EMC was a very successful vendor in redefining the storage space, but its business is being impacted on all angles from changing buying patterns, competitive shifts, Infrastructure as a Service, price pressure and of course an internal inability to shift the business model quickly.
Cut to the core and EMC has publicly been considering its long term future financial position. It has one piece of gold, in the form of the 80% of VMware that it owns. The fact that VMware is the redeeming feature of EMC speaks to the failure of EMC to continue to transform in front of the market rather than reacting to change. (One of the major takeaways for capioIT at EMC World was that EMC was following the market in reaction mode, rather than making things happen out in front through innovation).
The EMC scenario is reflected at HP, albeit in the case of HP, the breadth of the business means that the scale of the challenge is even larger. Furthermore, the legacy of the executive dysfunction prior to Meg Whitman taking over as CEO and Chairman has had a massive negative impact.
For EMC, along cames HP, still not burnt from the failed acquisitions of EDS and Autonomy, willing to merge/acquire EMC. Put simply if this happens, it has every indication of adding to the mess of $19B in write-downs that HP has undertaken in recent years.
It is the marriage of two vendors who are struggling to find their identity in a nimble, evolving world. The rationale for two already cumbersome vendors forming a much larger entity with the ability to be flexible, reactive to customer evolution and part of the new order of technology is difficult to identify.
There are so many implications of this. Front and centre, the impact on Cisco, VMware and the VCE enterprise is worth scrutinising. Cisco and EMC always have had a degree of competitive tension in their relationship and it would not surprise that in the longer term Cisco looks to EMC as more competitor than deep partner and increases the enhanced relationship with NetApp amongst others.
The other investment option for EMC is to invest in analytics providers such as Qlik, Tableau et al particularly in alignment with Pivotal. This would solve some of the problems for the future but cannot create the revenues of the storage business in the long term. In addition the potential integration issues and the ability to keep the real IP of these companies, the developers, within EMC does not have a clear resolution. If EMC were to do anything in the analytics space, it would have to be as part of Pivotal. The challenge is that Pivotal has reinforced an agnostic approach to the platform of choice for the user of analytics.
The challenges that HP and EMC face, and the risk that they are willing to make in order to maintain relevance highlights how difficult it is to be a legacy vendor. The transformation required to stand still is at such a level that very few will survive, whether they are a hardware, software or services based legacy vendor. Consider that the biggest challenges for these vendors’ revenue streams are yet to come. The shift to a subscription model for the procurement of technology has only just begun. So far in broad terms revenue and earnings have held up, but long term options are increasingly difficult.
The vendors who are comparatively successfully transitioning to the new technology environment have to be measured on potential rather than execution, but IBM and Microsoft have made tough decisions and embraced changing business models to be in a better place in late 2014 than they were at the beginning of the year. Cisco and Oracle are in the balance, but it is hard to argue that HP, Dell, EMC and Fujitsu are in a better position now than at the beginning of 2014 in light of a rapidly changing future.
Focus Point – A merger of HP and EMC may have been a great idea in 2004, but in 2014, it just reinforces the view that most of the legacy vendors have simply run out of ideas to execute a long term future around.
