Advanced Computing in the Age of AI | Tuesday, November 29, 2022

VMware Targets Synergies in Dell-EMC Deal 

The "hyper-convergence" of computing and storage accelerated with confirmation that Dell Inc. and technology investor Silver Lake Partners will acquire storage leader EMC Corp. (NYSE: EMC) for an estimated $67 billion.

Under terms of the deal announced on Monday (Oct. 12), EMC subsidiary VMware (NYSE: VMW) would remain an independent, publicly traded company. Additionally, EMC shareholders would receive about $33.15 per share in a combination of cash and "tracking stock" linked to EMC's stake in VMware.

Along with EMC and VMware, Dell and Silver Lake also will acquire EMC's holdings in Pivotal Software, RSA Security, cloud computing vendors VCE and Virtustream and others.

Reports of merger negotiations between Dell and EMC surfaced last week.

"Our new company will be exceptionally well-positioned for growth in the most strategic areas of next generation IT including digital transformation, software-defined datacenter, converged infrastructure, hybrid cloud, mobile and security,” Michael Dell asserted in a statement announcing the megadeal. Dell would lead the combined company.

EMC CEO Joe Tucci estimated the combined, privately held company would have revenues totaling $80 billion and a more competitive position in the servers, storage and virtualization markets along with software-defined datacenters, hybrid cloud, converged infrastructure and the security sectors.

Tucci added that the merger would create "revenue synergies" between Dell and VMware he claimed could top $1 billion over the next several years. Patrick Gelsinger would remain as VMware's CEO.

Tucci added that the combined company would continue its partnership with Cisco Systems in networking, Cisco's Unified Computing System and its vBlock cloud platform. "This is a bittersweet announcement for me," added Tucci, who heads toward retirement after the deal closes.

"This deal is about accelerating growth opportunities and market expansion, and not about cost savings," Gelsinger stressed during a conference call. The company expects to report quarterly revenue of $1.7 billion, up 10 percent year-on-year.

Gelsinger added that the deal would allow VMware to expand its software-defined datacenter business through increased "attach rates of compute, networking, management and storage products directly to new equipment sales."

Observers said the blockbuster deal could be a game changer as computing, storage, networking, security and other key IT enterprise components are merged on a single platform. "Dell gets a jumpstart to accelerate its movement into the larger enterprise space for servers, storage, I/O networking and associated techniques," noted Greg Schulz, a senior advisory analyst with IT consultants StorageIO.

"Dell gets a robust mid-market and enterprise storage business, [but] they also get access to those customers, partners and a global service and support network to expand their traditional offerings into markets that had barriers before today," Schulz said.

Added Addison Snell of Intersect360 Research: "For Dell it is a chance to drive an end-to-end high-performance data strategy, which has been an area they have sought to improve." For EMC, "it is a chance to consolidate separate lines into a cohesive high-performance strategy—right now, Isilon and XtremIO are isolated businesses. And with virtualization now on the rise in HPC environments, Dell will want to see if VMware can be a valuable component."

The transaction would be financed through a combination of new common equity from Michael Dell, MSD Partners, Silver Lake and Temasek along with the issuance of tracking stock, new debt financing and cash on hand.

Under terms of the deal, Dell would own about 70 percent of the new company’s common equity, excluding the tracking stock, the companies said. The transaction is expected to close as soon as early as mid-2016.

About the author: George Leopold

George Leopold has written about science and technology for more than 30 years, focusing on electronics and aerospace technology. He previously served as executive editor of Electronic Engineering Times. Leopold is the author of "Calculated Risk: The Supersonic Life and Times of Gus Grissom" (Purdue University Press, 2016).

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