Dell Computers is looking to ramp up its efforts in the burgeoning cloud computing and data storage industry. Already the world’s third largest computer manufacturer, and the largest manufacturer of storage hardware, the deal with EMC would give the company a huge presence in the online services sector.
EMC is the world’s second largest server company, and has a big presence in data analytics, big data, security, and other software sectors.
According to insiders, Dell is offering $33 dollars per share to buy EMC, a substantial premium over the $28 dollars the stock closed at last week. In total, the deal would be worth about $40 billion dollars. The deal would also include a tracking stock in VMware Inc., which would be issued to EMC shareholders and valued at $8 dollars a share.
A tracking stock is issued to shareholders and is usually tied to the performance of a particular a company’s division. Unlike most stock, there is no claim to assets.
There’s still no word on whether or not EMC will accept the offer. The cloud industry, as well as the data analytics industry, are among of the fastest growing in the world, and EMC shareholders may feel that their chances are better if they go it alone. Still, analysts believe the deal is very favorable for EMC shareholders.
Increasingly, software, and especially software-as-a-service (SaaS), as well as other value added services, is being seen as the way forward for many companies. Hardware is simply no longer as profitable as it used to be.
International Business Machines (IBM), for example, has all but dropped the “machine” part from its international business, having sold off its personal computers and part of its server industry to Lenovo Computers.
Dell’s efforts seem to be in much the same vain. Once a highly profitable firm, Dell has fallen on hard times, even though its computers still sell in high volumes. Intense competition has eroded profit margins, and few hardware manufacturers outside of Apple are reporting big returns.
By combining the company’s server business with EMC’s cloud storage, data analytics, big data, and other services, however, Dell will be able to create a massive, vertically integrated company that should be able to squeeze out profits at numerous points in the supply and production chain.