It’s going to take some time — at least six months — before the ripples of Dell’s $67 billion deal to buy EMC settle across the competitive waters, but the proposed mega-merger should already rocking HP’s unsteady boat, one analyst believes.
Coming off of recent layoffs and ahead of its split into two companies on Nov. 1, HP “is clearly in the most tenuous position” while the merger between Dell and EMC percolates, says Strategy Analytics analyst Laura DiDio.
With the Dell/EMC deal slated to close sometime between May and October of next year, HP’s attention span in the near term will be consumed by readjusting to the loss of 25,000 to 30,000 employees that were cut last month from Hewlett Packard Enterprise.
“The biggest potential loser is HP, because it’s in a more weakened position for at least the next six months,” DiDio says. “We’ll see what shakes out after the Nov. 1 split into two companies. There are a lot of questions there, and its going to be interesting to see this.”
Of course, not everyone agrees with DiDio’s assessment. In a letter to company employees, HP CEO Meg Whitman wrote that interest on the loan would take away from Dell’s R&D budget, and that the integration between the two companies would be “no small feat,” among other points.
Shakeup, or Business as Usual?
Cumulus Networks CEO JR Rivers says it isn’t clear yet on what the deal between Dell and EMC might mean for his company, but Big Switch Networks co-founder Kyle Forster think the merger is a “pure positive for Big Switch.”
Big Switch is a strategic partner with Dell, and its products are carried on Dell’s pricelist, so it’s no surprise that Forster is bullish on the merger. Dell is one of Cumulus Networks’ longstanding partners, and Dell distributes Cumulus Linux.
As for the potential impact of the merger on other vendors, DiDio says she sees Dell, Cisco, and Juniper Networks butting heads in the unified communications space and converged infrastructure space once the deal is finalized.
During Monday’s conference call, Dell CEO and Chairman Michael Dell stressed the positive impact that merger would have on the emerging Internet of Things market, which also happens to be a focal point for Cisco. Cisco has been largely successful with its own acquisitions over the past 15 years, and is making a big move into IoT, DiDio notes.
Cumulus’ Rivers thinks that Cisco will grow much closer to, if not acquire, an emerging storage company to provide a complete package to enterprise data center IT. As for Juniper, Rivers sees a renewed focus on service provider customers, “attacking router market share and and relevant adjacent platforms” while “perhaps reducing investment in peripheral markets.”
Additionally, DiDio says that Microsoft and Dell “have historically had a very cozy relationship,” but with the recent introduction of Microsoft’s Surface tablet the two are now competing more on the hardware side. DiDio still expects Microsoft and EMC’s VMware to compete on the virtualization side, “but it’s going to be interesting to see how Dell positions itself in respect to VMware’s virtualization.”
Most analysts and vendors seem to be in favor of the mega-merger, thanks in no small part to Michael Dell’s assurance that VMware will continue to operate as separate, publicly traded company.
So the VMware federation will roll on in the virtualization and storage sectors with all of the associated vendors staying in orbit for now. The question now is whether Dell/EMC is the first, albeit very large, consolidation domino to fall?
“I absolutely believe this is just the beginning, but having said that, these are mega mergers,” says Big Switch’s Forster. “They are things that take long periods of time to play out. What we’re seeing in the market is there’s a need for a small number of players that can do a full stack IP.”
Cumulus’ Rivers thinks the industry will see reactions to the merger, but “the devil is in the details of how the integration is executed” in future deals.
“Without a clear vision on what stays and what goes, the integration will be painful to customers and to the merged companies,” Rivers says. “I believe that Dell will have that focus; it’s not clear if others will.”
In Monday’s conference call with Michael Dell and EMC Chairman and CEO Joe Tucci, the two stressed that the merger would allow the joint company to better serve entities from the mid-market to the enterprise sector. The potential growth areas that were touted included: next generation IT including digital transformation, software-defined data center, converged infrastructure, hybrid cloud, mobile and security.
Sue Rudd, an analyst for Strategy Analytics, says that while the cultural gap in management style between Dell and EMC is significant, both companies will likely find VMware’s style quite compatible.
“VMware could be both the technology and cultural bridge to future value added solutions for both companies,” Rudd says.
In one example of a possible integration, Rudd says that service providers may buy Dell’s bare metal servers equipped with EMC’s network OSS virtualization offering.
The merger could also give Dell and EMC the ability to differentiate the new entity in their respective markets, according to Rudd. For instance, Dell could move towards distributed PC networking as a successor to commoditized standalone PCs. For EMC, it could get into distributed network storage, which is the successor to storage area networking, as data centers become part of the cloud.