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Dell loses ground in storage, despite EqualLogic success

Last quarter was a rocky one for Dell’s storage business. Dell lost its protracted bidding war against Hewlett-Packard for 3PAR – upsetting its storage partner EMC – and its revenue growth for the quarter lagged the industry level despite strong sales of EqualLogic iSCSI SANs.

EqualLogic sales grew 66% year over year but Dell’s overall storage revenue only increased 7% to $543 million. Stifel Nicolaus Equity Research analyst Aaron Rakers points out that Dell’s 7% year-over-year growth in storage revenue compares to a percentage increase in the mid-teens across the industry. And while EqualLogic grew year over year to $164 million, Rakers said its sales dropped 4% from the previous quarter and Dell’s overall storage business declined 13% from the previous quarter.

Rakers’ estimates that Dell’s non-EqualLogic storage sales – mostly from EMC’s Clariion – decreased 7.4% year over year and 16.4% from the previous quarter. He pointed out that EMC midrange storage revenue rose 22% year over year and NetApp’s product revenue jumped 49% year over year last quarter.

“Dell’s results reflect a well-known fracturing of the Dell/EMC relationship [following] the Dell vs. HP bidding war for 3PAR,” Rakers wrote in a research note today.

EMC CEO Joe Tucci talked about the Dell relationship during EMC’s earnings call last month and again this week when discussing EMC’s acquisition of clustered NAS vendor Isilon, saying that the partnership has been damaged by Dell’s attempts to broaden its storage portfolio. Tucci also said the vendors are working to improve that relationship. The rift in the partnership began when Dell acquired EqualLogic in 2008 and widened when it try to add EMC competitor 3PAR.

Dell CEO Michael Dell said on his earnings call Thursday that “we have a 10-year relationship with EMC, and that continues to evolve. We’ll continue to work with them.”

But Dell also pointed out that his company makes more profit from selling its own storage, and will invest more money on storage products.

“There’s no question the portfolio of the business is shifting,” he said. “Profitability is increasing. If you look at our storage business, EqualLogic grew 66% and now is on a run rate of over $800 million. We have purchased Exanet to add CIFS and NFS file system capability and Ocarina to add deduplication and compression. We’re focused on growing our storage business.”

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