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Dell is EMC's latest potential dance partner

The EMC rumor machine is in full force again today. This time it’s Dell that is reportedly interested in buying all or some of EMC.

Of course, if the sources for these rumors were 100% reliable, then EMC would already be part of Hewlett-Packard or VMware or Cisco, or it would own all of VMware instead of 80%. Even the Dell rumors are all over the place, with some saying Dell wants all of EMC and others putting specific pieces of EMC in Dell’s crosshairs.

What all these rumors tell you is that EMC is exploring many options in the wake of pressure from activist investors led by Elliott Management. Elliot wants EMC to break up the federation of companies that include EMC Information Infrastructure (the storage group), VMware, RSA, Pivotal and smaller pieces. EMC executives have argued that the federation model works best, and they clearly want to keep VMware most of all.

Elliot’s agreement to let EMC raise its stock price on its own expired in September without the desired result (although the Dell rumors have raised EMC’s share price). Now the activist investors are looking for EMC to make a significant move.

It’s unlikely that Dell can buy all of EMC when a few years ago it couldn’t afford to acquire 3PAR after HP got into the bidding. EMC’s valuation of $50 billion is twice as much as Dell’s, and Dell still has $11.7 billion in debt from when it went private in 2013. HP might also jump in and try to outbid Dell  and derail its hopes of buying EMC.

There are pieces of EMC that Dell could use, though. Any server vendor would want VMware. Much of the EMC Federation strategy revolves around VMware’s virtualization and cloud technologies, however, and a sale of VMware would be a major loss for EMC.

More interesting on the storage front, one report said Dell might buy EMC’s VNX storage systems business. VNX would fill the gap in Dell’s storage portfolio that it originally wanted 3PAR to plug. Dell acquired Compellent after losing out on 3PAR, but Compellent’s arrays don’t reach as high into the enterprise as VNX systems.

The success of EMC’s XtremIO all-flash array might prompt it to part with VNX, which is part of EMC’s legacy storage portfolio that has experienced little or no growth in the past year. VNX arrays include old Clariion technology, and Dell used to sell Clariion under a partnership with EMC that ended in 2011. But why would Dell want a VNX business that has sluggish growth? There is also the chance that Dell would buy out all of EMC’s storage, although even that could be too pricey.

I expect we’ll see news on an EMC merger or spinout by Oct. 21 when EMC reports its quarterly earnings. I don’t think even EMC or its partner in any potential deal even knows yet what that news will be. But it doesn’t sound like the storage giant has ruled out much so far.

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