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Dell to acquire EqualLogic for $1.4B

Beth Pariseau

Dell Inc. announced this morning that it intends to acquire iSCSI SAN player EqualLogic Corp. for $1.4 billion, slotting EqualLogic's products into its storage line in an attempt to corner the small and medium-sized business (SMB) iSCSI market.

"EqualLogic has been dominant in the iSCSI space, especially in focusing on the channel," said Tony Asaro, analyst with the Enterprise Strategy Group (ESG). EqualLogic has more than 3,500 customers and had filed a form S-1 with the Securities and Exchange Commission (SEC), beginning the process of going public. Besides short-circuiting EqualLogic's IPO, Dell's deal raised questions about its partnership with EqualLogic competitor EMC Corp.

Dell officials also said they liked the way EqualLogic has positioned its iSCSI products to take advantage of the VMware craze -- EqualLogic was the first iSCSI SAN vendor officially certified with VMware last year.

"We needed the product to be easy to use, and EqualLogic is the clear leader in that category," said Mike Arterbury, director of storage operations at Dell, pointing out that VMware is also Dell's No. 1 reseller for servers.

Dell's $1.4 billion plunge into iSCSI could also give that protocol a huge boost in networked storage, which has been dominated by Fibre Channel. "A market creation is going to occur here," Asaro said. "There have been pockets of SMB storage activity, but that market has not yet really taken off."

Dell and EqualLogic have had a similar focus

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on the channel, Asaro pointed out, though this has been recent for Dell, which has only begun taking a more aggressive stance in storage over the last year.

The deal also raised questions about the EMC/Dell partnership. Dell has been reselling EMC's AX150 and Clariion arrays for years and accounts for approximately 16% of EMC's total storage revenue. Dell's support for the AX150 took a hit with the launch last month of its MD3000i product, an entry-level iSCSI SAN based on Dell's PowerEdge server hardware and iSCSI software from LSI Corp.

EMC's party line is that the EqualLogic deal won't affect Dell's relationship with EMC "The announced acquisition shores up Dell's PowerVault iSCSI line for the low end," according to an EMC spokesperson. "There's really no change -- we've always had a relationship with PowerVault at the low end and Clariion above that, and we don't expect to change the positive nature of the relationship."

Arterbury said EqualLogic's products won't be competitive to EMC's within its product line. Dell has already taken pains to avoid a clash between the MD3000i and the low end of the Clariion line by emphasizing that only the Clariion offerings contain replication, though many products on the market comparable to the MD3000i include the feature.

People outside of Dell and EMC aren't so sure. "I'd find it hard to believe that EMC wouldn't be concerned about this," Asaro said. "This acquisition probably won't hurt their existing business, but it means they won't have the opportunity to get into this new burgeoning market."

Financial analyst Aaron Rakers of Wachovia Corp. said he expected the deal to have a negative impact on EMC's share price today. "While the Clariion product focuses on the high end and iSCSI is aimed at the low end, this could be a sign that Dell might be looking at bolstering its internal storage production capabilities down the line, a negative for EMC," Rakers wrote in a note to clients.

Moreover, beyond the promise that the products will be positioned cooperatively, Dell isn't saying exactly how that positioning will work. "It's very early days here -- in 60 to 75 days we'll sort all that out," Arterbury said.

Also not yet sorted out is how much of EqualLogic's management will remain with the company as it's folded into Dell, if EqualLogic will be run as a separate subsidiary or integrated, or if all of EqualLogic's product offerings will remain on the market.

EqualLogic, which was expected to complete its IPO by the end of the year, had $91 million in revenue and lost $1.9 million in the first nine months of 2007, according to its most recent S-1 filing. For 2006, EqualLogic had $68 million in revenue and lost $4.3 million. Its revenues more than doubled between 2005 and 2006, and were on pace to more than double again this year.

Related Topics: Storage vendors, VIEW ALL TOPICS

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