If Dell buys Compellent, it loses EMC partnership

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

Having lost to Hewlett-Packard in a drawn-out bidding war to acquire storage vendor 3Par earlier this year, Dell has re-opened its coffers in a bid to acquire Compellent Technologies, hoping that 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 of that partnership.

Dell on Thursday announced that it's in advanced talks with Compellent to acquire the Eden Prairie, Minn.-based company. Dell 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 that Dell's sales force will pitch EMC's gear with any zeal if the company purchases Compellent.

The reseller partnership represented billions of dollars in sales for the two companies. Last year alone, EMC garnered 8% to 9% of its revenue from its relationship with Dell. For Dell, the partnership accounted for 50% of its storage revenue last year -- about 90% of it coming from the resale of EMC's midrange Clariion line and 10% 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 those companies can match Compellent's market reach.

"They're a shining star," said Arun Taneja, founder and consulting analyst at The Taneja 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 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 those 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, since 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 at 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.

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