Storage industry experts are wondering if Dell Inc.'s move to go private this week will help or hurt its storage...
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business, which was going through a transition even before the leveraged buyout (LBO).
Dell has spent billions of dollars to acquire disk array vendors Compellent and EqualLogic, backup software vendors AppAssure and Quest Software, data reduction specialist Ocarina Networks, and scale-out NAS intellectual property from Exanet.
Dell's plan is to build a complete storage portfolio attractively priced for the midmarket and enterprise. That's a departure from its previous strategy of partnering with EMC for storage, a relationship that lasted 10 years until their official split in 2011.
CEO Michael Dell called his company the "world's largest storage startup" in 2011, not long after acquiring Compellent to round out the Dell SAN strategy.
In some ways, the Dell SAN business does resemble a startup more than a large established technology vendor. The storage group was recently hit with some layoffs, and there have been changes at the top.
Darren Thomas left his post as vice president and general manager of Dell Storage in December 2012. Former Xiotech CEO Alan Atkinson and Dell veteran Peter Korce have replaced Thomas as vice presidents and general managers of Dell storage, reporting to Marius Haas, president of Enterprise Solutions.
Dell's storage revenue has steadily declined after it ended its OEM deal with EMC. In its last earnings report, Dell recorded $378 million in storage revenue, down from $388 million in the previous year and from $423 million in the previous quarter. Chief Financial Officer Brian Gladden called the results "below our expectations," but maintained that Dell still had a good pipeline for storage products.
Storage analysts are most concerned with the lack of progress Dell has made in integrating the pieces it has acquired.
"I think it's been slow," said John Webster, a senior partner at the Evaluator Group analyst firm. "Where do you see Ocarina, and how long has Dell had them? Right now, Dell's storage strategy seems intact, but it's not moving along very fast. When they made those acquisitions, they talked about integration. That process has been going slowly, from my perspective. It will be interesting to see if it will accelerate post-LBO."
Greg Schulz, founder of the StorageIO analyst firm, said going private could give Dell more breathing room in integrating its storage products. "Dell has a lot of pieces and needs to stitch those together," he said. "They have some cleaning up to do. They have to do this work without the scrutiny of Wall Street. It will be good for Dell, but it will be a rough road."
It would make sense for Dell to continue to push into storage. The vendor's revenue still comes mostly from its PC and desktop product lines, and the rise of mobile devices is rapidly eroding those markets. Shaw Wu, an analyst with Sterne, Agee and Leach Inc., wrote in a research note that going private has economic advantages and disadvantages.
"On the positive, we believe going private takes the company out of the quarter-to-quarter grind of being a publicly traded company," Wu wrote. "But on the negative, not having publicly traded stock could make it more difficult to make larger, transformative acquisitions, as the company will likely spend the majority of its cash flow paying private equity investors and servicing debt interest."
Acquisitions have been a key method for Dell to become more than a PC maker "but they need to build out more of their technology organically, including storage," said Carter Lusher, chief analyst for the enterprise applications ecosystem at analyst firm Ovum.
Other analysts say that all the storage acquisitions that Dell made are designed to have put them on the storage map.
"What has not happened well so far (except for EqualLogic products) is deriving full value from the acquisitions," said Arun Taneja, founder and consulting analyst at Taneja Group. "Some of this is expected. For instance, Quest acquisition is relatively new. But, in general, I have not seen enough integration, using the different components, in a way that would give Dell a 2+2=5 advantage. That is still missing. The opportunity is large but the execution is yet incomplete. Also the positioning of EQL and Compellent could be more seamless than it is. In my view, Compellent products need to be taken to the high end, leaving EQL products to carry the full burden for the midrange, where its sweet spot is. Data protection and compression and dedupe needs to be tightly integrated into the storage arrays. The cloud story also needs to be completed."
Arun said Dell's opportunity for them in storage is huge.
"If they didn't already have the ingredients I would feel differently," he said. "But they have those. What they need is a master chef and I don't believe they have one for storage right now. With the right person on board and the chains removed, the recipe could result in a gourmet meal. All in all I see the privatization of Dell as a good thing. But it won't be sufficient unto itself."
Microsoft's $2 billion investment in the $24.4 billion LBO makes it a wild card in Dell's future. Microsoft hasn't been a big storage player, but it might try to increase storage integration of its Hyper-V hypervisor to better compete with VMware, according to Webster.
Another storage pundit said it's probably already too late for Dell to make it big in storage. "I think Dell blew its opportunity in storage long ago when it failed to apply its micro-factory concept -- which worked so well with servers -- to storage kits," said Jon Toigo, founder of Toigo Partners International. "Instead, Dell partnered with EMC … .They only started to correct this method a couple of years ago, but it may have been too late. In retrospect, and given the current news, it sure seems that way."
Toigo said he was unimpressed with Dell's storage acquisitions anyway. "I always viewed the products that they acquired as a bit of a yawn," he said. "ISCSI kit, NAS, etc. Probably worked for their primary market, but my sense was that it wouldn't help them climb into the enterprise space -- at least not with the same success they were having with high-end servers."