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Four questions about the Dell-EMC merger

James Niccolai | Oct. 13, 2015
The deal will make Dell one of the world's largest IT vendors, just behind IBM and Microsoft.

Michael Dell
Michael Dell opens Dell World on Tuesday. Credit: James Niccolai/IDG News Service

Dell dropped a bomb on the enterprise IT market Monday by announcing plans to buy storage giant EMC for a whopping US$67 billion. The deal raises many questions; here are four of them.

Where’s the cloud?

Assuming it goes ahead, the deal will make Dell one of the world's largest IT vendors, just behind IBM and Microsoft, but Dell will still have little to offer in the fast-growing area of cloud services. Oracle, IBM and Hewlett-Packard are all building out cloud offerings with varying degrees of success, but it's not something Dell has focused on, and buying EMC won't change that. How much that matters is an open question.

“This deal makes Dell a far stronger player in the traditional sense of IT technology vendors. The problem is, the future belongs to non-traditional players,” says Glenn O’Donnell, a research director at Forrester.

Most large companies are using some combination of public and private clouds, and Dell needs to show it can be a go-to provider for those organizations. But that doesn’t mean it needs to operate its own cloud, and going head to head with Amazon Web Services or Microsoft Azure would be a costly mistake, O’Donnell said.

Instead, Dell can provide the converged infrastructure for building on-premises private clouds, then offer middleware that connects those systems to services like Azure and AWS. EMC owns around 80 percent of VMware, which sells that type of software, and Dell has Boomi and other cloud integration products.

Dell also sells hardware to the companies building cloud services, something CEO Michael Dell highlighted on a conference call Monday. 

Crawford Del Prete, chief research officer at IDC, doesn't think Dell needs a cloud service today, either -- though he predicts it will need to revisit that strategy over time.

That would mean spending heavily on new data centers or another acquisition, neither of which are likely to be top of mind right now for Michael Dell.

What happens to the VMware-Cisco-EMC partnership?

EMC joined with Cisco and VMware six years ago to form a company called VCE, which sells converged infrastructure systems that combine compute, network and storage in preconfigured blocks.

Dell and EMC said that partnership will continue. “Our VCE business, when connected to Dell’s products and services, will grow faster and have a much larger impact on the industry than either one of us could individually,” EMC's CEO Joe Tucci said in a blog post.

But the EMC deal opens the door for Dell to sell more of its own servers and network gear into those converged systems, and O’Donnell was pessimistic. “The VCE effort is dead, in my opinion,” he said. Cisco has already scaled back its investment, he noted, and he expects Michael Dell to reduce EMC's involvement too.


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