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Dell-EMC deal could be a game-changer for mobile networks, too

Ericsson and Huawei better watch their backs

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EMC/Dell deal As carriers race towards virtualisation, software-defined networking and increasingly complex back office IT platforms, they will increasingly bump into suppliers from the data centre world.

IBM, Hewlett-Packard, Oracle and others are already very familiar to them, but now there will be a new powerhouse, if Dell’s record-breaking $67bn takeover of storage supplier EMC goes through.

The deal will give Dell an end-to-end play for cloud and telco providers, as well as enterprises, encompassing servers, storage and virtualisation, and it will pose a very interesting alternative for mobile network operators to set against the claims of Ericsson and Huawei, as well as the IT giants.

This is at a time when the infrastructure space is ripe for the kind of disruption Dell brought, long ago, to PCs. Then, it took advantage of a shift towards commoditisation and lower cost equipment, disintermediated the resellers, and lured users by basically customizing cheap but reliable kit. Its model changed a lot since, and it moved – not always successfully – into larger computers and storage.

But the instincts which Michael Dell brought to the PC world would be relevant again at a time of transition towards commoditised hardware and endless flexibility in the software layers. Economies of scale to drive down equipment costs, coupled with end-to-end integration and customization from a menu of options, and with virtualisation frameworks – that list would tick the boxes for many operators as well as many enterprises.

Dell, which is privately owned, has agreed a cash and stock transaction valued at about $67bn to buy EMC, with financial backing from its owners – founder Michael Dell, his MSD Partners investment vehicle, and hi-tech private equity giant Silver Lake Partners. Additional financing will come from Singapore state-owned investment company Temasek Holdings, plus debt, the VMware tracking stock and cash on hand.

If it passes regulatory scrutiny, this deal would create a top three player and the largest privately controlled integrated technology company in the world, with its stated targets being the global cloud and carrier markets, the virtualisation of IT, and the infrastructure which will support the internet of things (IoT).

The future of VMware

There had been talk, amid the speculation that a deal was in the offing, that EMC’s majority-owned VMware virtualisation unit would be spun out. But that would have seen the loss of a crown jewel, and the risk of turning a full IT platform provider into a box shifter. In fact, VMware will remain inside Dell/EMC, though it will remain a publicly traded company even when its parent becomes part of privately held Dell.

VMware and Dell both emphasised, on the former’s investor call to discuss the deal, that the virtualisation technology was one of the hearts of the matter. This is not a takeover geared to consolidation and cost efficiency, welcome as those will be when up against the might of Huawei on the full-service front, or a potentially reinvigorated, post-reorganization HP.

"This deal is about accelerating growth opportunities [through SDN]," said VMware CEO Pat Gelsinger. In particular, those opportunities lie in the IoT and the big data it generates. Joe Tucci, CEO of EMC, said on the call: “There are more opportunities now than in history of man. There is massive telemetry with sensors being built into everything imaginable, generating massive amounts of data." Now Dell will be able to provide all the devices to underpin that, from PCs to servers to storage, said the firm (skimming neatly over its many failed forays into mobile devices).

Another important point made by Dell at its press conference – and one which may make HP shiver – is the private firm’s ability to innovate rapidly, and also to play a long game without the pressure of the quarterly results call and the activist investor.

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