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WHY THE DELL/EMC MERGER MATTERS TO YOU

Unless you’ve been hiding under a rock for the past few weeks, you’re likely aware that Dell and EMC are merging. With so much buzz on this topic, we at American Digital wanted to take a moment to address the current situation and outline what this means for you, the industry, and the Internet of things (IoT). On October 20, 2015, Dell made a series of announcements around everything from the data center and big data to security, PCs, and the IoT. But it was the company’s $67 billion bid for EMC and its assorted companies—VMware, RSA, and VCE—announced on the first day of Dell World ’15 that dominated its press conference.

Why all the buzz? Dell, EMC, and VMware are leaders in the virtualization, storage, and server space, and some analysts are coining this deal the biggest tech merger ever. Delve further beyond the hype, however, and many experts forecast major challenges, setbacks, and customer disruptions of equally monumental proportions. On the surface, the merger’s $67 billion price tag saddles the new company with an estimated $2.5 billion in interest annually. This is a sizable amount of debt that must be paid by redirecting revenue from other business critical functions including R&D. With lagging investments in R&D, innovation could be stifled and the company could potentially lag behind in advancements made by other competitors in the space. Analysts are also uncertain whether or not this merger could successfully rectify each company’s fundamental problem, i.e. that each sells products that were popular more than a decade ago but have since slowed in growth.

The actual merger is slated for completion in mid-2016, however an endeavor of this magnitude will take a long time to complete. The process itself will impact nearly 200,000 employees and innumerable customers. The work required to meld two major brands, two product portfolios, two corporate cultures, two market approaches, and two leadership teams will also be a significant distraction from day-to-day operations. Monetary allocations from other business critical functions to pay interest will also hold the company back from properly serving their existing customers, especially in light of the strain caused by increased customer confusion due to the merger itself. During this period of instability, the companies’ key partnerships could also be affected. Key relationships analysts are watching include those between Dell and Microsoft, Lenovo and EMC, VCE and Cisco, and Dell and Nutanix.

After all is said and done, Michael Dell states that his company will continue to sell products that support the hybrid cloud, software-defined data center, mobile and security, and converged infrastructure markets. Analysts point out, however, that the companies offer overlapping products including PowerVault, Compellent, and EqualLogic, thus significant product rationalization will be required. Products that fail to meet sales expectations could potentially be discontinued over the course of time, and it could take years before customers know for certain whether or not the products they buy today will eventually become obsolete.

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