Why EMC acquisition makes sense for Dell...job losses expected

As far as October last year, a day ahead of the start of a company conference, Micheal Dell the founder of Dell corp, sat down for an interview with Re/code in a hotel conference room in Austin, Texas, and talked about how Dell, the company, will combine with EMC in a transaction worth about $67 billion employing a strategy that made its target vulnerable to hostile shareholder attack.

From his dream, when the deal closes Dell will have pulled off the single largest M&A deal the technology marketplace has ever seen, one that will result in the biggest single vendor of personal computers, servers, software and storage equipment in the world. In so doing Dell will go against current conventional logic that calls for simpler corporate structures.

Companies like HP and Symantec and eBay have joined a long list of American corporations that have split up to untangle complicated conglomerate structures and focus on growing markets. Ironically, EMC’s path to a sale was reached because its complicated structure made it vulnerable to hostile shareholders demanding a split.

Fast track to a couple of weeks ago, Dell and storage solutions company EMC merged, to "create a $74-billion market leader with an expansive technology portfolio that solves complex problems for customers in the industry's fast-growing areas of hybrid cloud, software-defined data centre, converged infrastructure, platform-as-a-service, data analytics, mobility and cyber security".

Technology companies have always sought newer engines of growth. In most cases, it was achieved through acquisitions. EMC itself was an acquisitive company - if you go back 12 years, EMC transformed from being a single platform company to a firm with a 'family'. It transitioned from being a hardware-centric company to a complete information management company, which offered both software and services. In fact, EMC, by 2005, was one of the world's largest software companies! The talk, then, was also about reducing complexities for the customer. A large hardware+software+services company would take away the headache of negotiating with multiple vendors as also of integration. That logic hasn't changed now; only the circumstances have. Dell's acquisition of EMC is easy to understand through this prism.

While much of the past decade was about the implementation of package software, when it came to information technology, the next 15 could be about transforming enterprises digitally. Chief Information Officers (CIOs) are tasked to help their companies transition from legacy applications to consumer-grade mobile apps. As the trend towards the Internet of Things accelerates, more and more devices will get connected. Gathering information from these devices and analysing them will be the key to both top line and bottom-line performance for every enterprise.

This scenario also implies a greater degree of complexity in tech architectures. A converged infrastructure may make more sense - Dell and EMC combined can offer that converged infrastructure of compute, storage, networking and applications. Global customers also need efficient supply chains. Being able to deal with fewer vendors is always useful. The new scale of Dell Technologies fits into this scheme.

There is, of course, the question of customer lock-in when dealing with a single large vendor. Executives at EMC World had a ready answer whenever it came up: "A single vendor can be much more honest and strategic."

So following its $60bn-plus buy of storage titan EMC, with between 2,000 to 3,000 heads expected to roll. But if sales don’t track to management expectations, sources told us to expect more. A Bloomberg report claimed Dell will seek out $1.7bn in cost savings in the next eighteen months – but it will seek to beef up sales by several times that amount, minimising the need to thin out more.

A Dell spokeswoman gave us the same line Bloomberg carried: “As is common with deals of this size, there will be some overlaps we will need to manage and where some employee reduction will occur. “We will do everything possible to minimise the impact on jobs,” he said, “We expect revenue gains will outweigh any cost savings, and revenue growth drives employment growth”. The redundancies are likely to fall mostly in the US and in roles including supply chain, marketing and general and administrative functions.

Dell completed the acquisition of EMC on Wednesday 7 September, creating a corporate giant turning over more than $70bn and which employs 140,000 people.

Both companies are under pressure from cloud services rivals – in the case of EMC its revenue growth has flatlined, while Dell is still trying to become more than a PC player.