EMC Looks to Dell to Help Lower Production Costs

Hopkinton, Mass.-based EMC, the world's No. 1 maker of devices that store computer network traffic, on Monday confirmed it is exploring ways to expand the reseller agreement it signed with Dell last year.

"It is in exploration mode,' EMC spokesman Michael Gallant says. "Both companies have a lot to learn from each other."

While the key part of the agreement calls for Dell to sell EMC's mid-priced Clariion storage device, Dell wants to change the economics of the data-storage industry through the supply chain management and manufacturing techniques it used to become the world's No. 1 PC maker.

Component procurement and manufacturing are two key areas where Dell could help EMC lower costs as it struggles to recover profit margins that were once the envy of the industry, Dell and EMC officials say.

The relationship with Dell could prove crucial to EMC, which is battling competitor IBM in a pricing war for the high-end storage market. EMC lost market share last year, and early indications show sales of its flagship Symmetrix device have not gone well in the first quarter, according to Wall Street analysts.

"Our channel checks have indicated that the number of large corporate storage deals have been few and far between year to date," Lehman Brothers analysts Harry Blount said Monday in a research note to investors.

Frank Frankovsky, senior manager of Dell's product management with EMC, says Dell is one of the largest buyers of the key components that go into EMC storage devices, namely standard disk drives and Intel microprocessors.

"Dell purchases more of those types of products than anybody else in the industry and we do it in a way with our just-in-time inventory techniques so that we can deliver it back out to the market at an extremely low cost," Frankovsky says.

EMC stumbled last year when its sales force pushed the pricey Symmetrix just as customers were slashing their information technology budgets. It is still early in the relationship, but EMC hopes Dell will generate demand for its mid-priced Clariion device, taking aim at Compaq Computer, the leader for mid-priced storage products.

EMC shares, which closed down 28 cents to $11.16 on Monday, are off about 17 percent this year.

Analysts polled by tracking firm Thomson Financial/First Call expect EMC to generate first-quarter revenue of $1.37 billion, according to the average estimate among 21 brokers. That compares with year-ago revenue of $2.3 billion.

Frankovsky reports that Dell is breaking through with the customers EMC largely ignored in years past.

"Over half of storage orders so far are coming from those areas where EMC had not been traditionally strong in selling storage," he says.

Those areas include government and small and midsized businesses, he adds.

With additional reporting from Tim McLaughlin in Boston

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