Now that the big deal is done, what comes next for Dell, EMC and VMware? A circular ridecast

Summary: 

The deal closed faster than a lot of people thought it would and it’s clear that Dell had a terrific plan and excellent execution (if not a little luck) on putting the financing together for this huge deal. Now the question is what lies ahead for the new, huge Dell Technologies. Guest Chris Evans (@chrismevans) and host Marc Farley (@GoFarley) recorded this on Wednesday September 7 and discussed while driving in circles.

Transcript:

MF: Hi this is a technology ridecast, I’m Marc Farley and our special guest this afternoon is Chris Evans. How’re you doing Chris?

CE: Hi Marc, yeah, I’m good. Glad to be here talking to you again.

MF: Yeah,  so today is the day that the Dell/EMC acquisition closed. Congrats to everybody involved, an amazing speed that this deal all came together. What do you think Chris?

CE: If you think back to when this was first announced there were so many uncertainties around – would they be able to raise the money, would they be able to get the finance, and then the pricing of VMware an EMC went all over the place,  would they get regulatory approval. There was a million and one things that were likely to scupper this deal. But they managed to pull it
through and they’ve made it work and that’s amazing.

MF: An incredible piece of, lets call it, financial engineering.

CE: Exactly that. And admittedly we know there’s potentially a lot of debt there and there’s still a lot of work to go on behind the scenes but yeah that first piece was incredible.

MF: And it looks like a lot of that debt actually came in at a reasonable price or reasonable rate.

CE: And again, that is pretty amazing. Look, there’s obviously a confidence that a lot of companies feel in Michael Dell and his team to be able to take that company as a combined entity and make it do more than it was as two separate companies.

MF: What do you see for the company going forward Chris?

CE: So I think there’s some interesting pieces here. First of all I’d say there’s potentially a lot of product overlap and that’s a really obvious comment, I guess. We know there are storage products coming from Dell, for example, that overlap with the EMC portfolio, but to be honest that, I guess, will be rationalized quite easily. However, one part of that I think does cause a problem and that’s the ability for them to rationalize the R&D. Do they keep separate teams, do they narrow down the R&D, and if so, which one’s get cold and which products might carry-on being sold but get no development on them. That’s could be a really interesting one to find out.

MF: Yeah, and of course it was interesting, we, in one of our previous ridecasts, we speculated on the future of XtremIO and, of course, the folks from Dell and EMC said uhh, nothing’s going to change there, but I’m still saying, hey let’s see where that is in 18 months.

CE: The next thing really is to think about the whole complexity of this new organization. So you’ve got all of the previous Dell components, but also you’ve got Pivotal, VMware, connected in a
very sort of mixed way. So, Pivotal obviously has investments from external companies like Ford and General Motors, I believe it is. VMware obviously was floated and is now going to be owned -but is going to have a tracking stock.

F: Yeah, the structure is complicated. And just managing a company this size is tough, right? You know, you could ask guys like Jack Welch, you know, who managed GE and other, you know, super behemoth the companies. The question is, is there anybody there that’s really capable, has the history of managing a company of this size? Just because Michael Dell put the deal together doesn’t mean that he’s necessarily the guy that can manage this company.

CE: Yeah. That’s a fair point. Now I wonder whether – and I’ve always wondered – whether the idea of the Federation was a really good idea in the first place. I think floating VMware off and having
some percentage of it on the stock market allowed them to work out what the value of the VMware component was. But I don’t necessarily think having those pieces all completely separate was great idea. And I wonder whether under Dell it will become compacted a bit, and it will be rationalized, so they become a bit more integrated and that would make more sense, but it will be very hard work.

MF: Interestingly enough right, there are questions around VMware. VMware is one of the crown jewels in this deal, but at the same time a lot of people are looking at it and they’re wondering if they’re going to be able to leap over into the cloud business – and there are some doubts about that, right? In a conversation I had earlier this morning with Scott Hanson, @CiscoServerGeek,  he was sort of wondering if VMware might go the path that NetWare did, you know, a couple decades ago.

CE: Yeah, VMware is in a really interesting position. They’ve had an amazing run and they are such an amazing core product, but if you look at the way that they’re trying to develop now, I think
some of the things they’re doing around VMware-integrated containers and so on is more of a workaround to try and get people to use that technology on their platform rather than being a true evolution and a moving forward of their technology. It would be really better for them to have acquired some real core technology, I think in that container area, rather than try and bolt it onto their existing stuff. And there’s the point isn’t it? Are you going around in circles, going back to what you already worked on and trying to reintegrate stuff into your core products when really you should just move on.

MF: And it seems like it may be unlikely for Dell, EMC, VMware to be able to afford many new acquisitions should they deem them necessary and strategic from this point forward.

CE: Yeah, that’s going to be really interesting and HPE could be in a strong position to go and buy some additional companies to bolster their product line. So, the Dell scenario could be that they have to work with what they’ve got, and that could be quite difficult for them. Especially if they’ve had people who’ve had paid up options as part of this buyout and decide that this is a good time to leave.

MF: Yeah, well it’s always hard keeping talent around after an acquisition. It won’t be any different this time.

CE: Yeah, exactly.

MF: Chris it’s been great having you on again. Thanks so much.

CE: Okay, lovely I’ve enjoyed it Marc. Thanks very much.

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