Dell Buying Force 10 to Grow Networking Portfolio
Dell officials are looking to plug a hole in its portfolio of data center solutions by buying Force 10 Networks, a move that would shore up the vendor's networking capabilities.
Dell, which announced the bid for Force 10 July 20, over the past few years has aggressively expanded its enterprises offerings through both in-house development and acquisitions of such companies as Perot Systems in services, EqualLogic and Compellent in storage and Kace Networks earlier this year for virtualization and systems management.
The prior acquisitions complemented Dell's already strong server business, a market in which the vendor routinely ranks No. 3, behind IBM and Hewlett-Packard. In recent months, speculation focused around the possibility of Dell buying a networking vendor to fill the void in that area. Dell has strong partnerships with the likes of Juniper Networks and Brocade-rumors have circulated about Dell's interest in buying Brocade-and also its own line of networking gear, such as its PowerConnect portfolio.
In a conference call July 20 with journalists and analysts, Dario Zamarian, vice president and general manager of Dell Networking, said Force 10's focus on the data center adds to Dell's PowerConnect offerings, which are aimed more at campus environments.
"This is very much complementary, very much a growth story," Zamarian said of the deal, which has been approved by the boards of directors of each company.
Financial details of the deal were not released.
Analysts have said that for Dell to make a leap forward in networking and in its larger enterprise strategy, an acquisition would be necessary.
"This is Dell filling out its enterprise portfolio," Roger Kay, principal analyst at Endpoint Technologies Associates, said in an interview with eWEEK. "Dell has been building out its strength in storage, and it's always had servers. ... Now this is networking."
That enterprise strategy was the central topic during Dell's annual Analyst Day event late last month, where CEO Michael Dell said he views his company as one that can offer a complete solution for complex problems that IT managers encounter.
"We're focusing a lot on data integration," Dell said during a talk with analysts at the event. "You have these very complex ideas of running a cloud application with a legacy application or running two cloud applications together. How do you handle the integration of those types of applications?"
Force 10, a private company with about $200 million in revenues, offers a host of switches and routers for Gigabit Ethernet and 10GbE environments that are designed to help drive down power and cooling costs. Along with complementary multi-service transport and access solutions, Force 10 also offers its Open Cloud Networking strategy, an open-standards-based initiative that stresses automation and virtualization to enable customers to migrate their networking environments into scalable data center and cloud computing fabrics.
According to an anonymous source in a Bloomberg News story, Dell officials had considered buying Brocade, but opted instead for Force 10 because its Ethernet capabilities were more advanced than Brocade's. In the conference call, Brad Anderson, senior vice president of Dell's Enterprise Solutions Group, said Brocade will continue to be a strong ally, but that the partnership will change somewhat due to overlaps with Force 10's product portfolio.
Anderson called the acquisition of Force 10 "the next logical step" in the company's transformation into an enterprise solutions provider.
"Networking is a very key element in our enterprise growth strategy," he said.
Analysts agreed. Dell's acquisition of Force 10 will make it more competitive with the likes of Cisco Systems and HP, both of which are looking to offer more complete data center solutions that include servers, storage, networking, virtualization and management software. The push by Dell and HP essentially was kicked off two years ago, when Cisco launched its UCS (Unified Computing System), which not only combined Cisco's networking products with EMC's storage and VMware's virtualization technologies, but also marked Cisco's entry into the server market.
That move marked Cisco's transformation from a strong partner of HP and other OEMs into a key competitor. HP countered by buying networking vendor 3Com to build out its networking capabilities. Dell is following suit.
"Companies like Dell and HP had been dependent on Cisco [for networking technology]," Kay said. "Now they're diversifying."
Rob Enderle, principal analyst at The Enderle Group, said that for Dell, buying a company like Force 10 makes sense as the vendor looks to compete more closely with HP and Cisco.
"Force 10 is no 3Com and certainly not a Cisco," Enderle said in an email to eWEEK. "On the other hand, it is a good start and large acquisitions typically fail. Think of Force 10 as seed corn; it allows Dell to hit the market running but, assuming this moves like other acquisitions, Dell will grow this firm rapidly to be a stronger contender and the end result will better integrate with the Dell family of products sooner because Dell doesn't have to transition a large company. Their formula works."
Force 10 fits that formula, he said.
"[Dell likes] firms that have good products but suffer from poor distribution and sales due to size," Enderle wrote. "Force 10 seems to fit that model. They like this profile because it creates the best short-term synergy and the result has been rather impressive growth for some of their other recent acquisitions like Boomi and KACE."
Analysts at Jefferies & Co. said the Force 10 deal is a good step for Dell, but there are other moves the vendor needs to make to build out its overall enterprise offerings.
"Force10 primarily provides 10 GbE ... switches focused on the data center, filling a large hole in Dell's cloud stack (especially following HP's acquisition of 3Com)," the analysts said in a research note. "We see the deal as positive, but we still believe Dell needs a more robust cloud software offering."
In the cloud software space, Dell is "significantly behind HP in investing in a full stack for the cloud with holes primarily in software and networking," they said. "In recent years, HP has spent $6.7 [billion] on software acquisitions while Dell has only spent $150 [million]. Without vertical integration Dell will be dependent on partners that may have differing release and innovation schedules."