Dell-EqualLogic creates challenges

Posted on December 01, 2007

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By Charles King and David G. Hill

Dell is nearing completion of its acquisition of EqualLogic, which it described as “a leading provider of high-performance iSCSI SAN solutions uniquely optimized for virtualization.” After completion of the transaction, Dell officials say the company plans to grow EqualLogic’s successful channel-partner programs with current and future EqualLogic-branded products and will incorporate the company’s technology into future generations of its Dell PowerVault storage line.

The Dell-EqualLogic deal is interesting for a number of reasons. For one, it’s Dell’s largest acquisition. In addition, Dell is primarily known as a server company and yet it is buying what many would consider a niche storage company. As such, the deal seems somewhat at odds with Dell’s ongoing partnership with storage leader EMC.

Concerning the first issue, Dell is buying into a hot market for iSCSI SANs, which provide lower costs, easier maintenance, and simpler management of storage networks than is possible with Fibre Channel SANs, all of which is especially appealing to small and medium-sized businesses (SMBs)-the sweet spot for Dell’s server business.

Larger enterprises are not excluded from the iSCSI party, but existing Fibre Channel users are not likely to switch over technologies entirely. iSCSI currently plays a peripheral role for larger companies that will grow in importance over time. However, although the market for iSCSI is expanding rapidly, it is hardly a gold mine. EqualLogic claims to have about 15% of its sector, but simple math suggests that iSCSI will likely drive total revenues far south of $1 billion during 2007. Nevertheless, the iSCSI market is forecasted to do very well over the next few years, so the acquisition seems a wise move. But EqualLogic’s $1.4 billion price tag suggests that more than one suitor may have been vying for the company’s hand.

What is Dell getting for its investment? EqualLogic is one of the leaders in the iSCSI SAN market and its PS (Peer Storage) series products have been well-received. Technically, the product has strong capabilities for storage pooling and tiered storage architectures. These include the ability to assign a different service level to each application, the ability to mix different types of RAID groups in the same array, and performance load-balancing. EqualLogic’s PS can also handle virtual segmentation by, say, different departments using the same SAN disk array.

Despite all this functionality-and other software and hardware features-EqualLogic also delivers ease of use. In addition, the company’s solutions map well with Dell’s traditional strengths among SMBs and its strategic focus on virtualization. (EqualLogic was the first iSCSI vendor to be certified by VMware.)

On top of its strong product set, EqualLogic has more than 3,000 customers and more than 400 channel partners, as well as a strong management team. All in all, while Dell may have paid a premium, it is acquiring a strong young leader in what may be the storage arena’s premiere emerging market.

That is not to say that Dell will not face a number of challenges related to this acquisition. The first comes in how Dell plans to integrate EqualLogic’s products within its own PowerVault line. Since Dell is not noted for its storage leadership, the purchase validates Equal- Logic’s R&D and vision. That means Equal- Logic’s technology should be thoroughly absorbed into Dell’s PowerVault storage line, or the deal has been for naught. The two companies collectively have the expertise to achieve this integration, but given the still-nascent nature of the iSCSI market, exactly how existing Dell customers will transition to EqualLogic-based PowerVault products is uncertain at this time.

The second challenge is how well Dell manages the independence of Equal- Logic. If this acquisition were strictly a technology deal, then Dell might simply absorb the assets of EqualLogic, move the employees it wishes to retain to Texas, and wish the rest a happy vaya con Dios. However, EqualLogic is an independent storage vendor in the sense that it sells storage not only to companies that use Dell servers, but also to Hewlett-Packard, IBM, and Sun server customers. In this sense, Dell is faced with the same question that Sun faced after the acquisition of StorageTek: As a server company, how will Dell successfully manage a storage company that sells to many of its competitors? This conundrum includes how Dell will manage the channel that has been crucial to EqualLogic’s success. Given Dell’s track record with the channel, this may be a considerable issue.

The third challenge is how the deal might affect Dell’s relationship with EMC. Although all partnerships have their ups and downs, the Dell-EMC collaboration has been a positive one for both companies. Dell has offered EMC a reliable conduit to SMB customers, and EMC has provided Dell a wide range of world-class storage solutions, including iSCSI arrays. Even though the overlap is not one-to-one, EqualLogic’s PS series does indeed compete with EMC’s CX and AX series, meaning that Dell will have to decide carefully when and where EqualLogic substitutes for, or complements, EMC.

There is a danger here for both companies. As an ally, EMC brings a lot to the table, including deep pockets and a great deal of savvy in product and market development. As a competitor, Dell has a formidable history of doing what it needs to win. To forestall any potential conflicts, Dell may say all the right things about its EqualLogic acquisition, but actions speak louder and more clearly than words. Although we expect the partnership between Dell and EMC to continue, a marriage of convenience rather than one of equal commitment would likely be a waste for both companies.

All in all, while EqualLogic offers Dell a number of notable and unique opportunities, the company has a lot to sort out. Paying the $1.4 billion bill is simple enough, but getting full value for the money spent and ensuring the deal does not injure or confuse valuable partners and customers is likely to be far more complex.

