The enterprise technology landscape is shifting in a hurry and yesterday's winners may become today's afterthoughts--or at least subsidiaries of larger companies. While the latest round of mergers and acquisitions is great for investment bankers, information technology buyers may have to play wait-and-see.
Add it up and there will be some serious delays from decision makers as once massive enterprise vendors play a game of musical M&A chairs.
- Dell buys EMC in a deal that equates to technology's largest leverage buyout.
- VMware becomes a tracking stock in that Dell-EMC deal, but the harsh reality is that it's unclear what happens to VMware's ecosystem when it's owned by a server vendor that competes with partners like Lenovo and HP.
- VMware and EMC then spin out a cloud services business built around Virtustream to better compete with the likes of Amazon Web Services and Microsoft's Azure. "We think VMware is getting squeezed by private data center solutions on one hand (Microsoft and Red Hat) and hyper-scale public cloud providers (Microsoft and Amazon Web Services) on the other," said Stifel analyst Brad Reback.
- Western Digital buys SanDisk in a $19 billion deal that makes a lot of sense. SanDisk's big enterprise plans will definitely get a boost from Western Digital. The reality is that the storage industry is consolidating in a hurry. "The combined company will be ideally positioned to capture the growth opportunities created by the rapidly evolving storage industry," said Western Digital CEO Steve Milligan.
- Multiple companies in the component food chain--Intel-Altera and Avago-Broadcom--are also merging.
VMware, which was widely panned by analysts on Wednesday following soft bookings in its third quarter earnings report, told the tale of the technology buying cycle and the big pause ahead. VMware operating chief Carl Eschenbach answered a question about soft bookings:
I think not just VMware but the entire industry as a whole is seeing a massive secular shift right now in the market. And, with this, our customers are a little bit more cautious before they enter into any type of strategic engagement or a technology spend as a whole.
Also, leading up until -- I guess, 1.5 weeks ago, there was a lot of speculation about VMware's future. In fact, there was a lot of ambiguity about what would happen with us in the future. The good news is the ambiguity is now gone because we know we'll remain an independent Company under the current operating model that was announced with the Dell acquisition -- or intended acquisition of EMC. But, it doesn't mean we're not going to see customers still have questions about what the future of VMware looks like going forward.
And then, the last area that we are seeing is just the overall macro issues we're seeing with the economy specifically in China, in Russia, and Brazil. I don't think we are any different than anyone else experiencing some challenges in those markets. And, we saw that once again happen this quarter, specifically in China and Russia.
"Secular shifts" is a phrase you're going to hear a lot from enterprise giants.
EMC CEO Joe Tucci said on the company's earnings conference call on Wednesday:
I've been saying for a long time that there is a huge secular shift going on in this industry unlike one that has ever gone on before. And you're going to be seeing a lot of consolidation.
Tucci's take is that the Dell merger gives the combined company more scale and throughput to compete in the market. Tucci added:
This is a different game being played now. If you go back to where the client/server era or the last era everybody stayed neatly in their lane. So there was a storage lane and of course that's where EMC played, there was a networking lane that's where Cisco played, there was a server lane, early days you had Sun then HP and others and then of course you had even a database lane where Oracle was the big player. Now you go fast forward nobody is staying in their lane. You look at Oracle not only are they in the database they moved up to the apps, they moved over their hardware and software designed together. We've moved into converged infrastructure. Cisco has moved into the servers and storage. So it's a different world out here now. And basically to play it you also have to do coopetition. You have to say 'this is when I'm going to play with my own stack and this is where we're going to play with others.'
Given Tucci's take, I'll bet that it's only a matter of time before Cisco buys Pure Systems or similar storage play.
Hewlett-Packard's approach is to get smaller and split into two companies. IBM's approach is to suffer 14 consecutive quarters of revenue declines and invest to grow businesses around analytics, cognitive computing and cloud.
Bottom line: Your formerly rock solid enterprise technology giants revolving around the data center are likely to either get bigger via merger or break apart in an effort to be nimble. IT used to live off the statement that "you never get fired for buying from X." Well guess what? You can get fired now for buying from enterprise giants.
The elephant in the room is the cloud gang. Perhaps the disruption from the these enterprise shifts will just create new "safe" vendors that will include the likes of Microsoft's Azure business, AWS and Salesforce. For now, it's legacy enterprise technology consolidation time.