November 19, 2015

What does the Dell-EMC deal mean for VMware

The Dell-EMC merge begs the question: what does this mean for VMware?

The Dell-EMC deal has been at the forefront in the minds of many in the tech industry. Not only because of its hefty $67 billion cost, but also because what it will mean for the main three companies this transition will affect.

EMC currently operates in four particular sectors of the tech industry as: EMC Information Infrastructure, Pivotal, VMware Virtual Infrastructure and a newly launched Virtustream unit, according to Forbes. As part of the deal VMware, a provider of cloud and virtualization software and services, became an acquired tracking stock.

Many skeptical experts and industry officials have looked at the monumental price tag for the deal and are critical as to how the companies came to this particular figure. Much of this uncertainty stems from the net worth of each of these companies: VMware at $860 million with a little over $6 billion in revenue for 2014, EMC at $2.7 billion with $24.4 billion in revenue for last year, and Dell at $2.37 billion with last year's revenue totaling $56.9 billion. However, others are more supportive of the deal.

"What Dell has actually bought for that $67 billion is a vast potential base of customers for future hardware and software, and it has also bought some time to create and deliver the products that it hopes its expanded salesforce and partner channel can push and help it make it that money back over the next decade or so and then some," Timothy Prickett Morgan at The Next Platform writes. "We can argue about this being too much money for such a gamble or investment … but there is no question that both Dell and EMC (and including VMware) had to act now."

The reason that Dell and EMC had to act at that moment and in this capacity is a effort for the two companies (with VMware) to gain a more firm presence in the large enterprise business sector, through now possessing a 28 percent share in the worldwide enterprise storage market.

"VMware's virtualization offerings … are important since they allow businesses to run and consolidate multiple operating systems and applications on a single server box, resulting in resource efficiencies and greater economies of scale," Forbes explains. "This was a significant technology platform shift from the previous model, where a different expensive server would have been dedicated to every single different application."

VMware CEO Pat Gelsinger explained that Dell acquired VMware through this deal to become a "a larger, longer-term owner" over the next few years. This deal opens a wide range of opportunities for VMware to expand into new marketplaces.

Yet, this deal also has the potential to end up with the Dell-EMC entity simply becoming just a larger version of its previous self, which would not bode well for long-term growth. This is why the innovative solutions offered through the purchase of VMware, provides more future growth opportunities for Dell.

"A core assumption of the deal is that by marrying two (and with VMware, three) largely complementary franchises which have an enormous installed base and market share the combined company should generate both strong and stable cash flows," Forbes explains. "Management has also stated that they expect more than just cost savings as they combine the companies and remove duplicative functions: They expect significant revenue synergies from cross-selling solutions to each business's customer base."

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