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US/China: Is Dell’s $60bn merger all about challenging Amazon’s dominance of cloud computing?

By  |  September 4, 2016

Just three years ago, the future was bleak for Texas technology company Dell Inc. Declining hardware sales and the rise of China’s contract manufacturing hammered the company’s core build-to-order hardware business model. After years of layoffs and restructuring, the company limped away from the stock market with a 2013 leveraged buyout, putting the company back into the hands of its namesake founder Michael Dell.

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    But if all goes as planned, by Wednesday Dell will start a new chapter for a company he founded more than 30 years ago from a University of Texas dorm room. And following its $60 billion merger with Massachusetts-based EMC Corp., a leader in data storage, slated to be officially sealed next week, Dell Inc. will soon be renamed Dell Technologies.

    This deal — the largest-ever technology merger — makes Dell the biggest supplier of the hardware and software used in building cloud-computing networks that centralize storage, applications, databases and other elements delivered to numerous users on demand. The cloud, as it’s known, is the most vital platform on the internet right now. It’s what Netflix and Instagram use to deliver on-demand content, and it’s what corporate titans like General Electric and McDonald’s tap to store and process data globally.

    Currently, the industry leader in cloud computing is Amazon Web Services, which offers dozens of cloud-based services to companies and government agencies worldwide, generating $10 billion in sales last year, a 10th of Amazon’s total revenue. Thus, Amazon controls nearly one-third of the global cloud-computing market, dwarfing its closest competitor, Microsoft’s Azure, which has a 10 percent market share. Other players include IBM, Google and Salesforce, but all of their cloud-computing market share combined make up just a little more than half of Amazon’s.

    Although it might look like Dell is David going after a Goliath by challenging Amazon, the reality is a bit more complex. By acquiring a leader in data storage and related software, Dell Technologies is priming itself to become a leader in private and hybrid cloud services, said Raj Thangavelsamy, vice president of SSA & Company, an advisory firm specializing in corporate mergers and IT strategies.

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