- 2018-12-11
The story of Dell's acquisition of EMC
Last October, Dell CEO Michael Dell announced that it would acquire data storage giant EMC for $33.15 per share in cash and special stock. Among them, the cash portion accounts for 24.05 US dollars per share, and the remaining portion is a special stock, which is the market value of EMC's virtual software company VMWare. The final transaction price is 67 billion US dollars, this transaction makes it the largest acquisition in the global technology market.
As the largest technology M&A case in history, Dell's acquisition of EMC has a lot of stories to tell, from the integration of two established technology companies (their product lines are largely complementary) to the completion of this transaction. The complex financial engineering required for transactions varies. However, if we put this announcement together with the previous week's cloud computing event (ie AWS re:Invent conference), the comparison is amazing, because AWS (Amazon Web Services) and its cloud computing service competitors-the most important Including Microsoft (Microsoft, the company also held its own AzureCon event), Google (Google) and Salesforce-it is the ultimate catalyst for disruptive innovations that make established technology companies panic all day long. Although many analyses that appeared immediately after the announcement of the deal were optimistic (such as IDC's analysis report), I see it more as a weak and negative reaction, if not desperate.
Although IDC and Gartner (Gartner) research data show that global server business revenue continues to grow, but the fastest growth is in the second-tier vendors. It is worth noting that IDC estimates that the revenue growth of original design manufacturers (ODMs, which are increasingly favored by super-large cloud computing service providers) and "other" category vendors have reached the overall market growth rate. Twice. Intel's latest quarterly earnings report reflects the weakness of its growth engine, the Data Center Group (DCG), and the company has lowered its previous 15% growth forecast to "low double-digit growth." Even if the cloud computing infrastructure and use are actively expanded, that is not enough to maintain the growth momentum of Intel's data center business, because the demand from traditional enterprise suppliers is very weak.
In fact, Intel recently disclosed its reliance on cloud computing services. In an interview with reporters, Diane Bryant, senior vice president and general manager of the company’s data center division, said: “About 30% of our server business is now for cloud computing companies, and it is very It is growing at a rapid rate. This is a new opportunity for our source of revenue.” In fact, the seven giants of cloud computing services, including AWS, Google, Microsoft, and Facebook, account for one-third of the market, and they are increasingly Hope to get customized chips. Bryant said: "More and more service providers are customizing microprocessors from us. The real difference is their market pace. Six months before we released the next-generation processor products, they already Put into use, purchased thousands of chips, and finally used them for their own services."
Although the growth of the server business is only slowing down, the situation of the storage business is even worse. According to IDC estimates, the revenue of EMC's external disk array business has fallen by more than 5%, while the second-tier "other" category manufacturers once again achieved double-digit growth rates.
This is nothing new, because in the past four years, despite EMC’s revenue growth, profits have been flat, which means that the company’s profit margins have been squeezed. EMC's stagnant financial and stock performance has prompted an active investor, Elliott Management, to pressure strategic changes, which undoubtedly hastened EMC's pace of embarking on mergers and acquisitions.
The public is close to universal acceptance of cloud computing services, and the scale of applications of large enterprises is also expanding. This can be seen in the statement of General Electric (GE) at the re:Invent conference that the company will cancel 90% of data centers , And migrated more than 9,000 applications to AWS. From this perspective, Dell’s acquisition of EMC looks like a typical response to disruptive innovative technologies. One more sentence here, Clayton Christensen's disruptive innovation theory "describes the process by which products or services originally rooted in simple applications at the bottom of the market continue to move to the top of the market and eventually replace mature competitors. "Compared with continual innovation, the key element of disruptive innovation is the speed of technological change: this not only means that it is very fast, but it also means that disruptive improvements appear faster than consumers can accept new technologies. Therefore, the products that were only suitable for the low-end market at the beginning quickly developed and matured, and new functions were added to make them move toward the mainstream, or eventually meet the needs of the high-end market. This is a subversive process for existing mature manufacturers.
However, once the disruptors occupy the market, an interesting thing will happen. They tend to maintain the status quo, rather than competing among the same kind and cannibalizing each other's newly acquired success; in other words, they will shift the goal of R&D to maintaining Innovation. In fact, Christensen once cited Dell (personal computer business and direct sales model) and EMC (better, cheaper, IBM-compatible storage array) as early examples of disruptive information technology companies. In the following decades, these two companies have become the mainstay of mainstream information technology, which means that most of their sales, marketing, and R&D resources are invested in improving traditional information technology infrastructure, instead of information technology. The technology undergoes a radical reorganization, and the new shared services are provided by externally large data centers similar to public facilities.
Of course, both Dell and EMC have various technologies that make their enterprise information technology business look more like cloud computing services, but they are more evolutionary than revolutionary. They can be well integrated into the existing information technology order, only superficially similar to AWS and other public cloud services. Further deduction, "Edison (Edison) invented the electric light is not achieved by trying to progressively improve the candlestick." Dell and EMC are still in the candlestick business, while AWS and Google have transitioned to the electric light era.
The combination of Dell and EMC is a bit like two weak companies joining together to grab a larger share in a stagnant market. This is a classic case of horizontal integration. In fact, the most innovative and dynamic component of the entire transaction-VMware-is regarded as a semi-independent entity that can be used as collateral to help reduce the huge debt burden of the new company after the merger.
Although I agree with people’s early consensus that this M&A deal will benefit both companies in the short term (except VMware), it has not freed existing IT providers like Dell from the long-term threat from cloud computing services. . In fact, as the scale of Dell-EMC becomes larger and the scale of HP (and IBM) becomes smaller, an interesting real-world experiment will be staged in the next few years. Two different roads are tested.