Feeling jitters as Dell-EMC marriage approaches

EMC Chief Executive Joe Tucci and Michael Dell.
EMC Chief Executive Joe Tucci and Michael Dell.

Have you ever been to one of those family dinners where a newly engaged couple is at the table — and some members of the clan aren’t sure how well the match will work out, or are gossiping about whether the wedding will happen at all?

That may be the vibe at EMC’s annual leadership conclave, which takes place in Boston next week. Senior EMC execs like Joe Tucci and David Goulden will be there, as will Michael Dell, who announced a plan on Columbus Day to pay $67 billion for the Hopkinton data storage giant. It was not only the biggest tech merger ever proposed, but also would mark the end of three-and-a-half decades of independence for EMC, Massachusetts’ largest technology company, with 70,000 employees worldwide.

A lot of questions still hang over the combination, which hasn’t been finalized, including how many of those employees will still work for EMC at the close of 2016. One round of layoffs is already underway.

The official line, according to spokesman Dave Farmer, is the company is “in ‘business as usual’ mode until the deal closes,” and that “integration work is well underway.” That means figuring out what sort of overlapping functions and staff can be cut. It also means planning to locate all of the combined company’s enterprise products — the stuff that chief information officers buy for their corporate data centers — in Hopkinton while keeping the stuff it sells to consumers and small businesses in Round Rock, Texas.

But I wanted to explore some of the unofficial expectations for what will happen next, so I talked to former employees, analysts, and several current employees who requested anonymity since they weren’t authorized to talk to the press.

Will the deal close? EMC isn’t just one company; it’s a “federation” of seven tech companies, including some, like VMWare, which are publicly traded on their own, and some, like Pivotal, which could be spun out as public companies to help Dell afford EMC’s price tag.

“It’s such a complicated transaction,” says Gil Press, an analyst and former EMC employee in Belmont. There are class-action lawsuits over the deal, tax ramifications, $50 billion in debt financing, and regulatory approvals. But most people, including Press, believe the deal will close, sometime around the middle of this year.

Will you get your chance to say, “Dude, I got a Dell!” when you bump into Michael Dell on Newbury Street? Dell’s founder mentioned at a company conference that he was shopping for a home in Boston. His company wouldn’t comment, but analyst Steve Duplessie of Enterprise Strategy Group in Milford says he has spoken to Dell numerous times in recent months, and was told that Dell’s wife, Susan, has focused on the Back Bay.

How will the two cultures mesh? “EMC was built on engineering innovation and high-touch sales” that require lots of personal attention, says Peter Bell, who spent a decade at the company and is now a venture capitalist at Highland Capital Partners in California. (EMC chief executive Joe Tucci is known to keep the last day of every quarter free so that he can make phone calls to customers and help personally close deals that are hanging in the balance.) That meant fat profit margins for EMC, and hefty earnings for its workers.

In contrast, “Michael Dell knows how to run a big business in a low-cost way. He knows how to compete in a commodity business, and he knows there’s a lot of cost to be taken out of EMC,” Bell says. Not surprisingly, that has created a lot of anxiety among EMC employees.

What’s the positive scenario? The two companies produce more than $6 billion in cash annually — “this thing is a cash-printing machine,” Duplessie says. Dell-EMC could pay down its debt quickly, and have an enterprise division in Massachusetts seen as “an innovation leader,” and a value-oriented unit in Texas serving consumers and smaller businesses. It’s a brand combo not unlike Lexus and Toyota — you can get all the bells and whistles, or you can get affordability.

The negative? Dell-EMC will compete with other IT giants, like HP, Oracle, and IBM. With one notable exception — Apple — people buy tech based on performance and price, not the brand. That’s called a commodity, and commodity markets make it tough to invest in innovation because of low profit margins.

Corporate customers also are increasingly comfortable buying tech from startups, using open source software, and relying on cloud-based services — all of which could nibble away at Dell-EMC’s already shrinking revenues.

Will the best talent stick around? Many EMC employees are waiting out the merger to see what happens. But one executive at the company told me he was evaluating opportunities from recruiters much more seriously — even after getting a bonus to stay at the company for another two years.

Bell, the former EMC employee, tells a story about interviewing with EMC cofounders Dick Egan and Roger Marino in 1986. The company had roughly 80 employees, and Bell was enticed by the startup atmosphere. “Everyone seemed happy, excited. They were throwing footballs around,” he recalls. “Dick’s wife, Maureen, was the receptionist.”

There was a liquor store nearby, and if it was a good sales week, Bell would pick up a few cases of beer. If sales sagged, no beer.

Bell observes that companies in tech today have to sell not only to their customers, but also to prospective employees. “If you’re 25 years old and coming out of MIT, are you going to go [to Dell-EMC], or are you going to go instead to some really cool startup or mid-stage company? People who are good have 10 job offers today.”

Dell-EMC’s future hinges on being able to make that pitch effectively to a new generation of workers — while at the same time uniting its many fiefdoms with a minimum of friction, and figuring out how to stay on the cutting edge in an increasingly commoditized business.

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.
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