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Tim Green

Dell Technologies Bets Big on Being Big

by Tim Green | Dun & Bradstreet Editor

September 6, 2016 | No Comments »

In the 1980s, before he put his name on the company, Michael Dell’s computer business was known as PCs Ltd.

There will be little limited about the company come September 7 when Dell Inc.’s acquisition of EMC Corp. closes and the combined company becomes Dell Technologies.

Dell grew beyond its PC roots long ago, and with EMC its products will range from personal computers to large storage systems for data centers and cloud computing as well as the software and services to run everything up and down the product line. There’s also EMC’s large stake in VMware, the virtualization company.

In 2015 the companies had combined sales of about $78 billion, which would have ranked around #35 on the FORTUNE 500 list, below IBM ($82 billion in revenue) and above Alphabet ($74.9 billion). Dell lost about $1 billion in its 2016 fiscal year ended January, and EMC made about $2 billion in 2015.

The $63 billion deal is the biggest merger in history of technology companies and comes at a time when a number of computer products and service companies are getting smaller. Hewlett-Packard and Xerox highlight that list. Last week one of the HP companies, Hewlett Packard Enterprise, said it was looking to get even smaller by selling its software unit.

With the merger, Dell is really making a big bet: that its size and scale and depth and breadth will make it the go-to IT company for a wide range of customers for a wide range of needs.

To win the bet, its customers — current ones and prospects — will have to want a one-stop shop for all their computing needs. The Dell and EMC staffs will have to work as an integrated unit, familiar with the range of products to promote, cross-sell, and upsell. The company has worked for the 11 months since the deal was announced to build such cooperation into its operations.

Dell Technologies should have the resources of people, technology, geographic reach, and money to make its comprehensive computer store strategy pay off.

Perhaps. Or, in an environment of fast-changing technologies, low-cost servers, and subscription payment models for an increasing number of services, why should customers be tied down to one vendor? Computing customers have a newfound freedom to switch providers with less penalty than in the past.

A specific bet Dell is making is on its cloud computing products and services. The cloud seems a safe bet — considering that most other tech firms are making it. Dell’s wager is on helping customers set up hybrid cloud systems, which run on a combination of servers controlled by the customer and others run by a third party such as Amazon’s Amazon Web Services (AWS) or Microsoft’s Azure cloud unit.

EMC’s Virtustream unit, which it bought for $1.2 billion in 2015 before the Dell offer was announced, is key to the cloud effort. Virtustream helps companies move massive applications to a cloud-based environment, which should help when sales people call on enterprise companies with legacy software sitting on their own servers.

Last week Michael Dell told the VMware users conference that VMware would be a key part of its cloud strategy with new products rolling out soon after the closing of the acquisition.

Another bet is one over which Dell has less control. It is betting that interest rates stay low enough to allow it to keep costs down when it borrows money for research and development. Michael Dell has said the company would have enough cash flow to service the massive debt needed to buy EMC but that maintaining a $4.5 billion R&D program might require borrowing money.

The good news, for Dell Technologies at least, is that employment numbers in August didn’t indicate the Fed has to move quickly to raise interest rates.

All told, the formation of Dell Technologies is a big bet that its future is anything but limited.


Tim Green has covered business, technology and science at newspapers and in higher education. At Hoover’s he covers computers and telecommunications. Follow him on Twitter.

Photo by Cristiano Betta, used under a Creative Commons license.


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