Since Dell Inc. announced its acquisition of EMC Corp. last fall, the company has begun the expected reorganization in preparation for the combined entity’s focus, which includes divesting of business lines to reduce overlap and redundancy.
The latest realignment will see Japan’s NTT Data Corp. acquire Dell Services in a US$3 billion deal that “will significantly increase NTT Data’s presence in North America,” according to a statement released by NTT Data this week.
“The combination will create a rich portfolio of IT and digital business solutions for some of the most attractive services industry sectors including healthcare, financial services, insurance, and the public sector,” the company said.
Last fall, analysts told IT World Canada that it would behoove Dell to provide clarity to customers and channel partners as soon as possible as to what products and service offerings would be maintained and which ones would be phased out. The upside was that, unlike the US$25 billion acquisition of Compaq by HP in 2002, the consensus was that there existed minimal overlap between Dell and EMC, aside from mid-range storage offerings.
In the last few years leading up to the EMC acquisition, Dell made a number of acquisitions, including security provider SonicWall, storage firm Compellent Technologies, networking firm Force10 Networks, and Quest Software, which offers IT management software. It bought Perot Systems in 2009, which would become Dell Services.
It’s no surprise that Dell is shedding some of these business units, including Dell Services, said Sid Nag, research director for Gartner’s Cloud.
“If you look at what Dell is trying to do post-announcement of the merger is essentially focus on the enterprise market and more on the servers, storage and networking and the integrated services market,” said Nag.
Dell has been looking to unload Dell Services for a while now, he said, and reports of a sale to NTT Data go back as far as February. Dell initially was asking for US$5 billion, having bought Perot for US$3.9 billion, and a host of players were looking at it, including DCS, which came close to buying it, said Nag, but ultimately Dell was not able to command a premium price for the services unit. “They took what they got.”
Dell has been looking to amass capital to funder its merger with EMC and add to the kitty to consummate the transaction, said Nag. For the most part, there is little overlap between the two companies’ product lines, so Dell’s strategic focus will guide what lines of business it will look to sell, which is likely going to include SonicWall and Quest Software.
While Dell has a strong server business – it is currently second in the market behind HP – and EMC is a storage giant, one of the weak areas for the combined entity is networking, said Nag, which will have to be addressed if they are looking to build a powerhouse of private cloud integrated systems. In the hyper-converged marketplace, storage, compute and networking is no longer sold discretely, he said, but he’s not sure Dell networking will survive the merger.
And Dell will have to focus on private cloud, said Nag, as the Dell Services sale pretty much means it has ceded the public cloud segment to Microsoft Azure and Amazon Web Services, while leveraging its software assets such as Dell Cloud Manager to wrap around its private cloud stack, as well as EMC’s Virtustream.
In the meantime, said Nag, Dell Services will benefit from being part of a global player such as NTT Data, which will provide customers with confidence they are being served by a company with a focus on IT services, having also bought Dimension Data.
Last summer, Dell announced a new enterprise business focused on the fast growing data centre market that’s not quite as large hyperscale companies, but requires similar performance, customization and flexibility. Having already had customer engagements with service providers, telecom companies, oil and gas companies, research-driven enterprises and web technology firms, the privately-held company’s Datacenter Scalable Solutions (DSS) just came out of stealth mode in August.
At the time, Dell executives said the company well-positioned to address this emerging market as a privately-held company that’s not beholden to shareholders, and that it could be more agile and take advantage of its repeatable processes, existing products and supply chain.
Dell’s acquisition of EMC is still subject to approval by EMC shareholders, which are expected to vote on the deal in May, with the deal anticipated to close between July and October.
