Mumbai: Not everyone is excited about a multi-billion dollar merger between two seemingly traditional companies that sell hardware, storage and information technology (IT) services to other companies, especially in a new-age world of social, mobility, analytics and cloud (SMAC), Internet of Things (IoT), e-commerce, social networking, 3D printing and drones.

However, mobility, e-commerce, IoT, and analytics of Big Data on the fly—the trend of making sense of the humongous amounts of structured and unstructured mountains of information that individuals, companies and sensors generate—in realtime (on the cloud) or offline, require huge data centres that imply storage, servers and virtualisation (the partitioning of a physical server into smaller virtual servers in a bid to reduce costs).

These are the very reasons for Dell Inc. to justify its intention to buy EMC Corp. for a whopping $67 billion, a deal which it announced on Monday.

When completed, the Dell-EMC merger will become the largest deal in the tech sector, topping Avago Technologies Ltd’s $37 billion purchase of Broadcom Corp. that is yet to be given the green signal by EU regulators.

To place the sum involved in perspective, Dell itself became a private company on 5 February 2013, in a deal led by Silver Lake that was valued at $24.9 billion—the biggest leveraged buyout since the financial crisis. And in April 2009, Oracle Corp. paid $7.4 billion to buy Sun Microsystems after International Business Machines Corp. (IBM) reportedly withdrew its offer to buy the latter.

Dell, founded by Michael Dell, sells personal computers (desktops and laptops), servers, storage, and even provides IT services after the acquisition of Perot Systems for $3.9 billion in September 2009. EMC, on its part, has its so-called EMC Federation comprising independent units include its storage business, virtualization company VMware, security firm RSA Systems and cloud and Big Data analytics company Pivotal.

India impact

EMC is the clear leader in the strong storage market, both globally and in India. Dell, on the other hand, has the second-largest market share in a weakening Indian PC market (21.6%) after Hewlett-Packard Corp (HP—26.3%).

According to research firm International Data Corporation’s (IDC) July Asia-Pacific Quarterly Enterprise Storage Tracker, the external storage market in India witnessed a double-digit year-on-year growth (in vendor revenue) and stood at $70.2 million.

Growth in the storage market was majorly driven by government initiatives like UIDAI’s Aadhaar and e-governance projects, and large multi-million dollar technology refresh deals in the banking vertical.

The market is expected to witness further growth due to increased storage demand from e-commerce companies, healthcare and online educational institutes coupled with the traditional verticals, in the coming quarters, the report said. For instance, in financial year 2014-15, Dell won a deal with e-commerce company Flipkart to deploy its PowerEdge servers.

EMC, the IDC report said, continued to lead the market and increased its share to 33.5% from 31.2% majorly due to multi-million dollar deals from the government and telecom business. HP (Hewlett-Packard Corp) displaced IBM to gain the second spot with 15% market share in the first quarter of 2015. IBM and Netapp saw a decline in growth, while Dell “witnessed marginal growth (quarter-on-quarter)".

Even according to Gartner Inc research, EMC is the No.1 storage vendor in India with a marketshare of about 33%.

EMC started operations in India in October 2000. For financial year 2014-15 EMC India revenue stood at 2,452 crore, a 15% growth over last fiscal, as per Dataquest (DQ) Top 20 estimates. EMC has so far invested about $2 billion in India in the past five years, primarily on expansion and marketing.

Dell’s India revenue, according to the DQ report, stood at 13,984 crore for the same period—a 30% growth over last year. Dell India has about 27,000 employees, and is sharpening its focus on existing enterprise and software products and investing more in creating intellectual property (IP), while remaining committed to investing in research and development (R&D) and the government’s smart city and Digital India programmes.

Privatization for Dell has brought in the much needed flexibility that is crucial in doing so, say analysts. The company, though, is focused on its PC business in the country.

Dell also has a 23% unit shipment share of x86 servers according to the December 2014 quarter results from IDC, mainly due to demand from e-commerce and start-up companies was a key factor in driving growth in this space. Dell is also increasing its investments in areas like digital mobility and cloud-based services.

Moreover, the Indian datacenter infrastructure market--comprising servers, storage and networking equipment, will total $2.03 billion in 2015, according to a 29 September report by Gartner. This marks a 5.4% increase from 2014 revenue of $1.92 billion.

India, the report added, will be the second largest market for data center infrastructure within the Asia-Pacific region, and also be the second-fastest growing market in Asia-Pacific in 2015--all of which spells good news for the merger.

The enthusiasm, though, will not necessarily shared by the company’s shareholders, its technology partners or by employees of the company that is being purchased since it typically involves reorganisation (read: changing management roles or axing of redundant workers).

“The India market at this point of time is opportune for a Dell-EMC deal to take place, considering India is still a host to large number of organisations that are yet to shift workloads to the cloud. The deal would put the company in a sweet spot as they would be providing end-to-end infrastructure in terms of both devices and storage," Sanchit Vir Gogia, chief Analyst and CEO of Greyhound Research, said.

He explained that EMC’s Big Data analytics software would be a good addition to Dell’s portfolio of solutions. “EMC’s Pivotal software would give Dell a good lead in complex cloud computing and data warehousing capabilities. EMC storage solution technology can help calibrate Dell’s existing offerings. While for Dell, storage has been a secondary business segment, it will benefit from EMC’s focused R&D (research and development) on the same," Gogia said.

However, there is some overlap in the solutions that both companies offer in the storage and servers’ segments. Besides, Gogia pointed out that both companies “work with partners that are industry competitors—such as Dell with Nutanix and EMC with VMware. These partners could be left in a tight spot on how to sell," he added.

Moreover, with the deal size being large in nature, the financial implications “will be felt throughout the company", Gogia said, concluding: “In order to sustain the cost of the merger, Dell can look at workforce cuts. India specifically has substantial workforce under Dell, the consolidation of offices might cause disruption."