How EqualLogic Deal Will Change the Dell-EMC Dynamic
Dell's $1.4 billion purchase of iSCSI storage systems maker EqualLogic-the largest acquisition in company history and one of the largest in the data storage genre, period-shocked more than a few people. But perhaps the most important shockee, however, was EMC-one of Dell's most strategic systems partners.
Certainly key people within EMC, the world's largest storage infrastructure company, already knew what Dell was going to do. I'm also reasonably sure that CEO Joe Tucci advised Michael Dell against it, too.
The problem here for EMC-and not Dell-is product and service overlap. EMC already provides some important products that EqualLogic will supplant in Dell's soon-to-be revamped storage catalog. In fact, sources tell eWEEK that EMC products represent no less than 75 percent of the storage business Dell currently runs. That figure stands to be cut back quite a bit-especially in the SMB (small and midsize business) product offerings.
With EqualLogic products cutting in on EMC's Dell and SMB business, friction between the two longtime partners on several levels is inevitable.
The SMB storage market is as huge as it is cutthroat and any advantage a company has with the midtier is extremely valuable. This leads to another thorn in EMC's boot: There is no way EMC can measure up to Dell's brand recognition in the SMB and home-office markets. That has been Dell's ace in the hole all along.
Most small business owners have never even heard of EMC. When Dell starts selling more non-EMC storage products-and $1.4 billion in cash is a strong indication that this is the corporate intent-EMC's best entree into that burgeoning market clearly will be threatened.
The key to all of this is that EqualLogic's brand of iSCSI (internet protocol connectivity) storage networking is based on newer, faster architecture that is easier to use and clearly one or two generations ahead of EMC's older software. Throughput roadblocks that have plagued older storage I/O structures apparently do not exist in the EqualLogic framework. In fact, I/O issues have always been near the top of the list of storage connectivity problems and EqualLogic is only one of several new storage companies that have solved these issues.
To the bewilderment of many industry observers, EMC is still using software that was created in the 1990s in some of its arrays, and it has become a liability. It's well-known within the industry that EMC's arrays often take a major performance hit once they get loaded into the 30 percent to 40 percent range-especially the larger arrays with 500GB disks. Many a storage administrator has expressed frustration about this, and eWEEK has a stack of testy notes on this topic.
Off the record, analysts tell eWEEK they believe that the EqualLogic deal is more than just a way for Dell to move up in the SMB iSCSI storage market-share reports. Dell is making a statement, they say.
And the statement seems to be this: "We're getting more serious about the storage business and we're going to do it our way. We're going after the midtier market with a wide variety of product choices and we're going to use the most advanced software to do it."
But there may also be other reasons involving EMC as to why Dell invested all that money in EqualLogic.
"Dell ... [has] been having support nightmares with the [EMC] Clariion line for years. The kit is just too complex for the SMB space. Dell has more important support headaches," longtime storage analyst Robin Harris of Data Mobility Group wrote in his blog.
Harris wrote this three years ago: "EMC sees the writing on the wall: Big storage margins equal big risk that Dell will snuggle up to some other commodity storage vendor and come up with a Dell-branded line of storage and oops! there goes a couple of billion in revenue. ... If Dell is smart it will dump EMC in 2005 and take all the margins for themselves."
It was a snarky comment, especially circa 2004. "Better late than never," Harris wrote on Nov. 5.
But was it prophetic? Well, nobody has been dumped-yet. And nobody is predicting that EMC and Dell will divorce any time soon. In fact, they might now have to find new ways to work together. But the statement from Round Rock clearly has been made.
Meanwhile, what is EMC's early take on the deal? One key spokesperson for the Hopkinton, Mass., data storage giant sees this differently than some of the analysts: He views it as more of a server play than that of storage.
"In many ways, Dell's move does not come as much of a surprise. I think the impact of this move will have a more significant effect on Dell's well-known competitors far more than it could potentially impact EMC over the long run," Chuck Hollis, EMC's vice president of technology alliances and a respected source within the storage industry, wrote in his blog Nov. 7.
"I think this is more about servers, than storage. If you're Dell, you're looking at HP and you're not liking what you see. HP is making good progress with their desktop PC business, thank you. And, if I read the numbers right, HP is also doing better in the server space where Dell has traditionally done well," Hollis said.
EMC sells a broad range of storage, virtualization and information management products through Dell, Hollis said. "When you look at the potential overlap between the EMC stuff Dell sells, and a future Dell/EqualLogic offering, it ends up being a fraction of a fraction of a fraction of the overall picture.
"Sure, we'd love to have that business, but even if some of this overlap gets fulfilled by Dell's offerings rather than the Dell/EMC offering, there's still plenty of good business between the two companies-something neither organization would want to walk away from any time soon," Hollis said.
"We've both renewed our agreement several times-the current one runs to 2011. We've built up many years of productive relationships between EMCers, Dell people and many, many customers," Hollis said. "Some characterizations I've seen that 'this is the beginning of the end' are unrealistic. Makes good tabloid-style gossip, but I don't lend too much credence to this sort of thinking."
Stay tuned. This "tabloid" topic is just getting started.