October 22, 2001 11:35 AM PDT
Dell to resell EMC storage systems
The marriage of convenience between the two companies effectively seeks to resolve strategic dilemmas facing both. Dell has been trying to increase its presence in the still-lucrative storage market. The complexity and lack of standards in the market for storage area networks (SANs), however, runs counter to Dell's efficiency-driven manufacturing style, which emphasizes high volume and minimal research and development spending.
By contrast, EMC has been facing something of an opposite problem: How to sell its storage hardware and software to companies outside the Fortune 1,000 while fending off competition from mega-manufacturers like IBM.
Under the deal, Dell will discontinue its own SAN products and resell EMC's Clariion and Symmetrix storage systems, although Dell will continue to sell its current line of less-complex NAS (network attached storage) products. The two companies will also build service and consulting capabilities inside Dell to handle EMC installations as well as cooperate on creating future storage systems.
"The SAN market today is the farthest (of any storage market) from being standardized," said Bruce Kornfeld, director of storage-product marketing at Dell. "Going into this we are leveraging EMC's R&D abilities."
On the other side of the coin, Dell will become EMC's sales arm for the government, small business, education and health care markets. EMC will not sell products directly to this market, Kornfeld said. The two companies will also cooperate on landing large accounts, although Dell will fully manage an account once a deal is signed. Dell also will consult with EMC on manufacturing issues to help the Hopkington, Mass.-based storage specialist streamline its factories.
"Dell plans to help EMC work its asset turns and component costs," Morgan Stanley analyst Gillian Munson wrote in a note Monday. "This is something EMC really needs to do. If EMC could turn inventory faster, it could throw off a good deal of cash in our view. This is an important wrinkle of the agreement."
But EMC has to keep an eye out to ensure that Dell doesn't turn the SAN market into a low-margin commodity arena, she said, as it did with PCs.
Gartner analyst Nick Allen says that although Dell broadened its offerings by agreeing to resell EMC's Clariion line, its support of that midrange storage line could lag behind EMC's standards.
EMC is the undisputed champion of the storage world, but several competitors, including Round Rock, Texas-based Dell, have been trying to make inroads into the market.
Despite being a Wall Street darling in past years, EMC has been struggling to regain its footing amid an economic slowdown and growing competition from Sun Microsystems, IBM and Hitachi Data Systems, and has been seen by a few analysts of late as a possible takeover target.
Sony cut a deal in April to use EMC's lower-end storage products as part of the computing equipment it sells to broadcasting companies that need to edit videos digitally. Sony said it would sell the Clariion products, re-branded with its own logo, as part of its XPRI editing system.
Earlier this year, Dell announced that its high-end SAN products now work with Windows servers from IBM, Compaq Computer and Hewlett-Packard. The company, however, still faced another challenge: getting its SANs to communicate with Unix servers.
In May, however, Dell closed the San Jose, Calif., offices it acquired when it bought ConvergeNet, a storage specialist. ConvergeNet has been Dell's first, and only, acquisition to date.