Skip to main content

M&A Real-Time Analysis: Why would Cisco want to buy EMC

Because they have to get into the adjacent markets. Well it is still IT and eventually how does it matter, to even the IT geeks, if the stuff is in the network or storage or some sort of abstraction layer (which you and I fondly call virtualization). Cisco's chief John Chambers has said again and again, as if to convince the board members that "a mega-acquisition has just gotta happen or else we'll die", that earnings will erode over time as the world goes to a much on-demand computing.

Update: This news from Bloomberg today(dated 5th August,2008) is enough for the shareholders to be convinced that a "natural adjacent merger or acquisition" is the best thing that can happen to Cisco, surely EMC has a lot to gain from this deal as well. This is the best way both chiefs can handover the helms to their successors as well.

The obvious dangers of the on-demand computing is that the sales guys will not be able to sell anymore, at least not the kind of stuff that they sold in the past. The real, tangible stuff, we call hardware with all those processors and disks all jammed in. Obviously the stuff to be sold will be done by some smarter folks, meaning the versatile consultants or what I often call here versatilists (coined by Gartner, to be fair here). So good-bye sales guys and welcome the savvy consultant (a hard find by the way). This is again not going to be enough in a market where competition is rising, cost-cuts intensify and customers are too busy looking for quick gains and even tying up with newcomers.

Anyways so the problem (err..challenge) is pretty much clear. Cisco (and others as well) knew this long time ago. Cisco has gone for a bid long time back. Looking at this news article from July 2005:

From Cisco's perspective
The San Jose-company has saturated the networking market, but still has to grow. However, its choices are limited. Microsoft owns the desktop. The server market is commoditized by IBM, Dell and HP with IBM taking the lion's share of the services business. This leaves storage, which happens to be the only growth area left.

Buying EMC would give Cisco another chunk of the enterprise and tremendous sway with customers. Its mantra for some time has been that users want fewer suppliers to deal with and products from companies that they can be sure will be around a year from now.

Cisco would also like to see as much functionality as possible moved into the network, including storage applications, which it has slowly been tapping away at for a while. With 10 Gigabit Ethernet on the horizon, Cisco might also have its sights set on finally nailing the coffin on Fibre Channel, to bring storage networking and data networking together over the same pipe. Buying EMC could put an end to Fibre Channel diehards Brocade and McData in one fell swoop. There'll be no such thing as a SAN company anymore. Cisco would probably say who cares if it's IP or FC or telephony anyway, as long as it's always available, secure and runs everything?

From EMC's perspective
The company's shareholders get a healthy premium. Looked at another way, what is EMC's risk in not doing this deal? It may be at the top of its game right now, but what does the future hold? Can it really be a major software player outside its customer base in an industry where proprietary barriers to heterogeneity are still significant? Can it ultimately triumph in the midrange, which is clearly going to be the heart of the market for at least 5 years, against more technically and commercially aggressive players?

Before the going gets tough, EMC CEO Joe Tucci has the chance to sell the company to Cisco, exit on a high note and probably earn himself a fat $200 million or so in the process.


So the dilemma here is simple. Cisco gets into yet another fast-becoming commodity market and EMC's five-year long flat revenue gets a 4-week long boost. I think the change in management and eventually someone standing up and doing something worthwhile with some great technologies and acquisitions (including VMware) may be the key to such an acquisition initiative.

Virtualization is a very rich market and a lot will happen as well move towards the clouds. Evnetually firms like Microsoft too are prone to go for some mega-aquisitions such as that of Symantec (I'll explain in another article why that may be interesting for Microsoft and Symantec). Reactive and poor judgement has led to several firms starting to gnaw away at the market share of VMware and EMC as well. That needs to be injected with some fresh blood and visionary leadership.

There is enough to be done. Funny thing is if you compare the analysis of way back then and now, nothing much has changed. Maybe the overgrown bubble, the credit crisis owing to housing sham has only aggravated the spending, surge in oil prices has killed the buying power of the consumers and a devaluation of US dollar against currencies such as euro, 0.99 in 2002 to 1.6 now has made the consumer hard to find a way out of the conventional spending they did way back in past. When HP-EDS deal was announced we knew something had changed. I drew the HW-SW-SI-Sourcing circle quickly to explain why completing the circle is crucial to feed the global market.


