company appears well-positioned to compete in numerous new market opportunities, including multi-cloud environments and IoT.

Additionally, it’s worth noting that during what is typically a tumultuous post-acquisition period for most companies, many of Dell EMC’s competitors were weathering tumults of their own. In particular, HPE continues its slow-motion reorganization (or train wreck, depending on your viewpoint), and the recent revivification of PC markets has led to second-guessing about the wisdom of the company’s spinoff of its HP PC/printer division.

While it’s never wise to assume competitors will make unforced errors, it is sensible to take advantage when they do. Dell EMC has certainly done that, and though the company’s first year of business included numerous challenges, it has also succeeded and prospered during the process. If the past 12 months indicates what Dell EMC can achieve under substantial pressure, Year Two and the years ahead should be full of positive surprises.