HP to buy EMC? We think so, say Wall St money men

Thigh rubbing financial analysts see so 'many reasons this makes sense'


An HP and EMC merger still seems like a fanciful sticking plaster to heal two tech giants, but financial analysts in the US are advising that such a transaction not only looks logical but more likely.

Wall St money men spent last week analysing HP’s direction in the corporate enterprise following the Discover event in Las Vegas, and are supportive of what would be the biggest tie up in tech history.

“HP to buy EMC? We think so,” said Brian Alexander, director of technology research at investment services biz Raymond James.

He said a buy would beef up HP’s cloud portfolio with VMware and Virtustream services, while EMC and Pivotal would boost the converged infrastructure and analytics side of the portfolio. Mobility goodness for HP would come from VMware AirWatch.

“While management’s messaging around the size of M&A in HP Enterprise continues to refer to Aruba as a benchmark, CEO Meg Whitman explained that from an academic perspective, technology hardware is an industry that should consolidate due to declining revenues and slowing growth rates,” he added.

In HP's latest set of results, Q2 ended April, it reported declining sales in each division, though Enterprise Services was hardest hit. EMC sales grew by low single digits in its Q1, but the classic storage busienss was looking hard pressed.

Veteran analyst Alexander reckons pro forma financial leverage of a deal is manageable at a $32-33 per share takeout price, which is less than three times EBITDA.

“There are so many reasons this makes sense,” said Alexander.

HP is splitting the enterprise divisions from the PC and print side of the business, and is 80 per cent closer to getting that done for a 1 November start date. Whitman has indicated further acquisitions are in the pipeline but one as big as EMC?

The storage desk at El Reg has ruminated and cogitated about a coming together between the two rivals, and concluded from a portfolio perspective - 3Par aside - that it makes sense. Analysts agree.

Investment banking and financial services advisor Macquarie Research reckons that with a VMware spin-off ruled out by EMC CEO Joe Tucci, the best option to increase EMC's share price is a merger with a systems vendor. He ruled out Cisco due to cooling relations over VCE.

Rajesh Ghai, enterprise IT analyst at the firm, noted EMC and HP had “kicked each other’s tyres last year and decided not to proceed” largely because of price, but said the split at HP made a deal more likely.

“HP Enterprise - the enterprise part of HP - will be a lot more aligned with the current EMC and VMW businesses in terms of end-market focus and selling motions, which will enable the revenue and cost synergies across the two organisations to be a lot more apparent.

“We also believe the worsening secular backdrop and the trends towards software-defined architectures and pubic/hybrid cloud may also compel the two parties to do a deal,” he added.

Macquarie Research said a merger would yield cost “synergies” of at least $2bn, and that HP would “probably” end-of-life 3Par storage over time, and EMC would shelve its Content Management biz in favour of HP’s Autonomy.

Of course, all of this is analyst research and advice, the only people that can make this happen are the relevant execs and institutional shareholders.

But financial analysts were also heavily in favour of HP separating the PC and print elements from the rest of the organisation, and we all know how that went… ®

Similar topics

Narrower topics


Other stories you might like

  • The ‘substantial contributions’ Intel has promised to boost RISC-V adoption
    With the benefit of maybe revitalizing the x86 giant’s foundry business

    Analysis Here's something that would have seemed outlandish only a few years ago: to help fuel Intel's future growth, the x86 giant has vowed to do what it can to make the open-source RISC-V ISA worthy of widespread adoption.

    In a presentation, an Intel representative shared some details of how the chipmaker plans to contribute to RISC-V as part of its bet that the instruction set architecture will fuel growth for its revitalized contract chip manufacturing business.

    While Intel invested in RISC-V chip designer SiFive in 2018, the semiconductor titan's intentions with RISC-V evolved last year when it revealed that the contract manufacturing business key to its comeback, Intel Foundry Services, would be willing to make chips compatible with x86, Arm, and RISC-V ISAs. The chipmaker then announced in February it joined RISC-V International, the ISA's governing body, and launched a $1 billion innovation fund that will support chip designers, including those making RISC-V components.

    Continue reading
  • FBI warns of North Korean cyberspies posing as foreign IT workers
    Looking for tech talent? Kim Jong-un's friendly freelancers, at your service

    Pay close attention to that resume before offering that work contract.

    The FBI, in a joint advisory with the US government Departments of State and Treasury, has warned that North Korea's cyberspies are posing as non-North-Korean IT workers to bag Western jobs to advance Kim Jong-un's nefarious pursuits.

    In guidance [PDF] issued this week, the Feds warned that these techies often use fake IDs and other documents to pose as non-North-Korean nationals to gain freelance employment in North America, Europe, and east Asia. Additionally, North Korean IT workers may accept foreign contracts and then outsource those projects to non-North-Korean folks.

    Continue reading
  • Elon Musk says Twitter buy 'cannot move forward' until spam stats spat settled
    A stunning surprise to no one in this Solar System

    Elon Musk said his bid to acquire and privatize Twitter "cannot move forward" until the social network proves its claim that fake bot accounts make up less than five per cent of all users.

    The world's richest meme lord formally launched efforts to take over Twitter last month after buying a 9.2 per cent stake in the biz. He declined an offer to join the board of directors, only to return asking if he could buy the social media platform outright at $54.20 per share. Twitter's board resisted Musk's plans at first, installing a "poison pill" to hamper a hostile takeover before accepting the deal, worth over $44 billion.

    But then it appears Musk spotted something in Twitter's latest filing to America's financial watchdog, the SEC. The paperwork asserted that "fewer than five percent" of Twitter's monetizable daily active users (mDAUs) in the first quarter of 2022 were fake or spammer accounts, which Musk objected to: he felt that figure should be a lot higher. He had earlier proclaimed that ridding Twitter of spam bots was a priority for him, post-takeover.

    Continue reading

Biting the hand that feeds IT © 1998–2022