Globally Deliverable, Converged Services


What happens in such an acquisition spree is that firms have to take major risks to advance towards the converged business model. This has to then be delivered over the internet, via Cloud Applications and Services or whatever we'll call it when we get there. As you can see clearly that Cisco is just looking at that very single quadrant we call HW, just in this case, with VMware and other software houses such as RSA, Documentum etc it also sneaks gradually towards the SW quadrant. HP-EDS's deal has been scorned at and a lot of dropouts were/are expected but eventually we don't know that may be the best thing that HP ever did.

It is not so much about making a statement by doing the multi-billion dollar deal but it is about the walling-in that firms have to watch out for. The market cruch and continued consolidation eventually means that too many players will be a thing of the past.

So should Cisco buy EMC, the answer maybe yes and maybe, but the eventual answer may still be yes. It is not easy to be found naked in the alley where things are being sold dime a dozen, the commoditization of services will eventually render stuff like networking, OS, etc hardware absolutely irrelevant. The talks could very well mean to take ownership of VMware but EMC may want all of it to be sold, to which Cisco may have objections.

Bottom line: No matter what the issues may be, it is time to realize that the consolidation is the law. Should you be driving it or be driven by it. The goal is far greater, it is to serve the community driven, highly aspirational global market.

Comments

Popular posts from this blog

Redhot Future Of IT Part I :Marketing yourself as IT professional

I had promised about the "RedHot IT Future Series" and so we discuss here how you should market yourself EFFECTIVELY as an IT professional in this new (and dangerous) web age! Web is the place where you're a hero today and villain tomorrow. While there are lots of professionals who are active on the web, not all are enjoying a good reputation as they got "personal" with others and got into a cockfight. The passive IT professional has nothing to lose but nothing to gain at all!

I know "marketing" might seem as a greasy term but the idea is to have the truth about you out there. You know you're a good person and your family knows that you're really smart person but the rest of the world doesn't!

So the question is how do I market myself on the web as a true "nouveau IT professional". A guy who companies will be tempted to pick up the phone as say "Hey, we wanna talk with you. Can you fly over to Palo Alto (or Guatemala or Johan…

Redhot Future Of IT Part 2 :Virtualized Workplaces

Click on the title to hear what I have to say, alternatively click here to listen to what I have to say here.

So what is a virtualized workplace? Does it mean it does not exist? That it's virtual? Well in a certain way YES. This is where the future of our workplace is going to be. Well it is already a reality in some countries.

OK lets start by asking ourselves these questions:
Do you really bond with your colleagues? (think Team cohesiveness)
Do you spend great amount of hours talking about great things that you will do together? (think collaboration)
Do you really feel that you give 100% at work? (think effectiveness)
What do you really miss at your desk? (think personalization)
Is your desk comfortable enough? (Again think optimizing personalization, OK you have done your best to make it your place)Does it really matter to your employer that you are there for him/her? (think commitment)
Or do you get micromanaged over petty issues? (think mismanagement)
Do you see your employees perfor…

A Collection of Threnodies : Part 1

Whale Fall
-----------------

Dress me up in my new threads
clasp my greasy palms
grease my hair
I'm ready for the fall


Watch at all the decadence
watching the avalanche
I'm slipping down
losing my buoyancy


What's become of us
where have we come
this far, this close
close to the doors


I hear them, sublimal chants
I'm on the run
I race through the human sea
I am the king!


I'm the slave
to my own undoings
I'm the jester in my courtyard
We jest as we run


We're strolling on that thin rope
we grope as we rope
we're true heros
we're the survivors


we're the scavengers
we're the friends
we're the lovers
we're the unbred


Soon awaiting the fall
we're lurking on us
we're osedaxing us
we're soon going to be done
we'll soon be arrested




*osedax(bone devourer, newly discovered marine genus) feeds on a fallen(sunken) whale carcass(which is also called a whale fall). Read more here