Now that their bidding war for storage array vendor 3PAR is over, winner Hewlett-Packard (HP) Co. and loser Dell Inc. both face questions about what their storage product lines will look like.
Barring an unlikely bid from another company, Hewlett-Packard wrapped up the 3PAR sweepstakes Thursday with a $2.35 billion bid -- its fourth offer for 3PAR since Aug. 23. Dell dropped out of the bidding, and 3PAR said Thursday night that it entered into a definitive agreement for a deal with HP. The HP and 3PAR boards have approved the acquisition, which is expected to close around the end of the year.
Dave Donatelli, HP's executive vice president and general manager of enterprise servers, storage and networking, said 3PAR is a piece of Hewlett-Packard's converged infrastructure strategy. But he'll need to tell customers exactly where it fits. 3PAR's InServ systems are competitive with HP's XP enterprise platform that it gets from an OEM deal with Hitachi as well as the high-end of HP's midrange EVA family. Donatelli has said he expects to keep the Hitachi relationship, but it's unlikely that HP will immediately drop the EVA because of its large customer base.
For Dell, losing 3PAR was a bump on its road to expanding its data storage portfolio. Dell executives hoped 3PAR could provide the same type of jolt in the enterprise that the EqualLogic iSCSI SAN system has given it in the small- and medium-sized enterprise (SME) market.
"Both had a strong incentive not to lose this deal," said Andrew Reichman, a senior analyst at Forrester Research Inc. "With 3PAR, Dell would become a rival in enterprise storage. HP has a vested interest to prevent Dell from doing that."
3PAR, best known as a thin provisioning pioneer and for its clustered controller architecture, has been cast as an alternative to high-end enterprise systems such as EMC Corp.'s Symmetrix, Hitachi Data Systems' USP V and IBM's DS8000. But Hewlett-Packard's larger need is in the midrange, where the EVA has lost market share and failed to keep up with technology advances in recent years. 3PAR's InServ is a modular system that lacks support for mainframes that run many enterprise applications.
"It can replace the top end of the EVA line and potentially the whole EVA line, which is aging and losing ground on competitors," Reichman said of 3PAR. "It can also replace a decent portion of [XP] but 3PAR doesn't do mainframe, and as much as HP wants to be in that high-end business, they have to be in the mainframe space."
The 3PAR acquisition is part of HP's strategy to supply all the pieces in the IT stack. That same strategy led to Hewlett-Packard's $2.7 billion acquisition of networking vendor 3Com Corp. last November.
When HP first got into the bidding for 3PAR, Donatelli said the two vendors' products were complementary and that customers increasingly want to buy from one large supplier. But Hewlett-Packard still has to convince customers it's the right vendor for one-stop shopping.
Freight car management firm TTX Co. uses HP servers but chose EMC Clariion over the EVA last year. Rob Zelinka, TTX's director of infrastructure, said the 3PAR acquisition doesn't change his mind about HP's storage.
"I'm looking for the data center-in-a-box that everyone is talking about," Zelinka said. "I think HP is a step closer with 3PAR, but I don't think the pieces they've assembled are the right pieces. I like the EMC/Cisco/VMware pieces. They're clearly market leaders in all three places."
Greg Schulz, founder and senior analyst at StorageIO Group, said HP can use its SAN Virtualization Services Platform (SVSP) appliance as a bridge to migrate customers from EVA to 3PAR and to ease the transition. Still, Schulz said, Hewlett-Packard's biggest issue in the coming year or so could be communicating its storage strategy while competitors hope to take advantage of customer confusion.
"Right now, HP's storage product roadmap is a maze," he said. "And HP has to defend its turf during the transition. It's a feeding frenzy for competitors like EMC and IBM."
Who does Dell turn to for enterprise storage?
Historically, Dell has leaned on OEM partner EMC for storage, but began building out its own storage platform with EqualLogic in 2008. This year it also acquired the IP of clustered NAS vendor Exanet and primary data deduplication vendor Ocarina Networks before making a move to buy 3PAR for $1.15 billion on Aug. 16.
Now the industry is waiting to see if Dell has a Plan B for the enterprise.
"There's no great option out there for Dell," Forrester Research's Reichman said. "Dell can tuck its tail between its legs and say it won't be in that business, or it can go back to EMC and share revenue and not have control of the technology. If Dell wanted to pay $2 billion-plus [for 3PAR], there must be a reason they don't want to keep the EMC relationship."
If Dell decides to buy another storage company, Reichman said it can go for a "massive acquisition" such as NetApp that would cost a lot more than 3PAR or it could chase a lower-priced alternative such as Compellent or Xiotech, although "neither of those are really major competitors in the top-tier storage space." He said building its own storage system would probably take years, and is unlikely a viable option.
Reichman and StorageIO Group's Schulz both raise the possibility of Dell turning to Fujitsu or NEC -- Japanese-based vendors without strong market reach in the United States -- as an OEM partner.
Schulz said Dell could also extend its OEM deal with LSI, which supplies controllers for Dell's low-end PowerVault MD storage platform and is a key storage OEM partner for IBM. He also said Dell can follow the lead of NetApp, which lost a bidding war to EMC for data deduplication backup vendor Data Domain last year. NetApp decided not to make another large acquisition after losing Data Domain, and its storage business has grown considerably over the past year. "NetApp showed you don't have to turn right around and make another deal," Schulz said.