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EMC Puts Moratorium On Solution Providers' Switching Distributors Amid Pre-Merger 'Crazy Behavior'

Matt Brown
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Channel executives are feeling the squeeze of an EMC moratorium on solution providers' switching distributors.

A move to keep things calm on EMC's home front as the data storage giant's acquisition by Dell approaches, the moratorium, according to EMC, is temporary. But some distributors and solution providers say it closes yet another avenue for milking gains from shrinking EMC margins.

In an emailed statement to CRN, an EMC spokesman stressed that the moratorium "enables our partners to maintain focus and optimize for stability as we finalize the merger with Dell."

[Related: Partners: EMC Rebate Changes Mask Back-End Cuts, Emphasize Unity And All-Flash Products, In Run-Up To Dell Merger]

A distribution executive who wished to remain anonymous acknowledged that the atmosphere has been unsettled recently. "There was a lot of crazy behavior in Q1," said the executive. "Distributors were trying to grab partners from everywhere."

The moratorium may be intended to put a stop to that "crazy behavior" so the company can concentrate on completing its merger with Dell, but it also takes away an important avenue for maximizing revenue, distributors and solution providers said.

"Partners are looking for who is going to help them grow," said the distribution executive. "They can get more investment out of a disty partner who's willing to bet on growth. A lot of our partners have some healthy investment agreements for certain amounts of time, for certain lines of business, and when they come up for bid or review, they go out looking for who's willing to invest."

The moratorium puts that practice on hold for the remainder of 2016, the distribution executive said, adding that it couldn't have come at a worse time.

"EMC is set to raise prices on its distributors in July. It'll be the third time prices have gone up in the last six months," the distribution executive said, adding that EMC "has taken margins out of the disty channel to get the acquisition done."

EMC has distribution relationships with Arrow, Avnet and Tech Data. Last year, it cut ties with distributor Ingram Micro, and invited dozens of its Gold partners to skip distribution altogether.

Since then, EMC has "pushed through pricing changes to their disty model, including less coverage for VARs going through disty, reduced commissions to EMC field teams supporting VARs going through disty and higher costs to disty," said a top executive at a large EMC VAR. "A few months ago, they raised prices again, which has caused disty to pass along those costs to us."

"EMC has done a number on their disty relationships," said the VAR executive. "It would not surprise me to see VARs shopping their business, because loyalty has gotten to be very expensive."

Other solution providers said they understand EMC's rationale for the moratorium. "We would rather they focus on the integration [with Dell] and making it successful," said an executive at a large EMC solution provider who wished to remain anonymous. "Moving during the acquisition would just create moving parts that would complicate the situation."

Still, moves like the moratorium and price increases offset newly boosted rebates that EMC has provided for some of its most important product lines, according to solution providers.

The rejiggered rebate program offers a 1 percent to 2 percent rebate bump to emphasize the stars of EMC's new-school portfolio, including the new Unity and VxRail hyper-converged lines, as well as ExtremIO and its new all-flash VMAX and DSSD products and Data Domain.

The more than $62 billion merger with Dell, considered the largest in the history of the IT industry, is expected to close by the end of October. EMC shareholders are scheduled to vote on the deal July 19. EMC has committed $4.75 billion in cash to the deal, according to U.S. Securities and Exchange Commission documents.

EMC has put aggressive cost-cutting measures in place -- including layoffs -- as it navigates a swiftly changing IT landscape that emphasizes cloud, software-defined and hyper-converged technologies over traditional hardware and puts pressure on the company's balance sheet.

The company's revenue dipped 2 percent in the first quarter, driven by declines in its largest unit, EMC Information Infrastructure. EMC is set to announce second quarter earnings, perhaps for the last time as an independent, publicly traded company, next month.

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