Dell, HP Take Opposite Tacks Amid Roiling Tech Market

Dell is merging with data storage leader EMC in the largest acquisition in tech history. ENLARGE
Dell is merging with data storage leader EMC in the largest acquisition in tech history. Photo: Bloomberg News

The markets for business technology are so roiled, and the path forward so unclear, that two of the biggest players in the field are taking opposite tacks.

Dell Inc., the Round Rock, Texas, computer maker is merging with data storage leader EMC Corp. EMC 0.71 % in the largest acquisition in tech history, which recently took a step forward Tuesday when the deal was approved by EMC shareholders.

Silicon Valley icon Hewlett-Packard, on the other hand, broke apart in November, creating a PCs-and-printers vendor called HP Inc. and an outfit selling servers, storage and networking gear called Hewlett Packard Enterprise. HPE 1.52 %

Dell and EMC are betting that a broad, diverse product portfolio will make the combined company a one-stop shop for large companies. Hewlett Packard, meanwhile, says the two halves of the former tech giant are better able to maneuver independently and focus on innovation.

Both moves are responses to markets in persistent decline. PC shipments plummeted 9.8% in 2013, 10.4% in 2015 and are expected to drop another 7.3% this year with $ 161 billion in sales, according to International Data Corp. Revenue from conventional printers hasn’t grown for a couple of years. The $ 64 billion market for servers, storage and network hardware has been falling since 2014 and is expected to slide 1.3% annually for the next four years.

One bright spot is the small but fast-growing market for data-center hardware adapted to cloud-style computing, which pools computing and storage and allocates them dynamically.

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Photo: Reuters

The market for this sort of hardware, which is an alternative to using cloud-computing services for companies that want to maintain their own equipment, is expected to grow 10.2% annually to $ 20.3 billion in 2020, according to IDC. The research firm also expects the $ 26.7 billion market for 3-D printers to grow at a 27% compound annual growth rate until 2019.

Dell and EMC are betting that the combined company can use its position to sell more cloud-related equipment.

“You get an unbelievably strong position when you put Dell and EMC together in that very important, growing space,” Dell founder and CEO Michael Dell told The Wall Street Journal in October.

HP Enterprise CEO Meg Whitman experienced the pitfalls of that position when she steered the consolidated H-P HPQ 0.79 % between late 2011 and its breakup.

As separate companies, she said, the two halves can better defend their No. 1 positions in servers and printers, as ranked by IDC.

“It’s hard to be fast when you’re big and in so many different businesses,” she said in an interview.

Combining Dell and EMC gives those companies an opportunity to take advantage of complementary strengths in sales. Dell, which ranks third in international PC sales according to IDC, traditionally has appealed to smaller and midsize companies. EMC, IDC’s No. 1 storage vendor by sales, has made inroads in large enterprises. Together, they can presumably sell far more of Dell’s products to EMC’s customers, analysts say.

By getting bigger, Dell may better able to negotiate lower prices from vendors, analysts say. In the server, networking, and storage markets, branded products that offer special features are giving way to lower-cost generic hardware, said Abhey Lamba, managing director with Mizuho Securities USA Inc.

“In a commodity market, scale matters,” he said.

H-P didn’t find that scale so helpful, though, Ms. Whitman said, even being the leading maker of servers and the No 2. vendor in storage and networking.

Dell’s bid for scale brings its own risks. Large tech acquisitions have a troubled history, from Microsoft MSFT 1.38 % ’s purchase of Nokia NOK 0.69 % to H-P’s tie-up with Autonomy—and those were small by comparison. Dell will take on up to $ 49.5 billion in debt, and interest payments could eat into research-and-development budgets that are crucial to keep up with fast-paced changes in technology. EMC spent $ 3.2 billion on R&D last year, about 13% of its revenue, which is higher than most tech companies. Dell and EMC said they intend to preserve R&D budgets.

HP Inc. CEO Dion Weisler said H-P’s split has brought crucial focus. The company has benefited from a roster of directors who think only about personal computers and printers, he said.

“Inside a much larger organization, prior to this, we never got 100% of the attention to this business,” he said in an interview.

Since the split, HP Inc. has entered a new market, 3-D printing, with a product called Jet Fusion aimed at industrial manufacturing. In June, it acquired a German 3-D scanning company to improve its systems that translate real-world objects into digital 3-D models that can be manipulated and printed.

HP Enterprise, too, has been able to move faster since becoming an independent company, Ms. Whitman said, developing a new data center computing system from concept to delivery in six months.

Regardless of the relative benefits of consolidation and fragmentation, they may be attributable simply to different corporate cultures. Dell famously operates from the top down, marching in lockstep with its founder and namesake. H-P was team-oriented and collaborative, according to Patrick Moorhead, principal analyst of Moor Insights & Strategy.

Write to Rachael King at [email protected]


WSJ.com: US Business

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