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Dell-EMC-VMware Merger Could Push Comms to Kids' Table

Dell will need to invest more in enterprise business, to the detriment of comms, say industry insiders.

Mitch Wagner

October 15, 2015

7 Min Read
Dell-EMC-VMware Merger Could Push Comms to Kids' Table

When Michael Dell tweeted about the EMC acquisition, he made a clear statement of strategy:

What's missing from that tweet? Any mention of telcos, carriers, service providers and other comms companies.

Of course, you can't say much in a tweet, but industry sources say there's more to Dell's lapse than brevity. Dell Technologies (Nasdaq: DELL) will be required to drive revenue to meet the hefty debt it accumulates to achieve the acquisition, and that will mean investing more in the lucrative enterprise business, to the detriment of comms.

In other words, comms companies may be treated like extra adults at a holiday dinner, stuck at the kids' table, separated from the grown-ups in another room.

Dell on Monday announced plans to buy EMC in a $67 billion transaction backed by Dell owners Michael Dell, MSD Partners and Silver Lake, creating the largest privately controlled integrated technology company with a focus on the global cloud market, the Internet of Things and the virtualization of global IT. VMware will continue as an independently owned company with majority Dell ownership; it's now independent but controlled by EMC, which owns about 80% of stock. (See Dell Buys EMC for $67B in Biggest Tech Deal Ever.)

Industry insiders say that Dell, as controlling owner of VMware, will inevitably drive the company's strategic direction. And that will have ramifications for VMware, which is pursuing SDN and NFV strategies and gaining traction in the service provider market, even though it's primarily an enterprise company.

"There will be less focus from VMware on the SP market and even more on the enterprise market," Codero Hosting CEO Emil Sayegh tells Light Reading.

"Dell is going to double down on moving more and more into the enterprise, in light of Dell having a firm footprint there," Kumar Srikantan, president and CEO of Pluribus Networks , which partners with Dell on SDN, says. As Dell invests more in the enterprise, its service provider commitment will remain constant. The service provider market is currently a "marginal business" for Dell, he says. "I don't think it delivers any value at all."

VMware says it remains committed to the service provider market. "VMware's mission, strategy, ecosystem and leadership will remain unchanged," spokesman Michael Thacker tells Light Reading. "This includes our focus on offerings for service providers,"

It's a "stretch" to interpret Michael Dell's tweet, which "doesn't mention every audience [VMware] and Dell can and will serve," as a "change in strategy," Thacker says. "For example, the tweet doesn't talk to the SMB audience either, but we do believe that Dell's focus on SMB will benefit VMware post-merger."

For its part, Dell sent links to a few public statements in response to a request for comment from Light Reading. Those documents made no mention of service providers other than cloud providers, while singling out small business, the mid-market and large enterprises as target markets.

That said, VMware and Dell both have made inroads into the service provider market recently.

VMware, in particular, says it's making a service provider push. In an earnings call in July, CEO Pat Gelsinger said it sees NFV as an opportunity to win hearts in the telco and service provider market, which it has "never participated in before." (See VMware Looks to NFV to Crack SP Market.)

VMware NFV customers include Vodafone, Ooredoo Kuwait and IIJ Japan. Telefónica Digital uses VMware servers for 95% of the infrastructure for its Tu Go service, while C Spire standardized on VMware for a recent, new data center.

VMware and EMC joined the OPNFV project in May, and introduced new NFV software and partnerships this week. (See Telefónica Takes NFV Tu Go, VMware Lands NFV Deal at Internet Initiative Japan, Ooredoo Kuwait Taps VMware for NFV, EMC, VMware Join OPNFV Project and VMware Debuts New NFV Platform, Services.)

Next page: One size fits all?

Dell has been less active with service providers, though it did name telecom, hosting companies and oil and gas giants as part of the market it's looking to serve with a recent $6 billion data center initiative. (See Dell Targets $6B Telco Data Center Sweet Spot.)

