By Rachael King
The markets for business technology are so roiled, and the path
forward so unclear, that two of the biggest players in the field
are taking opposite tacks.
Dell Inc., the Round Rock, Texas, computer maker is merging with
data storage leader EMC Corp. in the largest acquisition in tech
history, which recently took a step forward Tuesday when the deal
was approved by EMC shareholders.
Silicon Valley icon Hewlett-Packard, on the other hand, broke
apart in November, creating a PCs-and-printers vendor called HP
Inc. and an outfit selling servers, storage and networking gear
called Hewlett Packard Enterprise.
Dell and EMC are betting that a broad, diverse product portfolio
will make the combined company a one-stop shop for large companies.
Hewlett Packard, meanwhile, says the two halves of the former tech
giant are better able to maneuver independently and focus on
innovation.
Both moves are responses to markets in persistent decline. PC
shipments plummeted 9.8% in 2013, 10.4% in 2015 and are expected to
drop another 7.3% this year with $161 billion in sales, according
to International Data Corp. Revenue from conventional printers
hasn't grown for a couple of years. The $64 billion market for
servers, storage and network hardware has been falling since 2014
and is expected to slide 1.3% annually for the next four years.
One bright spot is the small but fast-growing market for
data-center hardware adapted to cloud-style computing, which pools
computing and storage and allocates them dynamically.
The market for this sort of hardware, which is an alternative to
using cloud-computing services for companies that want to maintain
their own equipment, is expected to grow 10.2% annually to $20.3
billion in 2020, according to IDC. The research firm also expects
the $26.7 billion market for 3-D printers to grow at a 27% compound
annual growth rate until 2019.
Dell and EMC are betting that the combined company can use its
position to sell more cloud-related equipment.
"You get an unbelievably strong position when you put Dell and
EMC together in that very important, growing space," Dell founder
and CEO Michael Dell told The Wall Street Journal in October.
HP Enterprise CEO Meg Whitman experienced the pitfalls of that
position when she steered the consolidated H-P between late 2011
and its breakup.
As separate companies, she said, the two halves can better
defend their No. 1 positions in servers and printers, as ranked by
IDC.
"It's hard to be fast when you're big and in so many different
businesses," she said in an interview.
Combining Dell and EMC gives those companies an opportunity to
take advantage of complementary strengths in sales. Dell, which
ranks third in international PC sales according to IDC,
traditionally has appealed to smaller and midsize companies. EMC,
IDC's No. 1 storage vendor by sales, has made inroads in large
enterprises. Together, they can presumably sell far more of Dell's
products to EMC's customers, analysts say.
By getting bigger, Dell may better able to negotiate lower
prices from vendors, analysts say. In the server, networking, and
storage markets, branded products that offer special features are
giving way to lower-cost generic hardware, said Abhey Lamba,
managing director with Mizuho Securities USA Inc.
"In a commodity market, scale matters," he said.
H-P didn't find that scale so helpful, though, Ms. Whitman said,
even being the leading maker of servers and the No 2. vendor in
storage and networking.
Dell's bid for scale brings its own risks. Large tech
acquisitions have a troubled history, from Microsoft's purchase of
Nokia to H-P's tie-up with Autonomy -- and those were small by
comparison. Dell will take on up to $49.5 billion in debt, and
interest payments could eat into research-and-development budgets
that are crucial to keep up with fast-paced changes in technology.
EMC spent $3.2 billion on R&D last year, about 13% of its
revenue, which is higher than most tech companies. Dell and EMC
said they intend to preserve R&D budgets.
HP Inc. CEO Dion Weisler said H-P's split has brought crucial
focus. The company has benefited from a roster of directors who
think only about personal computers and printers, he said.
"Inside a much larger organization, prior to this, we never got
100% of the attention to this business," he said in an
interview.
Since the split, HP Inc. has entered a new market, 3-D printing,
with a product called Jet Fusion aimed at industrial manufacturing.
In June, it acquired a German 3-D scanning company to improve its
systems that translate real-world objects into digital 3-D models
that can be manipulated and printed.
HP Enterprise, too, has been able to move faster since becoming
an independent company, Ms. Whitman said, developing a new data
center computing system from concept to delivery in six months.
Regardless of the relative benefits of consolidation and
fragmentation, they may be attributable simply to different
corporate cultures. Dell famously operates from the top down,
marching in lockstep with its founder and namesake. H-P was
team-oriented and collaborative, according to Patrick Moorhead,
principal analyst of Moor Insights & Strategy.
Write to Rachael King at rachael.king@wsj.com
(END) Dow Jones Newswires
July 25, 2016 02:48 ET (06:48 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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