The cloud industry has been growing rapidly over the last several years showing extremely high growth numbers, even for an industry that is used to double-digit growth rates. There are hundreds of companies offering private, public and hybrid solutions, developers building new business models on cloud tools, as well as dozens of startups that appear to be sprouting every other month, offering innovative services for corporations.
One might think that the industry is ripe for consolidation in the form of mergers and acquisitions but it is clear that the cloud segment still hasn’t matured to that level. But that doesn’t mean acquisitions cannot happen and in fact, the latest one by Dell has led to intense speculation as to the future of the cloud. In what is probably an extremely surprising move to Wall Street analysts, Dell has acquired EMC for about $67 billion1.
Largest Technology Deal
The first thing that caught the eye of media outlets is that this acquisition is the biggest technology deal between companies, especially in the cloud industry. Although there was some speculation that HP or IBM would buy EMC, it appears that Dell – which is now privately owned – has won the prize. The company has said that the deal would be in the form of cash and stock. EMC and Dell have not been doing well lately even though both companies have made some moves towards the cloud industry.
What Does EMC Gain?
EMC used to be the biggest provider of storage devices for corporate data centers but has steadily lost relevance in an industry that is increasingly relying on Amazon, Google and Microsoft’s clouds. In the face of declining stock prices, certain investors had even launched campaigns to break up the company but failed narrowly. For now the company appears to be safe as Dell is a private company, not subject to shareholder or investor scrutiny.
What Does Dell Get from the Acquisition?
This deal instantly provides Dell an opportunity to enter the cloud market in a big way. It is likely that the company is interested in VMware in which EMC holds the controlling share at 81%. VMware is present in practically every major corporation across the world and there are very few companies that do not use VMware in some form or the other to run virtual operating systems. This gives Dell a nice entry into the corporate cloud market that is seeing intense competition nowadays.
This move also helps Dell to diversify out of the PC – desktop, server and laptop – business that has been stagnating recently. Dell is no longer the number 1 manufacturer and the PC market itself has seen very slow growth (if at all). With EMCs storage products and VMware’s software, Dell could make a big foray into the enterprise cloud segment.
Dell could offer a very compelling cloud product that includes the cost of VMware. Such a product/service would be very hard to replicate since competitors would have to charge customers for VMware software. Of course, it remains to be seen if Dell will enter the cloud market at all but if they do, this acquisition could be the best move made by the company in a long time.
1. CNNMoney, October 2015