Charles King is a principal analyst at Pund-IT Inc. (www.pund-it.com), and David Hill is an analyst with the Mesabi Group (www.mesabigroup.com).


Recent iSCSI product announcements

By Dave Simpson
LeftHand Networks has added two network storage modules-the NSM 2060 and NSM 4150-to its iSCSI lineup, claiming Fibre Channel-level performance and capacity on the 4150 and a low entry price for the 2060. Both storage devices come with the company’s SAN/iQ clustered storage software, which provides a number of software applications at no additional cost, including thin provisioning, snapshots, distributed clustering, synchronous and asynchronous replication, “network RAID,” and volume migration and cloning. SAN/iQ runs on standard x86 platforms and virtual servers.

Company officials emphasize the role of LeftHand’s iSCSI clusters in virtual server environments, which are sometimes plagued by performance bottlenecks and the need for high availability in shared storage configurations. According to John Fanelli, LeftHand’s vice president of marketing, about 40% of the company’s customers (and about 30% of its installed base) purchase their iSCSI products specifically for virtual server environments.

“Server virtualization is driving iSCSI SAN adoption,” says Fanelli. “Virtualization is the ‘killer app’ for iSCSI.”

The 2U NSM 2060 is available in three six-drive configurations: a 1.8TB version with 15,000rpm SAS drives ($19,000), and 3TB ($15,000) and 4.5TB ($18,000) configurations with high-capacity SATA drives.

The 4U NSM 4150 is available in three 15-drive configurations: a 4.5TB version with 15,000rpm SAS drives ($40,000), and 7.5TB ($32,000) and 11.25TB ($38,000) versions with SATA drives.

LeftHand claims to have installed more than 7,000 systems and currently has about 250 VARs in North America and Europe.

StoneFly, a subsidiary of Dynamic Network Factory (DNF), recently began shipping two new IP SAN devices-the ISC-801 and HSC-1601. The ISC-801 (Integrated Storage Controller) supports eight drives for up to 4TB of capacity, while the HSC-1601 (High-availability Storage Concentrator) supports 10Gbps Ethernet, clustering, hardware-level mirroring, and 16 drives for a total capacity of up to 16TB with 1TB SATA drives.

Both systems are based on the Stone- Fusion operating system, which provides centralized storage management, control, and monitoring. The software supports VMware and Xen virtual environments, and applications such as mirroring, snapshots, and asynchronous replication.

The ISC-801 is priced from $13,000 for a 4TB configuration, while a 2.4TB version of the HSC-1601 is priced from $20,000.

Reldata recently introduced a version of its multi-protocol gateways that supports 10Gbps Ethernet. The model 9240 10GbE Unified Storage Gateway supports SAN, NAS, and WAN replication. The gateways are based on the RELvos Virtualization Operating System, which includes replication, snapshots, and data migration functionality. Pricing for the 10GbE 9240, including all software, starts at $42,500. (A 1Gbps Ethernet version is priced from $34,500.)

At the Microsoft ASP.NET Connection 2007 conference in Las Vegas last month, iStor Networks showcased its recently introduced integraStor line of iSCSI subsystems, which include software functionality such as snapshots, continuous data protection (CDP), and high-availability features. The iS325 supports up to 15 SATA drives and can be configured with four or eight 1Gbps Ethernet ports or one 10Gbps Ethernet port.

This month, iStor introduced the 2U iS512, which supports up to 12 SATA or SAS drives and either eight Gigabit Ethernet ports or one 10Gbps Ethernet port. The iS512 scales from 3TB to more than 80TB, and the company claims bandwidth of 890MBps for the iS512-08 version and 1,160MBps for the iS512-10 version. All of the integraStor systems are based on iStor’s GigaStorATX controller.

Sans Digital recently began shipping two new iSCSI subsystems-the rack-mount EliteRAID ER104I and MobileRAID MR4I, which comes in a tower format and is designed for portability. Both are four-drive (1TB SATA) units that can be expanded to eight drives with JBOD expansion units. The arrays support RAID 0, 1, 5, and RAID 6 for protection against dual drive failures, as well as dual Gigabit Ethernet interfaces.

Hoping to snag a few new VARs in the wake of the Dell-EqualLogic announcement, Hifn recently announced a new channel partner initiative-dubbed Fast Start Advantage-focused on its Swarm family of iSCSI appliances, which include features such as remote replication, centralized management, integrated backup, high availability, and built-in encryption for security.


Dell-EqualLogic deal raises questions

By Dave Simpson
Dell’s acquisition of EqualLogic, which is expected to close within the next month or two, underscores the rapid rise of iSCSI-based IP SANs, but also raises questions about the relative positioning of Dell’s iSCSI disk arrays, the arrays the company OEMs from EMC, and the EqualLogic line.

Dell 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.

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 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., in a report on the acquisition. Overall, Renouard viewed the deal 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. 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 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 the EMC relationship,” says Reichman.


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