Six thoughts about Dell’s $67 billion acquisition of EMC

EMC Office Logo File

Dell’s proposed purchase of EMC isn’t just one of the biggest acquisitions of a tech company ever, but it puts the biggest technology company in Massachusetts under the control of a Texas-based owner. Six quick thoughts about the deal:

• These kinds of deals tend to be thrilling mostly to investment bankers and private equity wheelers; executives like EMC chief Joe Tucci, who will no doubt pocket enormous bonuses tied to the sale; and EMC shareholders, who stand to get about 19 percent more for their shares than they were worth at the closing bell on Friday.

• Remember when Compaq, the Houston-based PC giant, bought Mass.-based Digital Equipment, the once-pioneering maker of minicomputers for businesses, in 1998? This deal has obvious echoes of that one. Compaq was later acquired by Hewlett-Packard, which is now separating itself into two companies and shedding tens of thousands of jobs. Those investment bankers and CEOs tend to form an insulated-from-reality “circle of trust” that believes this deal will somehow be different, and their giant combination will somehow magically find “synergies” where most others have failed to.

• EMC has always had what I call a “sell and buy” culture. The culture was built around salespeople who were phenomenal at selling “big iron” — expensive data storage equipment — to the Fortune 500 executives who managed their companies’ data centers. And rather than investing in a lot of its own internal innovation, the company did a very good job of scouting out disruptive, fast-growing companies and snapping them up. The best of these acquisitions was VMware, the virtualization company that lets customers use their existing servers and storage assets more efficiently and flexibly. EMC paid $625 million for the company in 2004; it still owns 80 percent of VMware, now a separate publicly-traded firm, and VMware remains one of EMC’s fastest-growing pieces. All companies have a hard time continuing to innovate over decades, but at EMC, this “sell and buy” culture contributed to that.

• 68-year-old EMC CEO Joe Tucci has been working without a contract since February, and postponed his retirement twice before that. Finding a successor to Tucci should have been one of the top priorities for EMC’s board for, oh, about the last eight years. They failed at it, and Tucci clearly ran out of ideas for how the company could continue to grow. (One day, I hope to learn why executives like Paul Maritz and Pat Gelsinger, now running Pivotal Software and VMware, respectively, didn’t wind up in the corner office as Tucci’s successor.)

• Perception contributes to reality in a big way. EMC and Dell are viewed as vendors of PCs, servers, and expensive storage gear — stuff — at a moment when many consumers and businesses are happier to buy services, not stuff. Companies like Amazon, Microsoft, and Google have been racing ahead in the world of cloud-based data processing and storage, and I wonder whether a few years of integration pains, as Dell and EMC figure out how to bring their two organizations together, is going to somehow speed their ability to move from the world of stuff to the world of services. (And yes, the world of services needs hardware to run, but increasingly those data centers build their own gear from commodity components, not pricier, branded stuff. Have a look at the Open Compute project, which shares designs for data center gear among top companies, for one example.)

• One of the by-products of EMC’s ferocious enforcement of its employees’ noncompete agreements — which prevent workers and execs from jumping ship to join a competitor or form their own business — is that the data storage sector in Massachusetts is much weaker than it should be. EMC, founded in 1979, should by now be the tallest oak tree in a forest of oak trees, not a big oak standing on its own.

Scott Kirsner writes the Innovation Economy column every Sunday in the Boston Globe, in which he tracks entrepreneurship, investment, and big company activities around New England.
Follow Scott on Twitter - Facebook - Google+