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Dell's acquisition of storage vendor EMC has the potential of creating a major IT company with a strong networking portfolio for the enterprise data center.
Privately held Dell announced this week a $67 billion deal, the largest ever in the tech industry, to acquire EMC and its majority stake in VMware, which is challenging Cisco in the emerging software-defined networking (SDN) market.
Chairman and CEO Michael Dell has said VMware will be left alone. The virtualization vendor will remain a publicly traded company, and its partnerships with Dell competitors will be untouched. VMware partners with HP and Lenovo Group Ltd., which are Dell's largest rivals in the server market.
EMC will be treated differently. Once the deal closes in mid-2016, EMC will become a private company and the work of combining products and sales teams will begin in earnest.
"The combined Dell becomes an IT powerhouse," said Rohit Mehra, analyst at IDC, based in Framingham, Mass.
Dell in enterprise networking
With EMC, Dell immediately graduates from an IT provider to small and midsize enterprises to one that can also serve the largest corporations, analysts said. From a Dell networking portfolio perspective, Dell will be able to combine its servers and networking gear with EMC storage and sell a converged system to data centers.
Rohit Mehraanalyst, IDC
Those systems are likely to be sold through the Virtual Computing Environment (VCE) coalition of VMware, Cisco and EMC. The trio formed the partnership in 2009 to sell virtualization, networking and storage bundles to enterprises building private clouds.
Since the coalition's formation, Cisco has reduced its stake in VCE from 35% to 10% and EMC has made VCE an in-house business. "I am sure Dell will try to maximize opportunities for selling its switches through VCE," said Shamus McGillicuddy, analyst at Enterprise Management Associates, based in Boulder, Colo.
The combined Dell-EMC systems are likely to come with the option of a network operating system (NOS) from SDN vendors Cumulus Networks or Big Switch Networks Inc. The Dell networking portfolio includes either NOS on bare-metal switches, and the operating systems can be integrated with VMware's SDN platform NSX.
"You might see some deeper integrations and jointly sold network solutions comprising Dell, VMware and those switch OS vendors," said McGillicuddy.
Integrated products need management tools and EMC has a strong product called the EMC Service Assurance Suite. The suite includes network management software and integration with NSX.
While there's some overlap with Dell management software, the company "has an opportunity to package powerful network management software with its switching products," said McGillicuddy.
The VMware question
Dell is expected to take a hands-off approach to VMware for several years as it toils with EMC to integrate products and sales forces. Longer term, there's nothing stopping Dell from doing exclusive work with VMware. The EMC deal will add nearly $50 billion in debt, and Dell is unlikely to ignore a major asset like VMware to help pare down the obligation.
The uncertainty will weigh on the minds of HP and other Dell competitors that have partnered with VMware, Mehra said. "A lot more doubt and caution will start to appear in the strategies of the various [competing] vendors."
HP is in a precarious position because it is Dell's largest competitor in bare-metal switches. Both vendors are providing their respective product lines as open alternatives to Cisco's proprietary systems.
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