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'Astonishing how open' EMC and Dell are about merger

LAS VEGAS -- Only the way in which EMC and Dell discussed their pending merger at EMC World 2016 surprised Randy Kerns, a senior strategist and analyst at Evaluator Group Inc. in Boulder, Colorado.

Dell's proposed $67 billion acquisition of EMC, announced on Oct. 12, 2015, was a hot topic of conversation at this year's EMC World. Obstacles must be cleared before the deal can close, but EMC and Dell executives gave no hint of trouble.

"It's somewhat astonishing how open they've been about this," said Kerns. "And they're very clear that they think they're on pace for this to happen with no problems."

Kerns said EMC and Dell largely deflected questions about personnel, but acknowledged there could be overlaps in supply chain management and products. But, he said, EMC and Dell Technologies tend to be complementary, with Dell focusing more on small businesses and consumers and EMC targeting enterprises.

"They also talked a lot about how they were going to maybe reorganize into a federation like EMC has, but they'll have the different brands," said Kerns. "And so Dell will target the lower market segment, and then the enterprise will be Dell EMC as the brand -- all of this under Dell Technologies as a corporate name."

Kerns said EMC and Dell have tried to allay fears with customers who want to make sure the companies will continue to invest in and support the products they use.

They're very clear that they think they're on pace for this to happen with no problems.
Randy Kerns

"They made the right statements here. And so it will just be a matter of seeing, 'Do they continue with that?'" said Kerns. "If I was a customer, that probably wouldn't be my big concern now. I would be continuing to look and see how well they do on their investments in R&D, monitor that every year, see how their economics are going."

Kerns said EMC has been a dominant player in the relatively high-margin storage business, while Dell has focused on the lower-margin, highly competitive server business.

"Those two coming together will be completely different from the financial standpoint and what the expectations are. So, they'll have to manage as if they have a portfolio of businesses that target different market segments," said Kerns. "I think these are obviously very bright people, and they'll understand that and figure out how to do that."

Kerns said EMC and Dell have one critical factor working in their favor.

"Probably the biggest thing from this merger or acquisition is that both of these companies are private now, or will be private," he said. "And that will allow them to make decisions, to do plans, without having to worry so much about the results for the next 90 days." 

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Transcript - 'Astonishing how open' EMC and Dell are about merger

Sliwa: Hi, this Carol Sliwa, a senior writer with TechTarget Storage Sites, reporting from EMC World 2016. Joining me to talk about Dell's pending acquisition of EMC is Randy Kerns of Evaluator Group. Randy, EMC and Dell have talked a lot about the acquisition this week. Have you heard anything surprising from them?

Kerns: Not really, other than the fact that they have been very open and they continue to talk about where they are. They also talked about some things that weren't completed yet. There were a lot of questions about personnel, but they somewhat deflected that. They did say there weren't many overlaps other than in some of the supply chain management, things like that, which make perfect sense.

As far as products there are some minor overlaps, but they talked about the fact that they've been targeting different market segments. Dell has been more down marketed, to the consumer, the end users, smaller businesses. And EMC has been more into the enterprise environments. So they're very complementary. As part of the merger discussion, they reiterated that.

They also talked a lot about how they were going to maybe reorganize into a federation like EMC has, but they'll have the different brands. And so Dell will target that lower market segment, and then the enterprise will be Dell-EMC as the brand. All of this [will be done] under Dell Technologies as a corporate name.

So [there were] not really any surprises. And again, it's somewhat astonishing how open they've been about this, and they're very clear that they think they're on pace for this to happen with no problems.

Sliwa: If you were a customer of Dell or EMC, are there any areas you would be concerned about right now?

Kerns: I think this holds true for any company, whether it's the Dell/EMC merger, or some technology being acquired, some company being acquired, you always wonder: "Will they continue to make investments in my products? Will they continue to support me?"

There was a statement by Michael Dell and Joe Tucci about this: "We will continue to support our customers, and customers will come first." And so really the biggest thing is that they tried to allay those fears of any lack of support or lack of investment. Everybody always has those though because a lot of times people do end up with products that have been orphaned, sometimes due to acquisitions or investment in other areas, or financial troubles.

But they made the right statements here. And so now it would just be a matter of seeing if they continue with that. If I was the customer, that probably wouldn't be my big concern now. I would be continuing to look and see how well they do on their investments and R and D [research and development], monitor that every year, see how their economics are going. Because as long as companies are doing well, they'll continue on those courses. If they end up in some financial troubles, then they might make some other decisions. And so right now, I probably wouldn't have those concerns. I would look strictly at what happens from now and check them every quarter, or every six months and see how they're doing.

Sliwa: As you mentioned, they were surprisingly open here about what's been going on with the merger. From what you heard sitting in various briefings today, did you agree with the strategy and how they've gone about doing this? Do you think they have done it about as well as they can, or did you hear some things that maybe gave you pause?

Kerns: I didn't hear anything that worried me, from what we already knew. The strategy is probably one that we won't really know until we get a new perspective in time to look back on this. If you think about it, you've got EMC, which has been a dominant player, and still is a dominant player in the storage industry, and Dell in the lower cost server business, but they're two different types of models. The market EMC has been in is relatively high margin business, and Dell [has] been [in] a lower margin, more aggressive competition area. And so those two coming together will be completely different from the financial standpoint and what the expectations are.

So they'll have to manage as if they have a portfolio of businesses that target different market segments. So I think these are obviously very bright people, and they'll understand that, and figure out how to do that. On the surface you would initially say, "Oh my gosh, those are dissimilar businesses." But I can see where they're coming from here. They have an opportunity for one company to attack a much larger market segment. It would be a half of the overall market that Dell couldn't reach before, or that EMC couldn't reach before. Now that they're a combined company, it can reach.

And probably the biggest thing [to learn] from this merger or acquisition is that both of these companies are private now, or will be private. And that will allow them to make decisions, to do plans, without having to worry so much about the results for the next 90 days.

Sliwa: Thanks, Randy, for taking the time to speak with me at EMC World.

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What progress do you think Dell and EMC have made on their pending merger?
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It's definitely going to be interesting. I wouldn't mind hearing from some actual EMC customers about what their feelings were.
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