|By Avi Rosenthal||
|October 15, 2015 02:23 AM EDT||
More than six years ago I wrote a post titled: Vendors Survival: Will EMC Survive until 2018?
The trigger for writing that post was an article by Jason Hiner, the Editor in Chief of Zdnet. According to Hiner "EMC, the world’s leading storage vendor, is flush with cash and has the opportunity to make a big move".
Hiner thought of two possible big moves:
1. Dell and EMC merge i.e EMC would buy Dell
2. Cisco buys VMware
I thought that the two moves suggested by Hiner will not be realized in 2009.
AS far as EMC Survival was concerned, I thought that the keys for the company's survival until 2018 are keeping its leadership in the Storage market and adapting to Cloud Computing.
I do not know if Cisco will acquire VMware, but on October, 12, 2015, Dell announced a deal with MSD and Silver Lake to buy EMC for 67 billion USD in Cash and stock. VMware owned partially (80%) by EMC is excluded from the deal.
The deal is the largest Information Technology acquisition ever.
On 2015 EMC is no longer "flush with cash". Elliott Management Corporation took last year a 2.2% stake in EMC and urged it to review breaking up, which immediately raised possibility of sale.
The following paragraphs are my First Take of the proposed acquisition.
EMC since 2009
EMC is still a Storage Market Leader owning about 20% market share. In my 2009 post I wrote: "The Storage Market is changing and storage vendors should innovate in order to keep their current position or even improve it".
I am not sure that EMC the innovative Storage vendor of the eighties beating the Mainframe Storage Market Leaders such as IBM, is still an innovative company.
Read the article "IDC says server-based storage sales are soaring – and Dell's pwning the market"
in The Register.
The chart titled: "Worldwide Total Disk Storage Systems Market Top 5 Vendors Q1 2014 -Q2 2015 (shares based in revenues)" reveals the following trends:
1. The competition is increasing. "Others" market share is larger than any Leading Vendor share.
2. EMC is still the Leader, but its market share is gradually declining ( its market share in Q2 2015 is larger than its market share in Q1 2015).
3. The other leaders are: IBM, Netapp, HP and Dell.
4. Dell's market share is growing slowly but in terms of total storage shipped is number 1: "Dell is, and remains, number 1 in total storage capacity shipped terms, looking at both external and internal storage. We understand Dell shipped 3.6 exabytes of data, more than NetApp, IBM and Hitachi combined (3.05 EB). EMC shipped 2.56 EB."
Why does Elliott Management Corporation "urged EMC to review breaking up", i.e separating the
VMware business from the Storage Business, and probably selling its 80% share in VMware?
VMware is no longer a Leader with no competition in The Virtualization Market. The Virtualization market is also crowded and "Now Elliott appears to be arguing that keeping VMware aligned with EMC not the most profitable option"
Michael Dell is back leading the third largest Enterprise IT company. IBM and HP are still larger than Dell-EMC combined together.
Dell company was a PC market leader, which extended its product lines to Enterprise Hardware, such as Server and Storage due to the PC market challenges.
Latter the company added Software Products Line to its Hardware.
For example it acquired boomy. Dell Boomy is a Leader in the Cloud Integration Market.
For the last two years Dell is no longer a public company. It is a private company and therefore its financial and business details are not publicly available.
Will Dell Survive until 2025?
Large companies such as DEC and SUN did not, but many other survived. Large companies do not disappear suddenly, so Dell may Survive. However, it has multi challenges and I am not sure it will Survive.
1. Merges of Large companies are difficult
The issues include different Corporate Cultures, overlapping Business Lines (e.g EMC Storage and Dell Storage), Layoffs, unifying Organizational Business Processes and Information Technology Systems and Architectures etc.
A good example of a similar challenge is the acquisition of Compaq by Dell's competitor HP. The acquisition of EDS by HP is not similar, but some of the issues may be similar.
Read my posts about HP's acquisitions and my recent post about splitting HP to two companies:
Vendors Survival: Will HP Survive until 2018? - Revisited
Vendors Survival: Will HP Survive until 2025? - is not a question to be asked anymore
2. The IT market is changing
The Information Technology market is no more an Enterprise based market. It is more and more Consumer Centered market based on Internet, Clouds, Smart phones and Pablets.
