Comment Succession, transformation and a customer buying pattern sea-change are simultaneously embroiling EMC’s top management and board in a perfect storm, according to CEO Joe Tucci in the quarterly results earnings call.
Six months after Joe Tucci’s last – and deferred – retirement date from running the EMC Federation, where he is chairman and CEO, he has revealed that succession planning is under way, that it's business as usual for the federation and its structure is no longer an option, and that EMC is undergoing a sea change in customer buying patterns:
[We will have] a better co-ordinated go-to-market approach, including the formation of a Federation-level go-to-market organisation... The Board is also deeply engaged in a smart navigation of the CEO succession process and we're very focussed on opportunities that will enhance shareholder value.
Buying pattern transformation
Customers are buying fewer traditional VMAX and VNX storage arrays and this change seems to be an enduring one, as they buy flash-based, scale-out and cloud-focussed products instead.
Tucci said: “The board and management, we understand that the IT industry is in the midst of a sea change, a huge sea change.”
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This is helping to drive change in EMC’s Federation: “We understand that business as usual is rarely a good strategy when an industry is going through this kind of turbulence,” Tucci added.
“The companies that will be successful are the ones that are able to truly transform themselves. The board and management, we're focussed on assuring and we are deeply engaged in making sure we have a very successful transformation. We have a number of options, really good options, and we have important next-generation winning technologies, great assets, and we have great people,” he continued.
“We understand that, when you are going to this kind of a sea change – and the board recognises it is a huge sea change in IT – business as usual is rarely a good strategy. And we're all about good strategies, transformation and doing things right."
The federation has four member companies:
- EMC Information Infrastructure or EMC II, headed by CEO David Goulden
- Pivotal, headed by CEO Paul Maritz
- Virtustream, headed by CEO Rodney Rogers
- VMware, run by CEO Pat Gelsinger
It is being pushed into doing something that will radically improve shareholder value (putting up the stock price by spinning off VMware, for example) by activist investor Elliott Management. Elliott has two seats on EMC’s board and has agreed – in a so-called standstill agreement – not to rock the boat further until at least September, when it would be free to agitate for more change.
HP acquisition of EMC
One event heavily subscribed to by some financial analysts, such as Brian Alexander at Raymond James, is a purchase of EMC by HP.
This is seen as a way for Hewlett-Packard Enterprise (HPE), the separated-from-HP printers and PC business – with enterprise servers, storage, services and networking in its business bag and run by Meg Whitman – to get serious storage and cloud heft.
It would marry HP, capitalised at $58bn, with $50bn EMC to form a $108bn giant capable of competing more effectively with IBM, Cisco, Microsoft, Amazon and Google in the cloud IT era.
Too many tanks, not enough lawns
However there is severe product overlap in the storage array space with HP’s 3PAR StoreServ directly competing with EMC’s VMAX and VNX array lines. A ruthless approach would say shared networked arrays are a declining force facing replacement by some combination of cloud storage for bulk data/cloud-resident apps and their data on the one hand, and on-premises scaled out, hyper-converged systems using server SANs on the other.
Also disk-based arrays are facing replacement by all-flash arrays, so wind down VMAX, VNX and StoreServ hybrid arrays in favour of XtremIO and DSSD flash arrays with – if it ever comes to fruition – HP’s Machine/Memristor combo being a play in the hyper-converged space.
An EMC acquisition by HP would be Meg’s big deal; she could see that through and then retire. A delivery of EMC into HPE’s hands could be Joe’s retirement triumph: seeing off Elliott with a big payday and creating a huge new force in IT much better able to compete with IBM ($158bn valuation) and Cisco ($140bn valuation).
Nevertheless, it would still be a long way behind Microsoft ($368bn), Amazon ($227bn) and Google ($464bn).
HPE is organised into five parts:
- Enterprise Group (Helion cloud, converged systems – servers, storage, networking and technology services) run by EVP Antonio Neri
- Enterprise Services (EDS)
- Software (app delivery, Haven Big Data, enterprise security, IT ops management, marketing optimisation)
- Financial Services
- Corporate investments (HP Labs and cloud-related incubation projects)
At first glance, if HP bought EMC, it would fit in the Enterprise Group’s Converged Systems organisation as Storage (EMC ii), VMware, Pivotal and other bits. Pivotal could go to HPE Software, ditto VMware. RSA could form a new HPE security division or go to HPE Software's Enterprise Security. VCE and VSPEX could be a new division in the Converged Systems group. Virtustream cloud management could go to Helion and ditto vCloudAir, possibly.
You can arrange the pieces of an HP-EMC jigsaw quite nicely. But will it happen? Do Meg and her board, and Joe and his board, want to make this happen? Could it be the best opportunity-building and problem-solving decision they can see?
