Dell Inc. executives this week repeated their claims that the vendor is looking for acquisitions, without giving much hint about who's on the shopping list. But data storage figured prominently in Dell's analyst day presentations on Tuesday, and execs pointed to EqualLogic as a model acquisition.
Founder and CEO Michael Dell hailed EqualLogic for its solid technology, and said revenue from its iSCSI storage systems has grown four times since Dell acquired it in early 2008.
Dell also said any acquisition target would have to fit into the vendor's channel sales strategy, be easy to integrate and have financial stability with good profit margins. Dell hasn't specifically limited its acquisition talk to data storage, and RBC Capital Markets analyst Amit Daryanani wrote in a note to clients, "We do not believe investors received a firm idea of how this might unfold at the analyst day. Management vaguely indicated it would likely look to do a 'portfolio' of acquisitions that would augment its penetration in favorable submarkets."
Nonetheless, Dell's statements about looking to expand through "inorganic growth" and move deeper into the enterprise and data center is sparking speculation about what companies would be likely candidates. "Given the data presented, we would not be surprised if targets were found in services and software given anticipated near-term annual growth rates of 6% and 8%, respectively," Daryanani wrote in his note.
Industry insiders are drawing up lists of storage companies that fit Dell's criteria and might help the vendor expand. Here are some of their candidates:
The high-end disk array vendor's growth took a hit this week when 3PAR said it expects to report a sequential revenue decline for last quarter. However, analysts see 3PAR as a good technology fit for Dell.
"3PAR would fit nicely into their portfolio," said Jeff Boles, senior analyst and director of validation services at Hopkinton, Mass.-based Taneja Group. "[Dell] already has the small and medium enterprise and entry-level markets pretty well covered. Their opportunity is to expand their footprint up market."
3PAR's InServ Storage Server systems compete with EMC Corp.'s Symmetrix, as well as with systems at the high end of the Clariion platform, which Dell resells. But competing with partner EMC didn't stop Dell from buying EqualLogic, which competes against the lower end Clariion models.
CommVault Systems Inc.
In a Q&A with SearchStorage.com last year, Dell storage vice president and general manager Darren Thomas downplayed the idea of buying a storage software vendor. But CommVault has the profitability, high margins and recurring revenue streams that Dell wants. It's also a Dell partner.
Boles sees similarities to where CommVault is as a company and where EqualLogic was when Dell picked it up for $1.4 billion. "Dell has tended to buy someone with revenue ramping pretty aggressively," he said.
"You don't get any higher margins than software," said Brian Babineau, a senior analyst at Milford, Mass.-based Enterprise Strategy Group (ESG). "CommVault also brings materiality from a revenue standpoint, and is profitable."
Compellent Technologies Inc.
I f Dell buys Compellent it would signify serious problems with the Dell-EMC Corp. relationship. Compellent's Storage Center midrange systems are direct competitors with the Clariion.
"It may be a long shot, but it's possible, especially if Dell wants a bigger hedge against EMC," Babineau said.
Taneja Group's Boles agreed that Compellent is a long shot. "I don't think it's the right fit in Dell's culture," he said. "It's a small and medium enterprise product with a premium price for a premium experience, and I don't know that it scales effectively enough."
Privately owned DataDirect Networks would let Dell scale up further into the enterprise, and is another Dell partner. Michael Dell put emphasis on Web 2.0 and scale-out data centers at analyst day; DataDirect's disk arrays are self-healing, and it recently added a scale-out cloud storage system called the Web Object Scaler (WOS).
GlassHouse Technologies Inc.
Dell is a partner with and an investor in privately held storage services and consulting firm GlassHouse Technologies. GlassHouse has postponed its planned IPO because of market conditions, and storage insiders often mention it as an acquisition target.
Isilon Systems Inc.
Dell already has scale-out block storage with EqualLogic, but unstructured data will account for most enterprise data growth going forward. Most major vendors are looking to add scale-out network-attached storage (NAS) systems to their portfolios to accommodate this trend. Isilon has had its share of financial hiccups, but its business seems to have stabilized. The company has also added enterprise features to its product line in recent months.
"Isilon's hardware is fairly industry-standard—there could be some interesting potential synergies between the two companies' manufacturing processes," Boles said. But this is another acquisition that would make Dell more competitive with EMC.
This is yet another long shot, but Dell's reported $10 billion war chest gives it enough to pick up the biggest name in NAS. NetApp lost the bidding war for Data Domain Inc. with rival EMC, and is now considered both a possible acquisition target and a possible buyer. "Dell could take a run at NetApp," Babineau said, but he pointed out the two companies had a partnership earlier this decade that didn't work out.
Symantec is another long shot because of its size, but there has been speculation that Symantec's storage and security software portfolios could help Dell on two fronts.
"It could create a formidable organization, but who would want to try to digest Symantec?" Boles said. "Even if you're an M&A expert, it would give you an ulcer just thinking about it."
Growth through partnerships
Dell execs made it clear they intend to expand through partnerships as well as acquisition, and Dell reassured attendees in his keynote that "we have a strong alliance with EMC as well." Dell and EMC extended their partnership through 2013 last December. Dell added EMC's Celerra NX4 NAS to its reseller deal, and it plans to OEM EMC's Disk Library 1500 virtual tape library (VTL) this year. EMC could also bring its new toy, Data Domain, into Dell's portfolio.
"EMC acquiring Data Domain just increases the reasons for Dell to partner with them," said Chris Baer, an account executive at Dell EqualLogic channel partner Broadleaf Services Inc.. Dell has said it considers data deduplication a feature rather than a product, and that it intends to partner with multiple vendors to offer data reduction.
Customers, partners want data backup
Dell customers say they would welcome more data protection, specifically data deduplication.
"If I were in their shoes I would look at Dell as the people who are going to solve my corporate IT infrastructure problems. I would want to facilitate my customer's business, whatever it is," wrote David Friend, CEO at Carbonite, a large Web 2.0 customer of Dell's PowerVault MD1000 and MD3000 direct-attached storage (DAS)products, in an email to SearchStorage.com. "Every company needs customer relationship management and every company needs to back up all those PCs that Dell just sold them. Without such functionality, I haven't really adequately solved the customer's whole problem."
Maxwell Garrison, systems management specialist at Edmonton, Alberta, public schools, said he's less concerned about whether or not Dell owns the data deduplication feature, but he wants it well-integrated. "I want one source to go to for troubleshooting," he said.