3PAR Bid Takes Dell Into Enterprise Storage, Raises Concern About EMC

Dell is moving toward building a world-class storage offering with its plan to acquire 3Par and integrate its technology with that from other acquisitions such as EqualLogic, but in the process is putting at risk its long-term EMC partnership.

Dell on Monday said it plans to acquire 3PAR, a provider of virtualized storage solutions, for about $1.15 billion, giving it enterprise-class technology which Dell can use to help customers build public and private clouds and reach into the high-end enterprise storage market.

3PAR is a developer of technologies for virtualizing storage for customers looking for a tiered storage infrastructure or multi-tenant arrays that can be used for public and private cloud computing.

Among those technologies are thin provisioning, which allocates more storage capacity to mission-critical applications than is physically available. 3PAR's storage technology is highly scalable, with performance and utilization increasing as capacity is increased.

However, as it reaches upwards into the enterprise, Dell will likely compete more and more with EMC, which is currently Dell's primary storage technology partner.

Dell, which currently accounts for up to a quarter of EMC's midrange Clariion storage sales, does resell EMC's enterprise-class Symmetrix storage on a limited basis.

Brad Anderson, senior vice president of Dell's Enterprise Product group, said Monday at a conference call for media and analysts that EMC is a strong partner of Dell, and that there are no changes in Dell's relationship with EMC in regards to Dell's sales of EMC Clariion arrays, NAS appliances, or dedupe technology.

Instead, Anderson said, Dell's goal is to provide customers a choice of technologies. "And we're providing them this exciting choice in 3PAR as well going forward," he said.

Dell has been investing in increasing its ability to increase its enterprise technology and sales capabilities, and 3PAR brings dell highly differentiated technology and better gross margins that allow it to compete in the high-end storage market, Anderson said.

"You just can't do that with something like Symmetrix," he said.

While Dell tried to brush off concerns about how the pending 3PAR acquisition might impact that company's relationship with EMC, that remains an open question going forward.

Next: Measuring The Impact On The Dell-EMC Relationship

Jayson Noland, an analyst with Robert W. Baird & Co., wrote in a research paper on Monday that technology from 3PAR will let Dell address the high-end storage market with an in-house solution.

"3PAR competes directly with EMC's Symmetrix platform, though 80% of Dell's relationship with EMC does not overlap with 3PAR," he wrote.

"Regardless, we would not expect EMC to be happy about this acquisition, and would expect the EMC/Dell relationship to be negatively impacted. EMC may be inclined to push CLARiiON more aggressively in the channel as a result," Noland wrote.

Another analyst firm, RBC Capital Markets, wrote in its research paper on the acquisition that it expects EMC's revenue from Dell, which is about $250 million per quarter, could be at risk in the coming year.

"With Dell's purchase of 3PAR, we believe EMC will take this as a competitive threat to its Symmetrix / V-MAX product line," RBC wrote.

For Dell, the plan is to eventually combine 3PAR's technology with that of three other storage-related acquisitions the company has made in the past few years.

Dell in early 2008 acquired EqualLogic, an iSCSI storage technology pioneer which has since become the center of Dell's storage business.

Dell early this year acquired storage vendor Exanet, a developer of clustered NAS technology. Exanet's appliances allow NAS to scale as more appliances are added, and can sit in front of other vendors' storage capacity.

Dell last month acquired Ocarina Networks, a developer of storage compression and deduplication technology which gives Dell the ability reduce the amount of data customers store across a wide range of devices.

David Scott, CEO of 3PAR, said at Monday's teleconference that 3PAR's technology, in combination with other Dell storage technology, will help accelerate customers' moves towards adopting public and private clouds.

For instance, Scott said, 3PAR's technology would be a great match with Dell's EqualLogic iSCSI technology for building scalable storage solutions, and when matched with Ocarina's compression and dedupe technologies would increase the efficiency of scalable storage.

"Together, Dell and 3PAR will be positioned to become a new storage powerhouse," he said. "Other vendors will be left flat-footed."

Next: Putting The Technology And Channel Pieces Together

The potential to build a storage powerhouse is there, but only if Dell can put the pieces together, said Greg Knieriemen, vice president of marketing at Chi Corp., a Cleveland, Ohio-based storage vendor and partner of both 3PAR and Dell-EqualLogic.

Knieriemen, whose company just signed with 3PAR a few months ago, said the 3PAR technology fills a good niche for Dell in the enterprise storage market.

"3PAR did a lot of innovative development of thin provisioning, and is know for its strong innovation," he said. "It is an extremely critical piece for Dell. The challenge now is how to put the pieces together and bring the solutions to market."

It was one thing for EqualLogic, where Dell needed to look at how to accelerate EqualLogic's go to market strategy with a complete storage solution, but another thing with 3PAR, which is part of a solution, Knieriemen said.

"Now with Exanet, 3PAR, and Ocarina, it's a whole new environment for Dell," he said. "The concern is, how will Dell put it all together, and how they will make people understand it."

Dell does not have a lot of experience in bringing multiple technologies together into a solution, but that's not to say it can't do the job, Knieriemen said.

"This is a new area for Dell," he said. "It's exciting. This could be an enormous opportunity for Dell. It all comes down to execution and messaging."

On the channel side, 3PAR has traditionally depended on solution providers throughout most of the world for sales and services, but worked more side-by-side with channel partners in North America, where it has been building out its channel, Scott said.

Anderson said that, when Dell acquired EqualLogic, it inherited a large channel organization which it has since expanded, although its reach into the enterprise has been limited.

Dell's solution provider partners have been asking the company to bring more enterprise technology to the channel, Anderson said. "So we see a tremendous opportunity for us to bring 3PAR into our channel lineup," he said.