Editor’s note: EMC, which has a major presence in the Triangle, is seeking to accelerate strategic solutions monetization as Dell’s proposed acquisition nears, writes Technology Business Research analyst Krista Macomber.

HAMPTON, N.H. – For EMC, 2016 marks a significant inflection point in its transformation to better accommodate customers’ IT modernization initiatives. As customers demand increased integration, performance and simplicity in their IT infrastructure to drive business agility and cost savings, EMC is evolving its portfolio and go-to-market strategies across its federated businesses — EMC Information Infrastructure (EMC II), VMware and Pivotal — in kind.

This approach helps EMC build substantial traction in critical markets, including flash storage. However, as engagements grow more strategic as opposed to transactional in nature, EMC’s horizontally focused business model is challenged. As a result, EMC is moving toward its planned integration into Dell during 2016 for combined scale and resources and complementary expertise.

Revenue from EMC’s storage business, EMC II, shrank 5.9% year-to-year to $3.8 billion during C1Q16 despite broad portfolio updates during the quarter spanning high-growth emerging storage markets, including flash storage and hyperconverged platforms. This led corporate revenue to also decline, sliding 2.5% year-to-year to $5.5 billion, demonstrating the continued impact on EMC’s top line of declining demand for stand-alone sales of traditional storage-area network (SAN) arrays.

However, EMC is combating the impact of storage industry disruption on its bottom line by executing on restructuring initiatives designed to reduce its annual cost base by $850 million by the end of 2016. As a result, EMC’s corporate operating margin rose for the first time since 4Q14, expanding 70 basis points year-to-year to 7.5% — performance that is particularly notable considering VMware’s reported triple-digit bottom-line decline.

TBR believes EMC’s key to achieving its goal of top-line growth during 2016 is navigating market uncertainty surrounding its expected acquisition by Dell, as well as sustaining or accelerating its momentum in key growth markets. We expect three core focus areas from the EMC federation:

  • VMware will focus on managing the recent pivot in its vCloud Air strategy, following the shift in Virtustream ownership back to EMC, through expanding its integration with public cloud providers. This is critical as, per EMC, VMware provides the foundation of EMC’s cross-federation hybrid cloud strategy.
  • Jointly, EMC and VMware will collaborate to accelerate revenue growth from, and expand traction in, the hyperconverged platforms market by relaunching the business. As customers turn to hyperconvergence at an accelerating pace to solve challenges around IT management costs and complexities, in particular regarding storage, this represents an opportunity to protect the existing installed base and attract new customers.
  • EMC will focus on maximizing monetization of flash portfolio enhancements announced in the first half of 2016 across its storage portfolio, embracing the increasing pervasiveness of flash storage across customers’ primary storage environments to thwart rising competition.

EMC collaborates with Dell and VMware to capture strategic hyperconverged platforms opportunities

Participating in the hyperconverged platforms market is strategic to EMC, as the architecture will increasingly displace high-end, stand-alone SAN array deployments, EMC’s core business. TBR’s 1Q16 Hyperconverged Market Landscape indicates that the global hyperconverged platforms market will grow at a 50% CAGR from 2015 to 2020, reaching $1.6 billion in revenue, as customers deploy the technology for an increasingly large and diverse range of workloads. EMC and VMware launched their second jointly engineered hyperconverged solution in 1Q16. The solution, branded as VCE VxRail, corrects many initial missteps such as those around pricing and configurations, helping to support adoption in 37 countries in the solution’s first 45 days on the market. Additionally, EMC’s recent alliance with Dell expands its addressable customer base. However, there are still several hurdles to overcome in maximizing its footprint.

EMC benefits from its best-of-breed storage status. Additionally, it has strong existing mindshare and know-how in the traditional converged marketplace, having built a robust portfolio covering a host of use cases through its VCE converged infrastructure division and VSPEX reference architecture program. However, as it works to expand across all areas of traditional converged, hyperconverged and software-defined storage (SDS), it faces messaging complexity. EMC faces the challenge of messaging how the EMC II and VMware portfolios delineate and navigating the dynamics of coopetition with strategic partnerships. EMC’s planned integration into Dell’s roster of technologies and alliance partners during 2016 will add further complexity to this ecosystem. Honing its messaging on how its broad cross-federation hyperconverged capabilities are complementary and will fit into the Dell portfolio and strategy, along with providing a clear road map for customers based on their particular workloads and business requirements, will be paramount to EMC in maximizing its success in the broad converged infrastructure marketplace.

EMC further expands its flash portfolio to protect its leading primary storage installed base

EMC applied the end-to-end approach that led to leading spinning disk market share to its flash storage strategy, ramping its flash business. Flash is becoming more pervasive across customers’ primary storage environments, spurring EMC to further expand investment across its portfolio to ensure it covers the full range of workload needs. Ensuring consistent execution on this flash strategy and vision during the expected integration into Dell will be a priority for EMC, as vendors ranging from Hewlett Packard Enterprise to Nimble Storage seek to leverage the transition to flash to displace EMC in primary storage environments.

EMC is further segmenting its flash portfolio to address traditional and emerging workload needs across core platforms such as VMAX and newer platforms such as DSSD. The company’s investment in continued innovation positions the vendor to sustain differentiation in the face of strong competition from niche vendors such as Pure Storage and mainstream vendors such as IBM. For example, reengineering EMC’s flagship VMAX platform for flash enables EMC to tap the VMAX brand’s reputation for performance and availability as customers rely on flash storage for increasingly mission-critical processes. Simultaneously, EMC is also integrating features, such as increased scalability and support of open systems, that align with modern workload requirements. TBR expects EMC to focus on ensuring consistent execution, as well as messaging how its portfolio will be rationalized with Dell’s in light of portfolio overlap following its planned acquisition, to protect its large market share and high growth rates in the flash market.