Daily Management Review

Dell is Close to the Biggest Deal in the IT-Industry


Dell is in talks to buy a top player in the storage market: this is EMC, which presumably can go for $ 50 billion, according to Wall Street Journal, citing informed sources. The deal will be the largest in the high-tech industry would allow Dell to become the leading provider of data storage systems.

EMC is one of the market leaders in products and services for information management and storage. The negotiations on the purchase of EMC are attended by the fund Silver Lake, which supported CEO Michael Dell in buying shares of the corporation, making Dell a private company in 2013.

Currently, EMC's market capitalization is about $ 50 billion, but according to the publication’s source, the amount of the purchase may exceed this figure. If the deal goes through, it will be the largest in the history of information technology market. Today, the record is held by Avago Broadcom ($ 37 billion), which has not been completed yet (the largest deal in the telecoms industry - buying Time Warner by AOL for $ 106 billion). EMC owns 80% of VMware, the largest developer of software for virtualization, with a market capitalization of $ 34 billion.

According to the Wall Street Journal, Dell is considering partial or total absorption of EMC. Under pressure from shareholders last year, EMC pondered options for the division of business in areas of storage (EMC), safety equipment (RSA), cloud solutions (Pivotal) and service virtualization (VMware). Now, making VMware an independent company is the most preferable.

In January, EMC announced downsizing, poor prognosis of income, and net income decreased by 17% in the II quarter of 2015. In view of these conditions, the transaction to the Dell looks good for both sides.

The third-largest PC vendor, the company Dell, like all computer manufacturers, is suffering from the downturn in the market: tablets and smartphones continue to entice users. IDC experts warn that PC shipments in 2015 may be reduced more than expected earlier. According to the August forecast, slowdown in the computer market will reach 8.7%, whereas the previous forecast called for a decline of 6.2%. The experts expect return to the positive dynamics no earlier than 2017.

However, Michael Dell is not discouraged. He believes that natural selection will leave just three companies in the PC market - and Dell is going to be among them. In the meantime, it is necessary to stay afloat, and it looks like the company's CEO has got the following idea: "We were able to grow even in the face of shrinking PC market. Our business extends far beyond the production of computers and includes equipment for data centers, software, services, and information security."

Dell also said that access to the market for smartphones is not listed in the plans of Dell. According to him, there is one or two companies that can make a profit in this segment, while the rest are losing money.

Companies are adapting to the downturn in the PC market in different ways. Traditional popular business model used by both software companies and their hardware colleagues - the transition to the corporate sector.

Microsoft shifted to cell hybrid systems like Surface, cross-platform applications, yet put emphasis on cloud solutions and services. IDC analysts predict that in 2015 the volume of the global market for cloud infrastructures will increase by 26.4% compared with the previous year, reaching $ 33.4 billion.

Cisco is a leader In terms of the implementation of public cloud solutions, while HP has no equal in the segment of private cloud infrastructures. Microsoft, Dell, IBM, EMC, VMware, Lenovo and Oracle are following with sales of cloud solutions. Microsoft’s third place is related to the company's strong position in the markets server operating systems, as well as virtualization. Dell and IBM are presented among the leaders thanks to good sales in many cloud segments.

According to FactSet, Dell’s debts exceed $ 11.7 billion, and it is not clear by what means the corporation plans to finance the purchase of EMC. One banker, involved in the privatization of Dell two years ago, says that the company may require about $ 40 billion. Analyst Toni Sacconaghi of Sanford C. Bernstein believes that Dell does not have enough financial resources to buy EMC, even if the company spun off VMware. The same view is shared by analyst Maynard Um of Wells Fargo Securities.

EMC expect publication of the next quarter’s results on October 21. Many analysts believe that the company needs to announce a deal with Dell before, otherwise the shareholders can re-drape over the board of directors of EMC.

source: wsj.com