VMware provides one-size-fits-all technology, which is not suited to the service provider world, says Steve Garrison, VP marketing, at SDN vendor Pica8 Inc. "Service providers are trying to differentiate themselves. Why do they want one-size-fits-all technology? They want something they can customize." That's OpenStack, an open source competitor to VMware.

VMware believes OpenStack is the future of the cloud, but it's just not mature enough for many commercial deployments today. VMware supports OpenStack with an Integrated OpenStack distribution to allow developers to use OpenStack APIs to access VMware infrastructure, as well as VMware vCloud for NFV, which lets carriers run OpenStack and the company's own vCloud cloud manager side-by-side. (See VMware Bows OpenStack/vCloud NFV.)

And OpenStack love isn't universal among service providers. BT this week threatened to abandon OpenStack in favor of proprietary technology for virtual enterprise services unless vendors can overcome technology hurdles, including the provision of scalability, security and backwards compatibility. (See and BT Threatens to Ditch OpenStack.)

As for Codero, Sayegh says he sees the possibility of Dell doubling down on the enterprise market and neglecting comms as an opportunity for the comms company, which uses VMware but not strategically.

"We don't depend on VMware. We sell VMware, but that's not core to us," Sayegh says. Codero provides VMware to enterprise customers that ask for it for private clouds, but prefers OpenStack and CloudStack. "A lot of our competitors are offering VMware clouds, public clouds on VMware. It's core to other companies."

On the enterprise side, customer reaction to the deal is "encouraging," according to a customer survey of 447 enterprise IT decision makers by 451 Research. Some "31% of IT decision-makers describe the acquisition as a positive move, compared to 20% that see it in a negative light," the analyst firm said in a note. Dell customers are more upbeat, with some concerns from the EMC base.

"Most of the negativity among EMC-only clients is focused on the potential distraction to both companies (29%), and a belief that the combined company will be unsuccessful (18%) or have limited product innovation (15%)," says 451 Research. "As one respondent put it, 'The fight over control will take years to sort itself out, and innovation will suffer.'"

Want to know more about SDN? Visit Light Reading's SDN Technology content channel.

However, Pluribus's Srikantan expects the consolidation to be quick because Dell is privately held. "If this were a public transaction, there would be dillying and dallying, focused on the next quarter and responding to Wall Street." Dell's investors -- including Michael Dell himself -- will demand fast, decisive changes.

The deal will call some partnerships into question. For example, HP Inc. (NYSE: HPQ) and VMware are partners, but HP may rethink that relationship when VMware is closely affiliated with Dell, says Sayegh.

And combining the companies will complicate relationships with Cisco Systems Inc. (Nasdaq: CSCO). On the one hand, VMware, Cisco and EMC partner on a $2 billion converged infrastructure business, VCE; on the other, VMware and Cisco have competing SDN offerings, and Dell competes with Cisco on blade servers.

Cisco CEO Chuck Robbins told CRN this week that he and Michael Dell are looking to meet soon, and that they will continue as partners in VCE.

— Mitch Wagner, Circle me on Google+ Follow me on TwitterVisit my LinkedIn profileFollow me on Facebook, West Coast Bureau Chief, Light Reading. Got a tip about SDN or NFV? Send it to [email protected].

About the Author(s)

Mitch Wagner

Executive Editor, Light Reading

San Diego-based Mitch Wagner is many things. As well as being "our guy" on the West Coast (of the US, not Scotland, or anywhere else with indifferent meteorological conditions), he's a husband (to his wife), dissatisfied Democrat, American (so he could be President some day), nonobservant Jew, and science fiction fan. Not necessarily in that order.

He's also one half of a special duo, along with Minnie, who is the co-habitor of the West Coast Bureau and Light Reading's primary chewer of sticks, though she is not the only one on the team who regularly munches on bark.

Wagner, whose previous positions include Editor-in-Chief at Internet Evolution and Executive Editor at InformationWeek, will be responsible for tracking and reporting on developments in Silicon Valley and other US West Coast hotspots of communications technology innovation.

Beats: Software-defined networking (SDN), network functions virtualization (NFV), IP networking, and colored foods (such as 'green rice').

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