Dell Faces Challenges in $1.4 Billion EqualLogic Buy

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Dell Faces Challenges in $1.4 Billion EqualLogic Buy
By Jennifer LeClaire
November 8, 2007 9:44AM

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By most accounts, Dell's strategy in buying EqualLogic sounds smart, but pulling it off is another story. Dell faces several challenges, including integrating EqualLogic's products into its PowerVault line of storage, managing EqualLogic's independence, and determining how the acquisition impacts its relationship with EMC.

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   Dell
   Storage
   EMC
   iSCSI
   Server
   Data Center
   Virtualization

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   Dell is set to acquire EqualLogic for $1.4 billion, but the PC maker is also acquiring several challenges along with the iSCSI firm. Despite what Dell Chairman and CEO Michael Dell said will help position the company to take part in the iSCSI revolution, the acquisition propels Dell into a new playing field.

In terms of enterprise equipment, Dell is known as a server company, not a storage company. The EqualLogic acquisition, then, puts Dell at odds with an ally: EMC.

Still, some analysts are saying that the iSCSI storage area network (SAN) sector is the fastest growing part of the storage business and that Dell's purchase of EqualLogic will strengthen its virtualization play.

Surveying the Market

The market for iSCSI is expanding, but it is hardly a gold mine, according to Charles King, principal analyst at Pund-IT. EqualLogic claims to have 15 percent of its sector, but simple math suggests that iSCSI likely will drive total revenues far south of $1 billion during 2007. That's a small fraction of the revenues generated by business storage.

"The iSCSI market is forecasted to do very well over the next few years, so Dell's entry into the action seems a wise move," King said. "But EqualLogic's $1.4 billion price tag suggests that more than one suitor may have been vying for the company's hand."

After the acquisition is complete, Dell plans to grow EqualLogic's channel-partner programs with current and future EqualLogic-branded products, and also plans to incorporate EqualLogic technology into future generations of its Dell PowerVault storage line available through the channel and directly from Dell.

Dell's plans sound smart, but pulling it off is another story. Dell faces several challenges, including integrating EqualLogic's products into its PowerVault line of storage, managing EqualLogic's independence, and determining how the acquisition impacts its relationship with EMC.

Surveying the Challenges

"Since Dell is not noted for its storage leadership, the purchase validates EqualLogic's R&D and marketplace vision," King said. "That means that EqualLogic's technology should be thoroughly absorbed into Dell's PowerVault storage line or the deal has been for naught."

EqualLogic is an independent storage company in the sense that it sells storage not only to companies that use Dell servers, but also to HP, IBM, and Sun server customers, King noted. In this sense, he explained, Dell is faced with the same question that Sun faced after the acquisition of StorageTek: how to successfully manage a storage company that makes many of its sales to its competitors.

In addition to these factors, there is the EMC dilemma. Dell and EMC have enjoyed a mutually beneficial relationship. Dell offers EMC a reliable conduit to SMB Relevant Products/Services customers, and EMC has provided Dell a wide range of world-class storage solutions, including iSCSI arrays.

"To forestall any potential conflicts, Dell may say all the right things about its EqualLogic acquisition, but actions speak louder and more clearly than words ever will," King said. "Though we expect the partnership between Dell and EMC to continue, a marriage of convenience rather than one of equal commitment would likely be a waste for both companies."