Dell’s $67 billion plan to acquire storage heavyweight EMC creates a combined company that's in a strong position to take advantage of trends shaking up the storage market, analysts said.
Overall, the proposed mega-merger reflects what analysts at Wikibon have been talking about for years – that massive disruptions such as cloud computing are changing the competitive landscape, Stuart Miniman, Wikibon senior analyst and principal research contributor, said in a phone interview. In a blog post, Wikibon analysts called the deal a “major move on the enterprise IT chessboard.”
For EMC, the deal would allow it to better handle the transitions to flash storage, hyperconvergence, cloud computing, big data and the Internet of Things without the scrutiny of Wall Street, he said. As announced on Monday, the combined company will be privately held with VMware remaining a separate publicly traded company.
“The challenge with storage is it’s growing fast, costs a lot of money, and it’s tough to manage. I need something that’s more elastic, flexible and easier to manage,” said Miniman, who worked at EMC for 10 years. “EMC knows this. It’s been building new product, has solutions and is a leader in convergence and driving towards hyperconvergence.”
Dell, which supplies equipment to SMBs and big enterprises, is aware of the hyper-scale trend and is trying to work with cloud providers, he said. “Put them together and we’ll see what the synergies are.”
“We think hyperconvergence is a pretty exciting growth space and the combined Dell and EMC has a lot of the pieces to make it successful,” Miniman said.
Scott Sinclair, storage analyst at Enterprise Strategy Group, said in an email interview that he views the proposed merger as a response to the cloud competition.
“As EMC transitions to more of a software-defined storage company, Dell’s server hardware infrastructure offers a compelling complement,” he said. “The net result will be likely a better, longer term competitive response to cloud providers.”
Combined product innovations will likely take time to develop, Sinclair said, but added that the deal “may spur other more traditional IT providers to take some similar bold moves to augment their portfolios to better compete versus cloud.”
VCE and Cisco
While the proposed merger promises synergies, it also raises questions about the future of VCE, the joint converged infrastructure venture between EMC, Cisco and VMware in which Cisco supplies its UCS servers and networking. “The deal definitely looks like a blow to the EMC and Cisco relationship,” Sinclair said
“In the short term I expect VCE to continue, with EMC adding a Dell server converged solutions offering shortly after the deal closes. But over the long run it would not surprise me to see Cisco strengthen its partnerships and support with other storage providers,” he said.
In a conference call with reporters Monday, Dell CEO Michael Dell said the new combined company intends to continue the partnership, which he described as very successful. Likewise, Cisco said in an email statement to Network Computing that EMC continues to be a Cisco partner. “We are seeing great momentum as we deliver value together for our customers, specifically through VCE,” the spokesperson said.
However, the Cisco spokesperson also said, “There are no lack of opportunities for Cisco, and we are focused on growth opportunities that position us for where the market is going.”
Miniman noted that VCE’s VxRack hyperconverged systems, which incorporate EMC’s ScaleIO technology, don’t use Cisco servers, but rather Quanta servers. “Absolutely it would be easy to put Dell servers there,” he said, adding that it doesn’t preclude Cisco networking.
There were rumors for years that Cisco would buy EMC, and it came close to striking a deal, he said. Today, Cisco partners with nearly every storage vendor, so making an acquisition could complicate those partnerships. Still, he continues to hear strong rumors that Cisco will acquire another storage vendor (Cisco acquired Whiptail, but killed the product line earlier this year.)
Advice for storage buyers
Although the Dell-EMC deal might make the future murky for VCE buyers, Sinclair said he thinks the merger would be a positive one for the IT buyer. “The combined Dell and EMC has the potential to make EMC software capabilities more flexible and affordable,” he said.
In a blog post, Greg Schulz, founder and senior analyst at StorageIO, wrote that there is some overlap between Dell’s and EMC’s storage product lines as well as their backup and data protection lines.
“However looking at the bigger picture, there is not much if any overlap. Where there is overlap, one near-term approach that might (this is speculation) occur is to segment potential competing products into enterprise and systems business vs. SMB or entry level,” he said.
Miniman said the deal means one less storage supplier for customers. “Customers are looking to few suppliers, so in theory that’s potentially a good thing,” he said.
Overall, enterprise storage users need to understand what technology they’re buying and why they’re buying it.
“The old way of buying storage, was I’d get a budget for storage, I’d buy it and look at my lifecycle,” he said. “I need to shift that…. it [storage] should be driven by your applications and needs for the business. It’s not that storage isn’t important, but storage shouldn’t be the driver, it should be the enabler."