http://www.theregister.co.uk/2015/10/13/emc_dell_the_sound_of_dinosaurs_mating/
http://infographics.economist.com/2015/tech_stocks/index.html
Two years ago Dell went private, at the time Dell had maket capitilisation of around US$25 billion. Today Dell announced they will purchase much larger EMC for US$67 billion, with US$40 billion in leveraged loans to support the acquisition. Dell will need to pay roughly $US2.5 billion a year in interest to finance purchase. Wow, largest IT acquisition ever!
The IT market is currently going through massive changes:
- Heavy commoditisation of technologies
- Compute: Servers have already largely made the transition from expensive proprietary servers to low cost commodity x86 servers
- Storage: Mostly proprietary and expensive today, yet many storage vendors now use the off-the-shelf approach, turning commodity servers and flash into into a fire-breathing solid-state storage systems. The servers are low cost, yet very powerful Intel servers which are blazingly fast, very capacious, have big pipes, amazingly dense, built for availability and monitoring.High profit margin of storage under certain pressure.
- Networking: Merchant Silicon is causing headaches for lagacy networking companies. The use of off-the-shelf components to turn low cost commodity x86 servers with Linux based network operating system into powerful network systems.
- Linux and open source are key to rapid adoption of commoditisation
- Cloud and services are the future, AWS just announced 81% year on year growth. Virtualisation and converged infrastructure are good start yet it not agile cloud with low cost services. Heavy use of automation and developer productivity are key.
- Large cloud vendors do not purchase infrastructure from legacy infrastructure vendors instead they purchase directly from from Asian ODMs.
- Software is "eating the world", heavy disruption for expensive, legacy vendor using high profit margin business models. There are many hot enterprise startups like Pure Storage, Tintri, Nutanix, SolidFire, Kaminario, DataStax and PernixData. A huge chunk of the storage market is going to move to flash over the next few years, Storage like compute will be heavily commoditised in the future.
- Market share for custom hardware is rapidly declining. High end storage array are shrinking while low end storage system are going to startups and hyper converged systems.
Essentially, EMC revenue is more than 65% storage + VMware. Why would Dell and Silver Lake pay $67 billion for a storage hardware company that is facing certain revenue declines due to storage commoditisation and cloud? Ask a simple question...in 5 years time will onslow of commodity storage and cloud services allow legacy storage vendors to maintain same high revenues with 50%+ gross profit margin? Did they buy it just for VMware? Does the $67 billion acquisition seem crazy to anyone?
This looks like a huge win for Joe Tucci and EMC shareholders, he managed to sell EMC at the peak just as EMC was facing revenue declines due to commoditisation and cloud.
This looks like a huge win for Joe Tucci and EMC shareholders, he managed to sell EMC at the peak just as EMC was facing revenue declines due to commoditisation and cloud.
IT Vendors Gross Profit Margin:
| Revenue (Billion) | Gross Profit (Billion) | Gross Profit Margin (%) | |
| IBM http://goo.gl/DVjJn | 90.15 | 46.4 | 51.47% |
| HP http://goo.gl/y6OBj | 108.28 | 26.62 | 24.58% |
| Cisco http://goo.gl/FhjYv | 48.68 | 27.77 | 57.05% |
| Dell http://goo.gl/ARBIU | 56.94 | 12.19 | 21.40% |
| EMC http://goo.gl/6Selz | 24.57 | 15.25 | 62.07% |
| VMware http://goo.gl/EkBWd | 6.19 | 5.12 | 82.71% |
| NetApp http://goo.gl/1n5Qa | 6.12 | 3.83 | 62.58% |
| Oracle http://goo.gl/zZbYc | 38.23 | 31.04 | 81.19% |
| Microsoft http://goo.gl/37jZ2B | 94.74 | 59.9 | 63.23% |
| Amazon http://goo.gl/OzKxCg | 91.96 | 26.24 | 28.53% |
| SuperMicro http://goo.gl/YoMKKn | 1.85 | 0.22554 | 12.19% |
| Foxconn https://goo.gl/9gOuYw | 97.12 | 15.26 | 15.71% |
https://www.bloomberg.com/news/articles/2017-03-30/dell-posts-20-1-billion-in-sales-first-quarter-after-emc-deal
About six months after completing one of the biggest mergers ever in the technology industry, Dell Technologies Inc. is grappling with changing tastes in hardware and rising component costs, underlining the challenges of the EMC Corp. acquisition.
In its fiscal fourth quarter, Round Rock, Texas-based Dell reported sales of $20.1 billion and an operating loss of $1.7 billion. During a call with analysts Thursday, Chief Financial Officer Tom Sweet said the company is paying more for some memory and display parts that go into its big lineup of tech gear.
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