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EMC sale will hurt, but impact not insurmountable

Oct 12, 2015Boston Globe, Council in the News

By Megan Woolhouse

“But Christopher Anderson, president of the Massachusetts High Technology Council, a trade group in Waltham, said the prospect of losing the corporate headquarters of EMC, the state’s fourth-largest publicly traded company, is under no circumstances a good thing for Massachusetts, even if the overall tech sector is performing well.”

The takeover of EMC Corp., announced Monday, marks the end of the state’s “Big Iron” era, subsuming the last of the big corporations that made Massachusetts a manufacturing center for powerful minicomputers and servers that helped spark a global revolution in technology.

EMC’s $67 billion planned sale to Dell Inc. of Round Rock, Texas — the largest acquisition ever in the technology industry — could also mean job losses among both EMC’s 9,700 Massachusetts employees and the legions of suppliers, consultants, and subcontractors that grew up around the company since its founding 36 years ago, local economists said.

The future of EMC’s real estate holdings — more that $30 million in its hometown of Hopkinton and neighboring Westborough alone, according to assessors’ records — as well as the company’s philanthropic work, educational initiatives, and even the EMC Club at Fenway Park are all at stake if shareholders approve the deal.

“It would definitely be a major shock” for the state, said Michael D. Goodman, executive director of the Public Policy Center at the University of Massachusetts Dartmouth.

Dell, a privately held company, is borrowing heavily to buy EMC, and both firms suggested that cost-cutting measures are ahead as the combined company focuses on reducing debt in the first 18 to 24 months after the deal closes, probably in 2016.

The brainchild of Richard Egan and Roger Marino, who met as roommates at Northeastern University, EMC is the last vestige of a homegrown computer hardware industry that nurtured the likes of Digital Equipment Corp., Data General, and Wang Laboratories, all vanished. Founded in 1979, EMC rose to prominence in the dull but booming data-storage business, adapting to more than 30 years of technological advances to become a behemoth with a market value of more than $50 billion.

Though it may not be easy for the state to shake off the loss of a Fortune 500 company that is one of its biggest employers, the sale won’t necessarily be a devastating blow to Massachusetts’ broader innovation economy, said Alan Clayton-Matthews, an economics professor at Northeastern University.

With changing technologies — from mobile applications to big data to robotics — Massachusetts is awash in new ventures and startups, Clayton-Matthews said.

The state is also home to a vibrant and successful constellation of medical device and biotechnology companies that rivals any region of the world.

“Booming would not be an inaccurate word,” he said.

The tech sector, in fact, is growing so fast that one of the state’s biggest challenges is finding enough workers to fill the jobs, Clayton-Matthews said. Many companies offer four- and five-figure bounties for skilled tech workers because of a shortage that is only expected to get worse as baby boomer retirements accelerate in the next few years.

EMC’s sale, economists said, underscores the shift in the state’s tech sector to software and services from hardware and manufacturing. In recent years, EMC’s core hardware business has struggled with stagnating sales as more companies turn to so-called cloud services to store data rather than buy EMC servers.

Another symbol of that shift is Intel Corp., which, after two years of trying, recently gave up its attempts to sell its microchip manufacturing plant in Hudson and plans to raze it. The 600,000-square-foot factory, built 21 years ago by Digital Equipment, was purchased by Intel in 1997 but shut down in 2013, eliminating about 700 jobs.

Over the last 25 years, employment in computer and electronics manufacturing in Massachusetts has plunged by more than half, to about 56,000 from 136,000 in 1990. During that period, jobs in computer design services, a software segment, has nearly quadrupled, to more than 76,000 from about 20,000 in 1990.

David Barbash, a mergers and acquisitions specialist at the Boston law firm Posternak Blankstein & Lund, said that when two big companies unite, layoffs are to be expected, particularly in headquarters functions such as human resources, accounting, and information technology, which are usually consolidated in one location after the deal closes.

Dell said it would maintain its corporate headquarters in Texas while basing its enterprise, or business-oriented, systems operations in Hopkinton.

“Does Dell like Massachusetts as a major beachfront for them?” Barbash said. “I’m sure a lot of people are thinking about that.”
Tom Hopcroft, executive director of the Massachusetts Technology Leadership Council, a trade group in Burlington, said Dell may maintain significant operations in Massachusetts because of the state’s flourishing startup scene, talent pools, and deep-rooted technology culture, offering an unusual blend of expertise in manufacturing, mechanical and software engineering, and robotics.

“All this has come together in a way that’s somewhat unique here,” Hopcroft said.

But Christopher Anderson, president of the Massachusetts High Technology Council, a trade group in Waltham, said the prospect of losing the corporate headquarters of EMC, the state’s fourth-largest publicly traded company, is under no circumstances a good thing for Massachusetts, even if the overall tech sector is performing well.

The loss pushes the state away from the corporate seat of power where decisions about the company’s direction, strategy, and investments are made, Anderson said. Ultimately, that affects how engaged a company is with the local educational system, philanthropic initiatives, and overall economic competitiveness.

“Whatever the new name on the building down the road, we will be removed from the connection to the top leadership of the company,” Anderson said of EMC.

“At some point down the road, we’ll see the consequences of that.”

Increasingly, the Massachusetts High Technology Council is stepping up to create, execute, and lead critical statewide competitiveness strategies. Fostering a vision for our innovation economy under the MassVision2050 banner, the Council solidifies its position as a thought leader providing valuable insights to navigate emerging technologies, facilitates long-term planning, and reinforces the Council's commitment to excellence and action in the evolving Massachusetts tech-driven economy.

To learn more, contact Council President Chris Anderson.