The bid for 3PAR
Dell caught the storage world’s attention when it made a bid that eventually got it into a bidding war with HP over 3PAR. At the time of writing the outcome of this battle is not settled, but the acquisitive Dell is squaring up to HP, EMC, IBM and Oracle.
The bidding war with HP, has been lambasted by many observers due to the perceived high price for 3PAR. The Financial Times in its Lex column on August 26 described the battle as “madness” doubting Dell’s ability generate required profits to justify the purchase price.
Others speculate that the world is scrambling to buy the last remaining independent storage assets.
Storage Acquisition Steeple Chase
And of course Dell is not new to acquisitions. Dell’s other storage acquisitions include: The Networked Storage Company, Exanet and recently Ocarina. And more importantly EqualLogic.
At the time when Dell acquired EqualLogic for $1.4B in 2007, EqualLogic’s revenues were at $140M. Since then Dell managed to increase this to $800M. The acquisition at the time raised many eyebrows due to the then perceived high price, but a bidding war was not reported as EqualLogic was a privately held company. Now consider what constitutes a high acquisition price!
Recently other storage companies were acquired with Data Domain being bought by EMC in June 2009 also in bidding war with a competitor, in this case NetApp.
Running out of Storage Targets?
Over the last 10-15 years various storage innovations replenished the storage industry resulting in new players: de-duplication, iSCSI, CDP, clustering, object storage, semiconductor storage etc. Evolution meant that as the large players identified technological holes in their armour, they subsequently snapped up the new innovators.
Acquisitions usually relate to: buying IP/patents, buying time to market, buying customers, buying marketshare, buying economies of scale, buying competitive edge/windows and in any combination.
We could well be at a time when much new storage innovation have already been accommodated into one-trick pony companies. And many of which have subsequently been snapped up by bigger players. Leading to the perception that the world of investment banking is running out of storage acquisition targets.
Dell the Storage Behemoth?
The recent Dell strategy is undeniably to grow the company into a size where it can compete head-on with HP, IBM and Oracle. With revenues in the $50B area, HP and IBM are clearly bigger, but it is of course in the Enterprise IT area Dell wants to measure itself. Not only is revenue important, but also the ability to operate as a one-stop-shop across all shelves when selling the entire IT stack.
The Dell storage division has accordingly been tasked with finding potential acquisition targets in order to: (1) fill the enterprise portfolio, (2) boost revenue and (3) demonstrate marketshare. The potential 3PAR acquisition meets all 3 goals even though number 2 & 3 will take time.
Dell and EMC
The reseller relationship whereby Dell resells EMC kit began in 2001. Back then Dell was missing out on sales when it ought to equip its servers with some Dell branded storage. Both parties viewed the partnership as net positive. And this soon became a significant contributor to EMC’s revenues.
As Dell grew its strategic intentions in the Enterprise IT market, the EMC relationship did not fit anymore. Hence the EqualLogic acquisition and now the bid for 3PAR. EMC can continue to supply Dell with CLARiiON, but it is easy to imagine that Dell will gradually become less dependent on EMC as a supplier.
Will it or Won’t it?
Will Dell achieve its goal with 3PAR? Tomorrow we may find out. But the company will continue to grow through acquisitions and Dell’s storage ambitions are not over yet. With or without 3PAR.
