It’s been a busy few days, so I decided to catch up with some laughs by reading Paul Thurrott’s Short Takes, and I was stunned to read:
Dell in talks to acquire EMC
What could this mean to IT pros? I’ve got some opinions on this, but keep in mind that I’m just another tax-paying Joe and not some venture fund genius.
The Dell Privatization
This just can’t be possible. Wasn’t Dell supposed to be in talks to buy Citrix? I even though that the Citrix story was laughable. It’s only a short time since Dell was privatized by Michael Dell, a transaction that cost $24.9 billion. By all reports, the privatization was a bloody affair, mainly thanks to competition from Carl Icahn. Let’s summarize it by saying that Dell and Icahn probably don’t send each other birthday cards. Private equity firm, Silver Laker Partners, was a headline funder of this takeover, but Microsoft watchers noted that Microsoft provided $2 billion to the takeover group.
A Look at Dell and Microsoft’s Relationship
Dell has always been an important partner to Microsoft. When Microsoft tried to compete against the Apple iPod, Dell was quick to build an MP3 player based on Microsoft’s technology. Dell has been there with Windows devices and servers over the years. Most recently, Dell has partnered with Microsoft to supply SAS and JBOD hardware for Windows Server Storage Spaces, and they are one of the partners building hardware for Windows Server 2016 Storage Spaces Direct. Also, the two corporations have created the Microsoft Cloud Platform System (CPS), a cloud in a rack based on Dell hardware and Microsoft software, such as Hyper-V, Windows Server, System Center, and Windows Azure Pack. It should be noted that this solution required a lot of improvements to Dell’s drivers and firmware.
Dell watchers often chuckle at acquisitions by this company. Some have been successful, such as the $1.4 billion takeover of EqualLogic or the $820 bargain consumption of Compellent after forcing arch-nemises HP into a $2.4 billion purchase of 3Par in a bidding war.
But other acquisitions leave one scratching your head. Dell has a huge portfolio. Some joke that Dell’s basement is where many companies go to die. Dell, like many companies with large portfolios, has a problem; it’s sales people have targets, and those sales people are going to sell products they know and can move quickly. So when Dell acquires a company like Quest Software for $2.4 billion, the large portfolio of that company is merged in, pushed down, and disappears. And then you’re left wondering what the fuss was all about.
Citrix has been shopping themselves around excessively in recent months. It’s been kind of embarrassing. Citrix was a company that was supposed to dominate end user computing — once in the 1990s with WinFrame, and then again during the Gartner/Forrester predicted era of VDI in the late 2000’s. Executives have been leaving this once powerful company that is now relegated to the role of supporting thick legacy programs in an era when SaaS and lightweight apps are taking over. It’s hard to say what future Citrix has, other than their interesting network appliances, which are probably short-lived thanks to the rapid evolution of cloud fabrics, such as Azure and the Windows Server 2016 Network Controller that includes load balancing and more.
Storage company, EMC, has been the subject of many rumors, too. EMC is a legacy storage are networking (SAN) company that once was a major player in enterprise and hosting storage. Times have changed. Legacy companies have faced many challenges in recent years:
- The likes of Dell and HP acquired startup storage companies and produced high-end storage that integrates tightly with their server and networking products.
- Smaller companies like Nutanix, Tintri, and Tegile offered hardware based alternative
- Software alternatives such as StarWind offer simple-to-use solutions that abstract the hardware with no compromises
And then there’s one other important fact: there are no SANs in the cloud. Microsoft, AWS, and Google are powered by software-defined storage, using commodity hardware such as JBODs with SAS connectivity. The next generation of storage flattens this architecture even more, as you can see with Storage Spaces Direct and vSAN. Room for the SAN in the modern computing market is shrinking on a daily basis, and this leaves EMC in the same position as Citrix — a legacy company that is sitting on glories of the past.
What would Dell do with EMC’s storage systems? Dell already has a great stack of products. Is Michael Dell simply thinking of buying and shutting down a competitor, leaving more room for himself, and take over the customer relationships? This seems like a waste of money — it’s thought that an EMC acquisition would cost $40 billion. Don’t forget that Dell is already in the hole for $11 billion after the privatization process.
But EMC owns 80 percent of VMware. That’s where things get interesting. EMC, the parent company, is losing money while VMware continues to grow. In fact, VMware is so successful that, until the Dell story broke out, it was rumored that VMware would buy out EMC!
Think about this: Microsoft provided $2 billion to privatize Dell. Dell might acquire EMC. EMC owns 80 percent of VMware. Would Microsoft own a share of VMware? Hyper-V fans like me are both giggling and shivering at the same time! You’ve got to think that people like Microsoft’s Jeff Woolsey are laughing at the irony right now.
I’ve got to think that Dell owning VMware would be a disaster for the Dell/Microsoft partnership. Obviously Dell would resurrect the “VMware in a rack” concept with Dell blades, networking and storage hardware. This would be in direct competition with the Microsoft CPS. VMware would start to push VMware’s VDI and cloud stacks, again, directly in competition with what Microsoft wants to do with System Center, Azure Stack and Windows Server.
And don’t forget that a Dell acquisition might devalue VMware too. Dell has 17.5 percent share of the server market. The other large players are HP (25.4%) and IBM (14.8%). Do you really think that HP and IBM will partner with Dell on enterprise virtualization? I think they’d quickly double-down on non-VMware solutions such as OpenStack, KVM, System Center/Azure Stack and Hyper-V.
Maybe owning 80 percent of VMware is Michael Dell’s goal. If so, I think it’s crazy. To be honest, if Dell are silly enough to buy EMC for their legacy portfolio that closely matches Dell’s, then I think that Dell/EMC would need to reduce the cost of acquisition and simplify future business by selling off the profitable VMware.