EMC, Dell Repairing Frazzled Storage Relationship

It had to feel like a knife in the back to EMC when Dell announced Aug. 16 that it wanted to buy 3PAR for $1.15 billion. After all, EMC and Dell had been partners for 10 years in selling enterprise storage servers, arrays and all the fixins. Dell annexing 3PAR would do nothing but cut big-time into EMC’s sales; you don’t want to mess with EMC sales.

Dell, of course, didn’t see it that way, noting that 3PAR specializes in the new-generation, scale-out/utility-type storage that EMC’s older-software driven machines don’t really do well and that private cloud systems need for high-end service and dataload deployments.

Nonetheless, EMC had to be steamed. Then, a week after Dell announced its intentions to acquire 3PAR, former EMC storage veep David Donatelli and his new employer, Hewlett-Packard, stepped in and started a bidding war for 3PAR — which Dell most likely did not expect to encounter.

When HP emerged victorious from the bid war on Aug. 26 after committing $2.35 billion to own 3PAR, Dell was left mortified. EMC cooled off and moved into jilted mode.

Two months have passed. Michael Dell hasn’t said anything yet, but EMC CEO Joe Tucci finally broke the code of silence to address the situation at the quarterly earnings call the other day.

Tucci told investors, analysts and journalists that the attempt to buy 3PAR undermined the relationship through which Dell has resold billions of dollars of EMC’s storage equipment, mostly to small and midsize businesses.

“Obviously things cooled off [after Dell approached 3PAR],” Tucci said. “We are again in discussions to see if we could do something more meaningful and lasting. Both companies would like to do that, but the key is it’s got to be meaningful, and it’s got to be lasting for me to tell you that it’s [the relationship] back on track.”

Dell corporate spokesman David Frink said in a statement that EMC remains a key partner for the Round Rock, Texas-based company. He added that Dell has begun selling two new EMC product lines in 2010.

“EMC is a strategic partner and plays an important role in our storage portfolio,” Frink said.

The two Tier 1 storage companies had better shake hands and forget it. The income is substantial for EMC, which isn’t making any secrets about moving down the food chain into the midrange and SMB markets: In 2008, 11.5 percent of its $14.9 billion in revenue came from Dell sales. 2009 figures haven’t been made available.

If Dell and EMC don’t come up with a new agreement, EMC has an ace-in-the-hole in the offing: Tucci said the company would introduce a new “low-end” storage solution early next year that might change the whole game with Dell.

Stay tuned.