New market implies new technologies e.g Social and Professionals networks and Smart phones Applications.
New market Leaders, such as Google, Facebook and Apple emerge and former Market Leaders face new Challenges.
Dell a traditional Enterprise and PC vendor has challenges. Other traditional technologies based companies such as IBM, HP, Microsoft and Oracle has to cope with challenges as well.
3. The Financial perspective
MSD and Silver Lake are Investments companies. These companies will pay some of the large amount of money required for EMC's acquisition.
According to some of the Web sources I read, high percentage of the payment will be by loans. Dell will have to return the loans.
Could Dell return the loans? It is not clear yet if it will be able to return the loans.
If it could and would what will be the downside of returning it instead of Business Development?
IBM and HP are Dell's major competitors. Oracle (SUN's Hardware), Netapp and other Storage Vendors are competitors as well.
They will continue to develop their products, to market and sale their products and to develop new innovative products.
Could struggling Dell (because of the merging process with EMC) develop, sale and market its product like its competitors who do not have to allocate resources to a merge with another giant company? I do not know, but i am very skeptical.
5. The Servers Market
According to few Internet articles, the trend of better Servers usage is another threat to Servers vendors including Dell. The usage of Cloud Computing and Operating Systems Virtualization are the major enablers of Servers usage efficiency. Read the next paragraph in order to understand why my opinion is different from these experts' opinion.
The conclusion that improved usage of Servers resources will reduce Server's Capacity is simplistic view.
The major trends of the Servers market are (I marked in red trends reducing Servers Capacity and in green trends augmenting Servers Capacity:
1. Operating Systems Virtualization
Multiple Operating Systems instances sharing the same Server reduce the total Servers Capacity.
For example, single instance of Operating System on a Server could use sometimes 20% or 30% of the CPU power.
Multiple Instances could use 70% of the CPU power or even higher percent.
2. Cloud Computing
Large Data Centers sharing Workloads of multiple organizations are more efficient than dedicated Data Centers. They use Operating Systems Virtualization as well.
Many SMBs will use Public Clouds. However, larger enterprises will probably implement Hybrid Clouds i.e. Private Clouds and Public Clouds. For additional information on The next Generation of Clouds read my post: The Next Generation of Private Clouds.
The bottom line is that Public Clouds will save Server's resources.
Probably many Private Clouds will save resources as well, but due to lower expertise and smaller size, Private Clouds would save less resources than Public Clouds.
3. Natural Capacity growth
The Server Resources of most customer of mine, as well as other organizations I know about, grew systematically. The frequent growth rate was two digits growth per year e.g. 10%, 20% or even 30%. The Capacity growth rate could be declined because of Cloud usage, but other factors drive more rapid growth rate.
4. New Enterprises
New Enterprises have to use Servers' resources. The emergence of new enterprises, as well as high growth rate of current enterprises' servers resources is more frequent in Developing Countries.
5. New applications
New Applications consume Servers resources. For example Social Applications, Analytic Applications, Case Management, Consumers Applications etc.
6. Rapid Data growth Rate
More data implies more processing in addition to more Storage usage. Big Data and new Analytical Applications consume a large amount of Servers resources. The need to integrate data placed in varied locations and varied data formats augments the servers resources required for Big Data applications.
The prevalent usage of more complex data formats, such as videos and pictures requires more server's resources.
7. Smart Phones and Pablets
Did the emergence of PCs and the Client/Server architecture reduced Server's resources requirements?
The answer to this question is no. On the contrary, offloading of application and data to PCs augmented Server's resources requirement.
Smart Phones and Pablets are a new generation of very similar architecture.
Applications are offloaded to the Smart Phones and the integration to the Back end Servers, usually Cloud based servers, is via Internet.
Expect that usage of new and sophisticated Smart Phone application will augment Server's resources requirements, similar to the growth of resources in the Client/Server architecture.
8. The same computing power costs less and less
The last bullet is not marked in green and not marked in red.
It is another issue which is not directly related to Server Capacity consumption, but it could have negative influence on vendors' revenues.
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