By Dave Simpson
—Dell today announced a definitive agreement to acquire iSCSI specialist EqualLogic for a whopping $1.4 billion in cash. The deal is expected to close in the first quarter of next year.
The acquisition underscores the rapid rise in end-user demand for iSCSI-based IP SANs, but also raised questions about the relative positioning of Dell's iSCSI disk arrays, the arrays the company OEMs from EMC, and the EqualLogic line.
Dell officials were short on specifics, but the company is expected to continue with its iSCSI-based line of PowerVault disk arrays and to extend EqualLogic's PS family of arrays while eventually incorporating EqualLogic's technology into the PowerVault series.
For more information on Dell's most recent iSCSI product introduction, see Dell adds iSCSI disk array.
Dell is also expected to continue to sell the arrays it OEMs from EMC, although the EqualLogic announcement led a number of observers to question the Dell-EMC relationship in the long term. Officials from both companies said the acquisition would have no effect on that relationship. Dell resells EMC's Clariion AX150 (with iSCSI and Fibre Channel connections) and other low-end Clariion disk arrays.
"We see little near-term impact to Dell's relationship with EMC, though long-term implications are more uncertain," wrote Daniel Renouard, an analyst with Robert W. Baird & Co. Overall, Renouard viewed the acquisition as "positive (though expensive) given the potential for go-to-market synergies within Dell's server business."
Storage represents approximately 4% of Dell's overall revenues, and most of that comes from reselling EMC's arrays in the channel. And Dell represents about 15% of EMC's revenue (more than $2 billion), although most of those sales are multi-protocol (iSCSI and Fibre Channel) or Fibre Channel only, according to Baird.
The EMC-Dell OEM relationship began in late 2001 as a five-year deal, and in September 2006, was extended through 2011.
"Dell officials said that all the product lines fit and have different border lines, but I question that. There's a lot of crossover," says Andrew Reichman, an analyst with Forrester Research. "Dell's PowerVault line is not very differentiated, so I would expect that line to go away or to eventually incorporate EqualLogic technology in a merger of the two lines. The EqualLogic software stack, and also hardware features, is probably much better."
Reichman and other analysts also expect Dell to continue to resell EMC's disk arrays, at least in the short term. "But down the road, Dell might reconsider that relationship," says Reichman.
Dell officials said they would sort out the exact positioning of the various iSCSI products within 60 to 75 days.
In addition to praising the ease-of-use of EqualLogic's products, Dell officials praised EqualLogic's positioning in the VMware space, which plays well with Dell's server virtualization strategy. (EqualLogic's iSCSI arrays were certified with VMware last year.)
The acquisition announcement occurred while EqualLogic was preparing for an IPO.