I found the comments on Dell not ruling out a purchase of EMC 'at the right price' interesting. Especially since EMC looks to be rapidly heading into the single digits.
Regards,
John
Dell, EMC in talks on production
Manufacturing pact would deepen alliance
By Ross Kerber, Globe Staff, 3/19/2002
Dell Computer Corp. is talking to Hopkinton-based EMC Corp. about an arrangement in which Dell would take over some EMC manufacturing, a step that would deepen a five-month-old alliance between the two companies, Dell's president, Kevin Rollins said yesterday.
Rollins said he and EMC executives ''believe conceptually it makes sense'' for Dell, known for its efficient production of personal computers, to produce EMC's data-storage equipment as well. Managers are reviewing specific possibilities and will make recommendations this year, he said.
Rollins, a Bain Consulting veteran who is also Dell's chief operating officer, made his remarks in an interview at the Globe during a visit to Boston. He also said Texas-based Dell has a neutral stance in the merger fight involving two of his biggest rivals, Hewlett-Packard Co. and Compaq Computer Corp. Dell will win market share no matter what the outcome of today's vote by Hewlett-Packard shareholders, Rollins said.
The contracting-out of manufacturing isn't unusual among data-storage companies. But it would be a first for industry leader EMC, which is known for its independence but has been cutting costs recently to restore its profitability. The company has shifted its strategy over the past year, emphasizing sales of higher-margin software and services.
Rollins wouldn't rule out an interest in eventually buying EMC outright. But he called it unlikely in the near future because of the expense, given EMC's current market capitalization of $25 billion.
''I don't think that's in the cards right now,'' he said of a purchase. ''We want to make the partnership work. If there's something down the road, we'll see.''
EMC spokesman Michael Gallant yesterday said that ''both companies are exploring options to increase the efficiency and economics of delivering solutions to our mutual customers.''
Gallant added that ''all sorts of options'' are under discussion, but he wouldn't elaborate.
In October, EMC and Dell announced an alliance that so far has focused on sales cooperation and the joint creation of storage software. They also said they might eventually collaborate on manufacturing.
Yesterday, Rollins said no formal production deals are imminent, and that EMC would likely continue to produce its high-end Symmetrix storage devices in Massachusetts even if it were to turn over some production work to Dell. EMC employs about 1,000 people building the devices in Franklin.
But Rollins said he and EMC's chief executive, Joe Tucci, expect Dell will build some of the Hopkinton company's cabinet-sized storage devices eventually.
''Joe and I have talked,'' Rollins said. ''We think at some point in time it will make sense ... with new products coming out and new technology, to shift some of those manufacturing operations to Dell.''
If Dell were to take over EMC's manufacturing operations in stages, the first line might be EMC's mid-range Clariion storage devices, now built at EMC plants in Apex, N.C., outside Raleigh, and in Cork, Ireland.
Because EMC doesn't have factories in Asia, a significant market for its storage equipment, the two companies are exploring whether Dell could begin production there, Rollins said.
Another option would be to operate factories jointly, he said.
''We'll probably have dual manufacturing locations at some point in the transition,'' Rollins said. Teams evaluating the feasibility of combining manufacturing will report in later this year, he said.
John Webster, a storage analyst at Illuminata Inc. in New Hampshire, said he's already noticed Dell taking on a greater role in Clariion's marketing.
In a recent conference call with analysts, Webster said, Dell executives spoke more than those from EMC.
''There's been a shift in the marketing initiatives, as to who's leading the initiative for Clariion,'' he said. Webster said he regards the change as positive for EMC, since Dell has a larger sales force.
John McArthur, vice president for International Data Corp. in Framingham, added that Dell might be able to customize Clariion systems with a smaller parts inventory on hand than EMC requires, creating cost advantages.
At the end of last year, EMC had about 2,500 employees involved in assembly and testing. The company has reduced employment by more than 4,000 jobs because of stiffer competition and a decrease in overall technology spending. Its shares have fallen roughly 90 percent since 2000.
Meanwhile, Dell aims to sell more data-storage equipment as a way to draw business away from Compaq and IBM. Dell sells comparable numbers of server computers as the other two companies, but lags on storage, Rollins said, a gap the alliance with EMC aims to close. |
