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Dell storage revenue tumbles after changes

Dell CEO Michael Dell likes to refer to his company as a hot storage startup because it is overhauling its storage technology through acquisitions and internally developed products. And like most startups, Dell storage is experiencing growing pains. Right now, Dell storage is actually experiencing non-growing pains.

Like its overall results last quarter, Dell storage sales were below expectations. Year-over-year storage revenue dropped 15% to $460 million, mostly due to revenue lost because of its divorce from partner EMC. Dell-developed storage revenue increased 23% year over year to $388 million, but that was down from $393 million the previous quarter.

Dell executives point to improved margins gained from owning its storage IP following acquisitions of EqualLogic and Compellent, instead of selling EMC’s storage. But Michael Dell didn’t seem thrilled when discussing his company’s storage revenues during the earnings conference call Tuesday night.

“It wasn’t completely up to our expectations,” he said. “There’s some room for improvement there. Growth in Dell IP storage was 23% year over year and it’s now 84% of our overall storage business. We had good demand from Compellent, we launched a whole new product cycle in EqualLogic. There’s definitely more to do here and … we have put a lot of new people into the organization, and they’re becoming productive, and we still remain very optimistic about our ability to grow that business.”

According to a research note issued today by Aaron Rakers, Stifel Nicolaus Equity Research’s analyst for enterprise hardware, the overall storage market grew approximately 12% year over year for the quarter. In comparison, EMC storage revenue increased 16%, Hitachi Data Systems grew 24% and IBM was up 8% over last year.

Rakers wrote that he expected Dell’s storage revenue for the quarter to be around $542 million, and he believes “overlap between EquaLogic and Compellent has been a challenge.” He added that he assumes “muted EqualLogic revenue growth” for the quarter while Dell expanded its Compellent channel into 58 countries – up from 30 countries a year ago.

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