Over the weekend, it was reported that EMC Corporation (NYSE:EMC), Hewlett-Packard Company (NYSE:HPQ) and Dell Inc were in talks about a possible deal. Sterne Agee said talks with “industry contacts” about those reported merger negotiations “suggest at best ambivalence” about a combination of EMC and Hewlett-Packard and “at worst a merger with Dell.”

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EMC

What would happen if HP, EMC, and / or Dell combined?

In a report dated Sept. 24, 2014, analysts Alex Kurtz and Amelia Harris said most of the focus in their discussions was about what would happen by combining channel programs and sales organizations. Specifically, they mentioned “disruption to deal flow and account coverage.”

The Sterne Agee team said their talks with Storage partners about a possible combination of EMC and Dell or Hewlett-Packard focused on whether there would be any upside to either deal, if it would happen. They said they were “for the most part cautious” on a possible deal between EMC and either company.

What’s wrong with a merger?

The analysts say for one thing, Dell doesn’t offer much in the way of enterprise customers that EMC doesn’t already target after its 2007 OEM breakup. They note that HP would bring along its 42% share of the Blade Server market to create a “more complete ‘converged’ offering.

However, they don’t think this is enough of a reason for EMC to merge with Hewlett-Packard. Many investors describe HP’s Channel and Sales Organization as being “still recovering,” according to the Sterne Agee team.

They said larger partners were more constructive regarding the steps EMC has taken in recent years to focus more on channels first. They also reported that some expressed concerns about whether a merger would negatively impact this progress.

What about combined market share?

The analysts say EMC has about a 30% share of the Storage market, compared to HP’s 10% and Dell’s 7%, according to data from IDC. As a result, they say it looks like a “straightforward” answer for the companies to strengthen their market share by combining.

However, they add that discussions with Channel partners have indicated that Dell’s exposure to SMB and SLED does not overlap very well with EMC’s past focus and product differentiation toward the higher end of the market. They say Hewlett-Packard’s customers are closer to EMC’s current customer profile, noting that the serer manufacturer’s Blade Server business has caught some of the high end market.

The Sterne Agee team continues to rate EMC Corporation as a Buy with a $32 per share price target.