The do-it-all storage giant is dying: Clouds loom over on-prem IT

Dell, IBM, HP, EMC, what next for them?

Back to Dell. It found that negotiating this Grand Canyon of rapids was too horrendous as a public company, and went private.

IBM looked into this, didn't like what it saw – particularly low-margin hardware-commoditization – and has sold off business after business in pursuit of safe and secure high-margin businesses: networking, PCs, and its x86 servers. It has a public cloud business, SoftLayer, which could be its salvation.

Symantec is splitting into two. HP is splitting in two as well. The enterprise part will face exactly the same set of problems as every other mainstream on-premises IT supplier, though. Should it try to amass more dominoes in the on-premises IT supply game to gain scale, technology, and integration opportunities, and should it venture into the public cloud itself?

These are really the only two questions that matter. For EMC it has been the most aggressive in pursuing new on-premises IT opportunities, but it, like NetApp, is so large that the changes to leaner, less profitable storage systems – like moving primary data storage from VMAX and VNX trad’ arrays to XtremIO – are damaging its profit margins.

Unlike VMware, which is finely poised like a surfer riding the massive server virtualization wave, EMC has a great mass of legacy baggage trailing its various new product surfboards. This baggage creates drag and means investors are uncertain about it and devalue it.

Activist investors see an arbitrage-like opportunity, in which the sum they can see by adding the bits of EMC together – if latent value was realized by selling bits off or combining them with other pieces – is greater than the value of EMC itself.

This is the same tension exploited by activist investors in Citrix, Emulex, Imation, Riverbed, and others. Generally speaking, few activist investors are rebuffed. So EMC is really on the rack here, and needs to change to get Elliott off its back.

Perhaps though, the thing it wants to pull off – selling newer, lower-margin products into a pool of on-premises IT opportunities against myriad startup competitors, while building up its public cloud business – is going to have such a negative effect on its revenues that it will take years before growth soars and its share value goes up relative to its peers. So much so that investors listen to Elliott and the Federation is split up against management's will.

EMC's current problems and its responses to them will highlight how the mainstream suppliers generally will face up to the hurricane of technology trends facing them. There's a sense here that EMC is facing its end-game, with Tucci's time being over and his power and influence leaking away. Despite his Federation fort-building, competitors and the cloud have plunged their weapons deep into EMC through the gaps in the walls. It's bleeding and hurting. Corporate sawbones Elliott recommends amputation and selling the limb. Which way will EMC jump? ®