If Dell buys Compellent, it loses EMC partnership

Dell will have a difficult time integrating Compellent's technology into its portfolio

After losing a drawn-out bidding war to Hewlett-Packard to acquire storage vendor 3Par earlier this year, Dell re-opened its coffers in a bid to acquire Compellent Technologies, hoping the company will be the answer to its midrange storage area network (SAN) needs.

Dell's attempt to snatch up 3Par put a strain on its reseller relationship with EMC, and its bid to buy Compellent certainly will represent the death knell.

Dell on Thursday announced that is in advanced talks with Compellent to acquire the company. It initially offered a price of $27.50 per share, or roughly $876 million.

Although there are more than two years left on the reseller contract between Dell and EMC, which was originally signed in 2001, it's unlikely Dell's sales force will pitch EMC's gear with any zeal if it purchases Compellent.

The reseller partnership represented billions of dollars in sales for the two companies. Last year alone, EMC garnered from eight per cent to nine per cent of its revenue from its relationship with Dell. For Dell, the partnership equated to 50 per cent of its storage revenue last year -- about 90 per cent of it coming from the resale of EMC's midrange Clariion line and 10 per cent from the high-end Symmetrix systems. If Dell acquires Compellent, it will be in direct competition with the EMC Clariion line that it resells.

The proposed Dell/Compellent deal also represents the sale of one of the last independent SAN vendors available to be purchased by a major data center player. The only remaining SAN vendors are Xiotech, Data Direct, Pillar Data, and Nexsan. But none of these companies compares with Compellent's market reach.

"They're a shining star," said Arun Tenaja, founder and consulting analyst at The Tenaja Group. "They've got an architecture conceptually similar to 3Par's. Anything I would ascribe to 3Par, I'd ascribe to Compellent."

Compellent differs from 3Par in that the latter sold to a higher-end marketplace. 3Par's SANs have an application-specific integrated circuit (ASIC) that offloads advanced functions, giving its systems higher performance. Up to eight 3Par SANs can also be clustered together to offer petabytes of capacity. Compellent's software only allows up to two SANs to be clustered together.

Most industry observers agree it's unlikely Dell will face a bidding war against other competitors for Compellent. EMC, NetApp, Hewlett-Packard, IBM, Oracle and Hitachi Data Systems already have their own flavor of midrange block storage technology. There is, of course, the chance that one of the latter vendors, could bid for Compellent in a defensive move just to keep it out of Dell's hands. Cisco Systems is also a distant contender for Compellent, as it already sells its own lower-end storage systems.

"It wouldn't be a bidding war, it would be a pissing war, which is not impossible. At the current price and with the money these people have been throwing around lately, a billion dollars to make it awkward for Dell is neither here nor there. But, they don't stand to gain much," said Mark Peters, an analyst with market research firm Enterprise Strategy Group.

The most likely of the larger players to enter the fray, Peters said, would be NetApp - not because it needs Compellent's technology, but because a deal would further extend its share of the storage market.

Compellent sells SANs and the software to manage them. Most notably, the company offers software that automates the movement of data between tiers of storage. For example, Compellent's Fluid Data technology allows IT administrators set policies that place the highest priority data, such as in relational databases, on high-performance and expensive solid state drives, while placing less timely data, such as e-mail traffic, on high capacity, less expensive serial ATA (SATA) drives.

Compellent's technology also offers thin provisioning, a means by which administrators can increase the utilization rates of their storage by allocating only what is needed by servers applications instead of the more common practice of overprovisioning capacity.

Compellent also announced last month the latest version of its SAN technology, Storage Center 5.4, which incorporates several hardware upgrades as well as adding storage virtualization to its bag of software tools. The new virtualization software allows two Compellent SANs to be seen as a single pool of storage by application servers, as well as to migrate data seamlessly between them.

Compellent is debt-free public company and sells its products exclusively through a channel sales network in 35 countries. The company said its SANs are installed at 3,000 customer sites.

