Dell and the Sum of Its Parts

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    Complicated corporate mergers are often difficult to analyze, particularly when the industries they inhabit are undergoing such fluid, dynamic change. In the case of Dell and EMC, this is doubly true given the number of subsidiaries and partly owned entities that play crucial roles in the very technologies that are producing such broad industry turmoil.

    A prime example is VMware. The company that kicked off the modern virtualization movement is 80 percent owned by EMC and will continue to have its own tracking stock after that stake becomes part of the Dell. At the same time, however, a number of changes are taking place with VMware that make it difficult to determine what part the company will play in Dell’s efforts to capitalize on emerging data and technology initiatives. VMware’s cloud assets, for example, are to be folded into an entirely new entity under the Virtustream label, which has some stockholders already worried that the value of their shares will diminish for the benefit of yet another joint venture run by Dell.

    Chalk this up to the spoils of war, says tech analyst Ken Hess, writing for ZDNet. VMware has developed a number of strategic platforms that will benefit the Dell brand as data infrastructure continues to gravitate toward advanced software and service platforms sitting atop commodity hardware. As long as Dell builds on and improves that portfolio, rather than simply selling it off in order to fund the merger, the end result should be positive. And ultimately, the combination of EMC storage, Dell servers and VMware architectures could allow the company to skip the whole “cloud-in-a-box” or “data-center-in-a-box” movement in favor of a full Amazon-style service platform, purpose-built from the ground up to cater to enterprise workloads.

    And even if VMware’s cloud capabilities are taken out of the mix, the company is still pursuing a number of strategic initiatives that would contribute mightily to the bottom line as IT becomes more fragmented. A case in point is Gesture, a recently patented method of transferring virtual desktops from a PC to a mobile device and back again. As well, the company is looking to supplement that capability with a means to provide remote desktop roaming by compiling advanced resource sets within close proximity to the user. In both cases, the goal is to provide an advanced architecture that allows knowledge workers to shift workloads between fixed and mobile platforms without a lot of data migration or inter-platform/OS negotiation.

    And it’s not like VMware is the only thing of value that Dell has acquired from the merger. According to Re/Code, EMC is planning an IPO for Pivotal, the data analytics firm that it jointly owns with General Electric, for early next year. The company reported a modest $227 million in revenue last year, but its fortunes could soar as Big Data picks up steam in the enterprise. The current plan is for EMC to sell about 20 percent of Pivotal on the open market, roughly the same percentage of VMware it sold back in 2003. But exactly how this will play into Dell’s fortunes is tough to discern. The IPO will take place before the Dell-EMC merger is finalized, but will Dell simply use the cash to pay down debt? Will it keep the stake in Pivotal in order to fold analytics into its enterprise portfolio? Will it do both? Or neither?

    As a private company, Dell has a lot more leeway to take risks and then downplay any negative results that it may incur. This may suit Michael Dell and his financial backers well, but it’s somewhat risky for those who hold stock in VMware, Pivotal and any other spin-offs that may emerge. It’s worth noting that since the merger, VMware has lost about 20 percent of its value, due primarily, according to analysts, to uncertainty as to how everything will shake out.

    This may seem irrelevant to technology development, since it shouldn’t matter who holds the stock as long as the advancements keep coming. But money does in fact make the world go round, and a lack of faith on Wall Street could certainly hamper Dell’s ability to churn out new systems and architectures for the next-generation enterprise.

    Dell will undoubtedly have a role to play in emerging data infrastructure, but if investors and the user community do not fully understand where the company is today and where it intends to go in the future, they are not likely to embrace Dell systems and platforms as fully as they would otherwise.

    Arthur Cole writes about infrastructure for IT Business Edge. Cole has been covering the high-tech media and computing industries for more than 20 years, having served as editor of TV Technology, Video Technology News, Internet News and Multimedia Weekly. His contributions have appeared in Communications Today and Enterprise Networking Planet and as web content for numerous high-tech clients like TwinStrata and Carpathia. Follow Art on Twitter @acole602.

    Arthur Cole
    Arthur Cole
    With more than 20 years of experience in technology journalism, Arthur has written on the rise of everything from the first digital video editing platforms to virtualization, advanced cloud architectures and the Internet of Things. He is a regular contributor to IT Business Edge and Enterprise Networking Planet and provides blog posts and other web content to numerous company web sites in the high-tech and data communications industries.

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