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Dell Enterprise Storage: Contender or Pretender?

Still reeling from its failed multi-billion dollar pursuit of 3PAR and seeing that object of its affection instead fall into the hands of bitter rival HP, Dell is eager to cement its reputation as a leading enterprise storage player. But questions linger about whether the hardware titan has the storage clout necessary to accomplish the feat.

HP (NYSE: HPQ) this week announced it has completed the acquisition of virtual storage provider 3PAR (NYSE: PAR) for $33 per share in cash or $2.35 billion, according to a statement released by the company. Despite engaging in a spirited back-and-forth bidding war over 3PAR with HP over the summer, Dell (NASDAQ: DELL) eventually folded its hand a few weeks ago when the price became too unwieldy.

That decision could prove doubly damaging to Dell’s storage aspirations. Not only did Dell swing-and-miss a golden opportunity to instantly acquire its own utility cloud storage technology and leadership expertise, but it now must sift through a scarcer market of fallback options to plug the sizeable portfolio gap 3PAR would have solved, noted senior analyst Andrew Reichman of Forrester Research, Inc., in Cambridge, Mass.

“I think it’s definitely bad for Dell to lose this one. If they wanted to truly be an enterprise player in storage, they needed to have their own offering and 3PAR was the only independent option for that,” said Reichman. “It’s very hard in this [cloud storage] segment to build credibility. Buying a company which spent time climbing the mountain was the best option.”

Reichman said that Dell’s reputation in the enterprise storage arena remains as a low-end storage hardware provider that caters to the small and medium-sized business (SMB) audience, primarily based off of its long-standing partnership with EMC (NYSE: EMC). In fact, Reichman said that marriage-by-convenience could be in for turbulent waters as Dell continues to augment and diversify its storage business through acquisitions in areas that directly compete with EMC.

Over the last three years, Dell’s storage-related spending spree has included: iSCSI storage provider Equallogic, Software-as-a-Service (SaaS) email compliance and archiving vendor MessageOne, storage consultancy The Networked Storage Company, IT services provider Perot Systems, and the assets of Exanet. The acquisitions of data virtualization vendor Scalent, and storage optimization and de-duplication provider Ocarina Networks are pending.

Admitting that an acquisition typically enables a vendor to “jump six squares instead of two,” Darren Thomas, vice president of Dell Enterprise Storage, said 3PAR represented a cloud-based enterprise technology, which Dell has yet to truly invest in. He said he was unsure if Dell’s next acquisition would attempt to replace that specific area of focus.

“We saw [3PAR] as a unique opportunity, but we’re looking forward not backwards,” remarked Thomas.

A short list of viable Plan B options for Dell to potentially pursue, all of which do not feature nearly the technology cache or growth potential 3PAR possesses, according to Forrester’s Reichman, include Compellent (NYSE: CML), Xiotech, or perhaps Isilon Systems (NASDAQ: ISLN).

Thomas expressed confidence that Dell has successfully reinvented its storage business toward the midrange storage class. When he took over the helm of Dell storage seven years ago, he said Dell was simply OEM’ing products from EMC without a “vision of our own, we had their vision.”

Buoyed by its PowerVault offering and aggressive role in development of the product, Dell decided to acquire EqualLogic to possess iSCSI midrange storage capabilities and dramatically shift its storage focus toward growing intelligent data management tools, including thin provisioning, deduplication, storage tiering, etc.

“What’s been driving my acquisition strategy is the midrange storage space…there are so many new ideas that are coming up that are interesting, I don’t think it’s fair to say we’ll ever be done,” remarked Thomas.

One area where Dell is getting high marks for its churning acquisition pace is ensuring that customers already running products from vendors that it has acquired are not ignored once the deal closes, and that it won’t slice-and-dice the technology piecemeal for its own purposes while discarding existing products it has no use for.

Brad Blake, CTO of Boston Medical Center, said Dell’s methodical and calculated acquisition strategy has been perfectly suited to the hardware company by playing up its strength as a commoditizer of technology, rather than spending time, resources, and pain developing it from scratch.

“Some of these companies make these acquisitions and they just destroy the technology. I’ll put HP and IBM (NYSE: IBM) in those buckets,” said Blake. “Dell has done such a great job of architecting, building and supporting hardware. These guys are better off in that commodity space and let someone else go and figure out the [development] aches and pains.”

Blake, who runs Dell PowerEdge servers and Dell Equallogic boxes in his iSCSI SAN environment, does not consider the failed 3PAR bid a black eye on the company.

Forrester’s Reichman disagrees, and said Dell has simply bought “the garnishes” of a comprehensive storage portfolio with its recent Ocarina and Exanet purchases, but still lacks a core storage technology story to woo new customers to the business.

“Right now they’re not a viable vendor to grow with. They don’t have anything in their portfolio that convinces me they’re for real,” said Reichman. “They have a long way to go in terms of technology and leadership to be able to talk to and convince buyers they know what they’re doing.”

Brian Fonseca is a seasoned communications expert with over 10 years of experience as a technology journalist for major IT trade publications including Computerworld, EWeek and Infoworld. His primary areas of news coverage and industry focus have involved storage, security and IT services. Before entering the world of IT, Brian worked as a beat reporter for The Herald News in Fall River, Mass., and as a TV sports and news producer for Channel 12-WPRI/FOX-64 WNAC in Providence, RI. Brian holds a B.A. in Communications from the University of Massachusetts Amherst.

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