If Dell acquires Compellent, it faces an uphill battle to integrate the technology into its current product line. In 2007, Dell purchased EqualLogic, an iSCSI SAN vendor whose products are aimed at the same midrange market as Compellent's products. Last month, Dell reported its sales of midrange iSCSI SANs from its EqualLogic line were up 66 per cent year over year.

"Although [Compellent] has recently expanded from SAN into NAS with the help of open-source software, its architecture remains limited to general-purpose environments," Paul Mansky, managing director of equity research for Canaccord Financial. "Scalability challenges inherent to the architecture have historically precluded Compellent from engaging in an enterprise environment."

In all likelihood, Dell would not cannibalize its own midrange sales and it would instead need to take some of the $1.6 billion it saved by not purchasing 3Par and invest it in beefing up Compellent's products for higher-end customers.

"It's a five-year plan either way," Taneja said.

Join the PC World newsletter!

Error: Please check your email address.

Tags 3PARDellIT industrynetwork-attached storageNetworked StoragestorageCompellent TechnologiesHewlett-Packardemc

Our Back to Business guide highlights the best products for you to boost your productivity at home, on the road, at the office, or in the classroom.

Keep up with the latest tech news, reviews and previews by subscribing to the Good Gear Guide newsletter.

Lucas Mearian

Computerworld (US)
Show Comments

Essentials

Microsoft L5V-00027 Sculpt Ergonomic Keyboard Desktop

Learn more >

Lexar® JumpDrive® S57 USB 3.0 flash drive

Learn more >

Mobile

Lexar® JumpDrive® S45 USB 3.0 flash drive 

Learn more >

Exec

Audio-Technica ATH-ANC70 Noise Cancelling Headphones

Learn more >

Lexar® Professional 1800x microSDHC™/microSDXC™ UHS-II cards 

Learn more >

Lexar® JumpDrive® C20c USB Type-C flash drive 

Learn more >

HD Pan/Tilt Wi-Fi Camera with Night Vision NC450

Learn more >

Budget

Back To Business Guide

Click for more ›

Most Popular Reviews

Latest News Articles

Resources

PCW Evaluation Team

Azadeh Williams

HP OfficeJet Pro 8730

A smarter way to print for busy small business owners, combining speedy printing with scanning and copying, making it easier to produce high quality documents and images at a touch of a button.

Andrew Grant

HP OfficeJet Pro 8730

I've had a multifunction printer in the office going on 10 years now. It was a neat bit of kit back in the day -- print, copy, scan, fax -- when printing over WiFi felt a bit like magic. It’s seen better days though and an upgrade’s well overdue. This HP OfficeJet Pro 8730 looks like it ticks all the same boxes: print, copy, scan, and fax. (Really? Does anyone fax anything any more? I guess it's good to know the facility’s there, just in case.) Printing over WiFi is more-or- less standard these days.

Ed Dawson

HP OfficeJet Pro 8730

As a freelance writer who is always on the go, I like my technology to be both efficient and effective so I can do my job well. The HP OfficeJet Pro 8730 Inkjet Printer ticks all the boxes in terms of form factor, performance and user interface.

Michael Hargreaves

Windows 10 for Business / Dell XPS 13

I’d happily recommend this touchscreen laptop and Windows 10 as a great way to get serious work done at a desk or on the road.

Aysha Strobbe

Windows 10 / HP Spectre x360

Ultimately, I think the Windows 10 environment is excellent for me as it caters for so many different uses. The inclusion of the Xbox app is also great for when you need some downtime too!

Mark Escubio

Windows 10 / Lenovo Yoga 910

For me, the Xbox Play Anywhere is a great new feature as it allows you to play your current Xbox games with higher resolutions and better graphics without forking out extra cash for another copy. Although available titles are still scarce, but I’m sure it will grow in time.

Featured Content

Latest Jobs

Don’t have an account? Sign up here

Don't have an account? Sign up now

Forgot password?