Could a Dell-EMC deal smooth out the companies’ cloud strategy?

October 12, 2015, 3:12 PM UTC
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It was pretty clear, earlier this year, that EMC was working to rationalize its scattered strategy for its cloud computing business. Now that the company will be acquired by Dell and Silver Lake Partners in a blockbuster deal announced Monday morning, the question is whether their combined assets will make that effort easier or more complex.

Will Dell’s multiple cloud alliances and Boomi cloud integration product fit into EMC’s cloud portfolio, which includes VMware’s vCloud Air and offerings from Virtustream, the software company it acquired in July?

On conference calls Monday morning, EMC (EMC) chief executive Joseph Tucci said the combined company will have a $30 billion (or more) systems business, a virtualization business in VMware (VMW), a computer security business, and a cloud computing business led by Virtustream’s software.

But what will that cloud business look like? When EMC bought Virtustream for $1.2 billion, the idea was to make it the EMC federation’s go-to member for enterprise cloud computing. To that end, there was growing speculation that VMware’s vCloud Air business would move over to Virtustream. And the recent exodus of vCloud Air executives out of VMware seems to confirm that suspicion.

It’s likely that this will still be the case as more details of this morning’s $67 billion merger start to surface. But succeeding in cloud will be a tough proposition for a company consumed with its own internal workings—let alone one facing Amazon Web Services, which has put pedal to metal pushing out new (and increasingly enterprise-focused) products for its own public cloud.

In a note, Sanford Bernstein senior research analyst Toni Sacconaghi highlighted the risks inherent when two companies with on-premises hardware franchises move to cloud. “Their hardware-centric focus means both companies have relatively transational business models which are subject to economic cylicality.” He also pointed to “meaningful risk” of EMC and VMware people leaving given their “new-found affiliation as part of a ‘PC company.'”

Others pointed out that while many companies move workloads off-site to Amazon Web Services or Microsoft Azure public cloud, most of them still want to run some workloads on their own resources.

“Cloud is growing fast, but in-house technology will remain important for a long time,” Forrester vice president and research directpr Glenn O’Donnell noted via email. “The big game for every tech giant is how they can straddle the on-premises and cloud-based worlds. These two must work as one seamless environment. For most companies, this is not yet the case. Dell can make some good progress in this direction with EMC in the fold.”

Dell CEO Michael Dell, who will be chairman of the combined entity when the deal closes, was upbeat about the company’s ability to serve enterprise customers well in the cloud.

“Customers don’t want to integrate things themselves,” he noted. This new arrangement will give the combined company the ability to lead in “hybrid cloud” (a mix of public and private cloud support), converged infrastructure (a sort of all-in-one arrangement for IT hardware), and software-defined data centers. This in turn will give Dell-EMC a strong position in the cloud computing business and make the company’s transition to a “mobile cloud” easier, Dell added.

Dell reiterated his belief that taking EMC private will free it up to invest without facing short-term financial concerns. “In the last six months we have added about 2,000 new sales people,” he said. “That gives you some insight into how, with our privately controlled structure, we can make investments that may not have a return in 90 days.”

For more on this mega-deal, see the video below.

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This story was updated at 1:20 p.m. EDT with analyst comments.

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