News / September, 2016

Dell is bigger, and ready to rumble in the cloud wars

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Jon Swartz, USA TODAY

SAN FRANCISCO — Dell used to be defined by PCs. Now, it wants to redefine itself in emerging technologies such as cloud computing, the Internet of Things, cybersecurity and predictive analytics.

Such is the broad ambition of the new Dell Technologies — the $60 billion merger of Dell and EMC (which includes cloud company VMware) — that closed Wednesday. The coupling, announced in October, is nothing less than a reinvention of the 32-year-old Texas company.

Dell Technologies is the world's largest private tech company, with $74 billion in annual revenue and 140,000 employees.

"We’ve been on a long path to transform the company, with acquisitions over the last eight years to bring more enterprise-like qualities to Dell," says Dell Vice Chairman Jeff Clarke. "I think you'll see the speed of innovation only increase."

But in so doing, Dell is likely to find itself slugging it out with a phalanx of tech behemoths, ranging from IBM and Microsoft to Cisco Systems, as well as specialists in fields such as cloud computing and IoT, warn analysts. There are dozens of companies, large and small, vying for cloud-computing business alone. With greater revenue opportunities in play, competition is higher, they say.

And, with its mega deal done, it may feel the heat to get leaner and nimbler — just as Hewlett Packard Enterprise did this year with spinoffs after its split from the legacy Hewlett Packard.

"Dell wants to get bigger and compete better with IBM," says Jack Gold, principal analyst at J. Gold Associates. "But I think Dell may be too big to manage. As Dell has gotten bigger, the big guys, like HP, have gotten smaller to move more adroitly. If you are in so many businesses as Dell, how do you bring focus to all of them?"

Not shedding its origins

Dell Technologies fits a blueprint established by Michael Dell after he took his company private in a $25 billion deal in October 2013 that followed a bruising battle with activist investor Carl Icahn.

That showdown was essential to the survival of the company, Dell told USA TODAY two years ago after it had embarked on a mission to diversify into data centers, cloud computing and other enterprise areas.

The merged Dell and EMC aims to create an all-in-one "industry leader" in the $2 trillion information technology markets in which it has products and services.

Dell exited the public cloud market a few years ago to avoid skirmishes with Amazon and Google. But it’s now a major player in the private cloud market, where it intends to sell technology to enterprises that are incrementally moving to the cloud, says Forrester Research analyst Dave Bartoletti.

It's still not ready to shake off its PC identity, instead trying to leverage its stature in both PCs and storage.

"The PC is where it all began for me. It’s absolutely core to the identity of Dell Technologies and our ability to drive innovation," said Dell, who founded the company from his dorm room at the University of Texas at Austin, in an interview this week. He's now chairman and CEO of Dell Technologies.

"PCs are critically important to our customers."

Dell has ranked third in global PC sales and EMC was top in storage sales, according to market researcher IDC.

On Tuesday, Dell Technologies reported $13.05 billion in revenue for the July quarter, a less than 1% rise from  a year ago. In net income, it lost $264 million, narrowing from $292 million in the year-ago quarter.

"The benefits outweigh the liabilities," says Jon Huberman, CEO of Syncplicity, a start-up in the file sharing market, of the Dell-EMC pairing. "Dell had to do a deal to expand beyond PCs and storage."

The sheer scope of the merger with EMC — whose portfolio includes VMware (VMW), RSA Security, Pivotal Software and cloud-software company Virtustream — makes it a complicated endeavor and one up to debate among industry observers on what Dell Technologies does with so many properties.

Tech analyst Gold, who for years predicted HP would split, expects Dell to do the same, but on a smaller scale. In June, for instance, Dell said it will sell its software division, Dell Software Group, for about $2 billion to private equity group Francisco Partners and hedge fund firm Elliott Management. Earlier this year, Dell sold its IT consulting division, Perot Systems, for approximately $3 billion to Japan's NTT Data, and SecureWorks, a computer-security firm owned by Dell, went public.

"If IBM gets out of servers and PCs, Dell might do the same with its various properties acquired through EMC," he says. "Will Dell become the next HP in terms of breaking up? I can see that happening."

Dell's Clarke, however, is all in with Michael Dell's mantra of "Go bigger or go home."

“It is the broadest, and deepest, portfolio in the industry. Period,” Clarke says. "Y’all haven’t seen nothing yet.”

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