When Michael Dell took his own company private exactly two years ago, he had one mission in mind: he wanted to get Dell away from the shrinking PC market and push more deeply into the $US2 trillion, highly lucrative market that sells technology to big businesses.
Today’s news that Dell plans to buy EMC in a massive $US67 billion acquisition is a huge leap in that direction.
EMC brings to Dell a huge roster of enterprise customers, the kind of customers that have been spending big bucks for decades on their data centres.
Dell isn’t exactly a newcomer to this data center market, but Dell has always been seen as more of a mid-market, lower-cost, value kind of player. Where EMC is the Cadillac, Dell is more like the Chevy.
Becoming the Cadillac is the change that Michael Dell envisions for his company.
On a press conference call on Monday to discuss the news, Dell said that the combined company will be a leader in “an amazing 22 market segments” and said “Dell brings strength in the small business and mid-market complimenting EMC’s strength in the large enterprise market.”
Still, in a lot of ways, this is not a brilliant merger. Dell is taking on an astronomical amount of debt to make it happen. Estimates range that Dell is adding between $US40 billion to $US50 billion of debt to its balance sheet. And that’s on top of the roughly $US11 billion of debt Dell still had on the books from taking his company private, reports CNBC.
Cost cutting ahead?
Debt obligations of those proportions can often mean pressuring customers to buy more and spend more. Customers hate that.
And it always means cost cutting, typically including layoffs.
When asked about cost-cutting and layoffs on the conference call, Michael Dell seemed a bit touchy. He admitted that layoffs are on the table, while taking not-so-subtle swipe at HP and its huge 80,000+ employee layoff (and he also basically told the questioner, Brian Womack of Bloomberg, to bug off).
“There’s certainly some cost synergies, we’re not going to tell you that there aren’t,” Dell said. “But I think there are some other companies in our industry that are maybe far better at reducing headcount than we are. So jump on their calls.”
Dell is private now. EMC will be private, too, when the deal closes and Dell doesn’t have to answer pesky questions about corporate headcount and finances if he doesn’t want to, beyond the obligations of selling his company’s debt on the public market.
Not surprisingly, Dell employees are nervous.
But they are also hopeful for the company’s future, one former long-time Dell employee told us:
“Many employees feel beholden to a lot of stuff happening above their heads but they have a lot of faith in Michael Dell and are along for the ride. They are optimistic when they see deals like this that seem to be evidence of him advancing his plan even though the employees don’t really know all that it entails.”
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