Michael Dell stakes future on EMC buyout

Bundling hardware and cloud services, 2 giants enter new era

Dell’s founder and chief executive, Michael Dell, had left the company but returned in 2007. Damon Winter/new York Times/File 2014

Michael S. Dell was an enfant terrible of the early personal computer industry, starting his business in a dorm room at the University of Texas. Drawn more to process improvement than technology innovation, he eschewed Silicon Valley for down-home Austin, where he pioneered a direct-to-consumer model that made Dell Inc. a sales powerhouse.

Now, after departing and returning as chief executive, engineering a deal to take the company private, and struggling to refocus it as a one-stop technology business, the 50-year-old Dell has pulled off what may be his most audacious move yet with the planned $67 billion buyout of the Hopkinton data- storage giant EMC Corp.

“It’s an epic transaction, and the scale is extraordinary,” said Don Bulens, chief executive of the Marlborough software firm Unidesk Corp., who sold his former business to Dell in 2008. “Michael is the most intensely focused person I’ve ever met, brilliantly informed and deeply engaged with customers. If he can pull this deal off, he will have remade Dell.”

Dell paid $1.4 billion for Bulens’ former company, EquilLogic Inc. of Nashua, in January 2008. That purchase gave Dell its first toehold in data storage because Equilogic sold storage systems to mid-size businesses. On the day the deal was signed, Bulens said, Dell called to ask him what kind of disk drives Equilogic used in its systems and how much they cost.

“By asking one question,” Bulens recalled, “he was able to calculate the key factor in [profit] margin improvements he could achieve with the acquisition.”

Like other restless entrepreneurs, such as Steve Jobs at Apple Inc. and Howard Schultz at Starbucks Corp., who left their companies only to return and reinvent them, Dell is eager to prove that he can guide Dell Inc. into a new technology era in which bundling hardware such as servers with software and services such as so-called cloud computing is paramount, say others who know him.

Dell returned to Dell Inc. in 2007, finding a company in disarray and taking it private as part of his turnaround strategy, said Roger Kay, president of a Wayland research firm, Endpoint Technologies Associates.

“He likes the game,” said Kay, “EMC is a big milestone. But the point is not buying EMC. The point is completing Dell’s transition from a supplier of PCs to an enterprise solutions provider” that sells suites of products to companies.

“IBM and HP should take notice,” added Kay, referring to the industry’s leading technology services providers, IBM Corp. and Hewlett-Packard Co. “Dell will be a competitive threat.”

Dell is buying the data storage company EMC in a deal valued at about $67 billion. Serving as chairman and chief executive of the combined businesses will be Michael Dell.AP Photo/Paul Sakuma, File

Michael Dell, who declined to be interviewed for this story, has long recognized the need to embrace data storage as a way of making his company more attractive to large businesses and organizations, especially those, like banks and hospitals, that prefer to store sensitive customer records in-house than over the Internet through cloud services.

But until now, Dell Inc. has lacked a portfolio of data-storage products that would make it competitive.

Dell has had a business alliance with EMC since 2001. The following year, the Hopkinton company contracted to assemble mid-range data-storage devices at a Dell plant in Texas. The deal sparked industry speculation that Dell might eventually acquire EMC. But when the idea was reportedly broached by Kevin B. Rollins, a onetime Bain & Co. consultant in Boston who later became Dell’s president, Michael Dell resisted paying top dollar for an EMC buyout.

Now, more than a dozen years later, Dell has concluded that the acquisition makes sense. But it still carries substantial business risks, according to industry observers.

“Dell has to assume a lot of debt obligations,” Kay said. “And there are integration risks. Dell has bought a series of smaller companies and integrated them. But EMC is a much bigger company with a different culture,” making integration more challenging.

Michael Dell has often tapped the Massachusetts technology sector for key hires, including Rollins and Lynn native Joseph A. Marengi, a former Dell senior vice president who oversaw its commercial sales in North America. So the Dell chief executive is aware that an acquisition of EMC will give his company instant access to the high-tech talent residing in the Boston area.

“By getting EMC, he’s getting all the people who know data storage,” said Dan Bricklin, chief technology officer at Alpha Software Corp. in Burlington and a technology pioneer who helped kick-start the personal computer revolution in the 1980s as co-inventor of the first electronic spreadsheet.

“Hiring in this [Boston] area is important to a lot of companies like Microsoft and Google. This is a way to for Dell to get a big presence locally.”