The hell we know. We’ll just watch and wait and keep on wondering if the whole idea represents wet dreams by financial analysts.
Tucci was adamant about not spinning off VMware and keeping the federation intact: ”Splitting this federation or spinning off VMware is not a good idea. I firmly believe that we are better together – a lot better together."
He said VMware was on side: "So this does make sense to VMware... the VMware leadership team are solidly behind this. That doesn't mean they are going – we don't want to let them and encourage them to still partner with others because having a open ecosystem is the future."
CFO Zane Rowe added: "We also putting into place a go-to-market organisation entirely focussed on working with our largest customers on a cross-federation basis to better deliver value and drive growth for the business. Changes here include the creation of federation-level bid teams, account management and ordering capability, designed to help customers get more value from our offerings."
This isn’t about combining sales teams, though. Tucci said: "I would not view it as a sales organisation that we are building. That is the furthest thing I want to do. We have great sales people. What we're doing is view it as we're building a set of client directors, which can help co-ordinate, which customers are demanding."
He added: ”These [people] would be not with David [Goulden], not with Pat [Gelsinger], they would be in effect at the federation level with me. And of course, they would be owned by both. They should look like an asset for EMC ii, they should look like an asset for Pivotal. So it's an extra layer and it is not in either EMC, VMware, or Pivotal, or RSA. It's at an extra level.”
Hand me the scissors, Joe
Rowe also said the federation was lowering its costs: “We are initiating a new cost-reduction programme to accelerate our efforts to optimise our business. As the largest part of the federation, the majority of this programme will be focussed upon EMC ii."
He identified the federation’s investment focusses: ”It is around digital transformation, it is around security analytics, it is around hybrid cloud... So if you look at those broad areas, we're going to invest more there, and again, things that are not strategic in helping us with that, we will look at how we can monetise [them] and get better return and utilisation.”
Hint: that means sell-offs like Syncplicity.
Tucci thinks EMC’s branding is poor. "The problem we have – one of the problems we have and one of the problems we talk about – is there are two EMCs," he said. "There is my EMC and there's David's EMC... I understand the branding is terrible and it is one of the things we've got to take a look at.”
A guess is that either EMC II will go away or the overall EMC brand will go away and be replaced by something else, with EMC II being the EMC-centric brand.
Tucci answered a question about the timing of his departure in the call: "I really don't want to comment on time. I used the word smartly, actively, navigating the process and I have said point-blank I am very committed, love this company and will give the board the time they need to properly make sure that navigation and succession process works terrifically. I do not want to put a deadline on the board. But they are actively engaged, let's maybe put it that way.”
The succession starts with Tucci retiring, leaving a board chairman’s role and and overall EMC Federation CEO role up for grabs.
El Reg thinks the potential successors will be EMC insiders, primarily the line of business CEOs, meaning EMC ii’s David Goulden and VMware’s Pat Gelsinger. Pivotal’s Paul Maritz has ruled himself out of the overall EMC CEO role already and Virtustream’s Rodney Rogers is new to EMC, so he still has to prove himself.
We’d put Goulden in the front-runner spot. He’s running a quasi-federation of businesses already, with Gelsinger at number two. Goulden could get the federation CEO role, with Gelsinger moving across to run EMC ii and one of his or Goulden’s direct reports – such as BRS boss Guy Churchward – moving up to run VMware.
Maritz could stay with Pivotal, taking it public next year or in 2017, and then retire. Rogers could turn Virtustream into a billion-dollar-plus annual business, then be eligible for the top job next time around.
All that looks a neat-enough transition, but the HP-acquisition possibility could upset things drastically. Would Tucci's direct reports enjoy reporting to Antonio Neri?
Overall, the EMC Federation transformation and succession balls are still high up in the air and being pushed around more by the customer-buying pattern changes. We don’t know where they will land once the trifecta of issues assaulting EMC is dealt with. Neither does anyone else, unless EMC board members are talking to them.
William Blair analyst Jason Ader writes: "As we have noted in the past, we give credit to EMC's willingness to embrace change and cannibalise, but there remains a long road ahead as declines in traditional storage continue to outweigh new growth vectors. While the probability of a transformational event rises with further deterioration in the business, we feel that there is limited upside to share."
Despite the trifectral turmoil, Tucci thinks EMC is generally okay: “Basically, we are in a good position. We're one of the few companies of our age, and born when we were born, mostly in the client/server era, that is producing quarter after quarter of top-line growth. Be it not as fast as it was. This quarter, it was 3 per cent year-on-year. When you compare us to our peers, we're going through this inflection point, and... I do believe that 2015 is the trough and that you will see improvement as we go through.”
Ader was doubtful: "We are sceptical of management's assertion that 2015 is the trough year — there are simply too many moving parts to make this assertion and EMC is still heavily tied to the performance of legacy storage platforms." ®