August 9, 1999 8:40 AM PDT

EMC buys Data General for $1.1 billion

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EMC announced today it will buy Data General for $1.1 billion, or $19.58 share.

The acquisition is just one more volley in EMC's embittered battle with rivals Hitachi Data Systems, IBM, and StorageTek. Competitors this summer created fear, uncertainty, and doubt about EMC's ability to maintain its lead in storage area networks.

Storage area networks are a means of attaching storage to computer networks used forstoring large amounts of data.

The purchase catapults EMC into the non-uniform memory access server business, where it will be a rival with IBM. Big Blue fired off several volleys this summer potentially damaging to EMC. Last month, it jumped aggressively back into the storage market and agreed to buy Sequent Systems, a non-uniform memory access server maker.

Non-uniform memory access has been a successful business for Data General, but the company's small size has prevented greater market expansion. Non-uniform memory access is particularly attractive for companies looking to deploy large Windows NT servers. Servers typically top out at four, and soon eight, Pentium III Xeon processors, while Data General?s Aviion servers scale up to 256 processors.

At a meeting this afternoon in Waltham, Massachusetts, EMC CEO Michael Ruettgers explained Internet storage demand played a crucial role in the decision to buy Data General.

He used the example of the recent E*Trade outages to demonstrate how important reliable storage is to Internet companies. Ruettgers estimated Internet storage accounted for about 10 percent of EMC's business in the second quarter.

Another factor affecting the decision "was the increasing requirement for midrange storage solutions that would be homogeneously connected rather than heterogeneously connected," explained Ruettgers. Customers increasingly want to buy storage independently rather than be tied to the company that sold the server, he said.

EMC estimated the midrange push gained from Data General will increase its target market presence by almost 40 percent by 2001. "It's very unusual circumstances where a company can increase the size of the target market, yet stay within their core competency," said Ruettgers.

The acquisition surprised some analysts, who would not have predicted a merger with another storage company.

International Data Corporation had long speculated Data General would be acquired but more for its server business than for storage. "But Data General has done a great job building up its storage business," said IDC analyst Jim Williamson.

Data General CEO Ronald Skates made it clear to his employees and to analysts today storage drove the sale.

"We will continue to have our server business and our NUMA technology," said Skates, "but the focus for our people going forward and the focus for EMC will be the storage side."

Skates said very little at this afternoon's Waltham briefing, casting a shadow over his future under EMC.

EMC will operate Data General's server business as a separate business unit but will incorporate its Clariion storage products into existing lines.

"The primary focus here is storage," said an EMC spokesperson. But he acknowledged Data General?s Aviion line would help EMC proactively take on Big Blue in the non-uniform memory access server arena. "Competing with IBM is kind of an EMC core competency."

Clariion will fill an important gap in EMC's product line. EMC is known for big-iron storage devices attached to mainframes and large Unix servers, but the company has little presence in the midrange market. The Data General acquisition will help fill those gaps, particularly for storage attached to Windows NT servers.

Another area where the acquisition helps EMC is market expansion. Data General is strong in several areas, such as healthcare and federal and state and local government, where EMC has little or no presence. Financial services and telecommunications are among EMC's largest markets.

There's been long-time speculation that Data General is a takeover target, with most rumors revolving around Dell.

"[The acquisition is] not suprising at all. Data General had passed its prime," said Lindy Lesperance, analyst with Technology Business Research.

Data General?s Clariion line is a good fit with EMC's products, said Lesperance, but she questioned EMC's commitment to Aviion servers. "I wouldn't be surprised if they tried to sell that or had some managers at Data General who would take the business out on their own."

The timing steals some thunder from Compaq Computer, which is making a major storage services announcement today.

On Thursday, EMC met with more than 300 analysts and laid a clear strategy for combating its competitors. EMC apparently gave no indication it would buy Data General.

Merrill Lynch analyst Steven Milunovich said in a brief on Friday that competitive fears had not reduced his confidence in EMC. "We are even more confident that EMC's two-year lead on the industry is intact," said Milunovich.

 

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