What Might Dell Buy To Beef Up Storage?

Channel interest in which storage vendors Dell might acquire is growing as solution providers watch vendors such as Broadcom, EMC, NetApp and Oracle scramble to acquire companies and technologies to help them build more complete offerings.

Solution providers are betting that Dell will expand beyond its hardware roots with the acquisition of a storage-focused software vendor, with CommVault commonly cited as a prime target.

Other storage software vendors such as Acronis, BakBone and DataCore, and even Sun Microsystems' hardware line, also are cited as possible fits as Dell looks for ways to restart the growth it historically enjoyed. Dell declined to discuss potential storage acquisitions.

Interest in whether Dell will expand via one or more acquisitions comes at a time when the IT industry is going through a consolidation phase, especially in the storage market.

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EMC and NetApp are locked in a war of words and dollars in their pursuit of data deduplication leader Data Domain. NetApp currently has a combination cash and stock offer of $1.9 billion on the table for Data Domain, while EMC is offering $1.8 billion in an all-cash deal.

Storage networking vendor Emulex is fighting a hostile takeover bid from Broadcom, which wants to combine the two companies' technologies to be prepared for an expected convergence of IP networking and storage.

Oracle is expected to close its acquisition of Sun this summer, giving it a complete line of storage and server hardware and software.

The fact that Dell was sitting on $10.1 billion in cash at the end of the first quarter and is talking about acquisitions also is fueling interest, said Jayson Noland, an analyst with Robert W. Baird & Co.

"Dell is strategically out of step with many of its competitors," Noland said. "But it has a lot of cash and a publically stated desire to acquire."

Solution providers said it's only a matter of time before Dell makes its move.

Dell already is a strong player in the storage market thanks to its acquisition last year of EqualLogic, its long-term relationship with EMC and its own line of storage appliances.

However, solution providers who work with Dell say that the vendor needs to become a software company in order to grow and take advantage of its hardware offerings, and that most likely means it will eventually acquire a storage backup software vendor.

Most of that talk is centered on a possible acquisition of CommVault, which, along with Symantec, is one of Dell's biggest storage software partners.

Next: The Odds-on Favorite: CommVault

CommVault, which gets up to 26 percent of its revenue from its reseller relationship with Dell, provides data deduplication technology tied to a complete suite of data protection software.

Greg Knieriemen, vice president of marketing at Chi Corp., a Cleveland-based storage solution provider, said there is a lot of speculation that Dell is interested in acquiring CommVault, but not always for the right reason.

Many analysts and channel watchers assume Dell might be interested in CommVault for its deduplication technology, Knieriemen said.

This perception stems from the focus on dedupe technology in the battle between EMC and NetApp over Data Domain, as well as from the recent introduction of a new dedupe appliance based on Dell hardware and CommVault software.

However, Knieriemen said, while dedupe technology from companies such as Data Domain and FalconStor work with any data-protection software, CommVault's dedupe technology only works with CommVault's Simpana software.

"With CommVault, you have to change the backup software to use its dedupe," he said. "That's not an easy thing to do. And while Dell's new CommVault bundle is creating a lot of buzz, to use it you need to implement CommVault for the backup."

A Dell acquisition of CommVault would carry some risk for both vendors, Knieriemen said.

Dell's close relationship with Symantec probably would suffer as a result. Another big CommVault partner, CDW, probably would end its CommVault relationship if such an acquisition occurred, based on CDW's cutting of its EqualLogic relationship after Dell bought that storage vendor, Knieriemen said.

"There are a lot of crazy things out there," he said. "Look at EMC and Data Domain, and how it would affect [EMC dedupe partner] Quantum. Or Cisco, which before its Unified Computing System [UCS] had a great relationship with HP, and now they're competitors. These kinds of relationships are breaking down."

Eryck Bredy, president of BNMC, an Andover, Mass.-based solution provider and Dell partner, called CommVault a good potential buy for Dell, which needs a strong software offering if it wants to keep up with other storage vendors. "But Dell and Symantec have such a good relationship," Bredy said.

Another solution provider, who preferred to remain anonymous, called CommVault a great acquisition target for Dell.

"CommVault is already a great fit with Dell's product line," the solution provider said.

Dell's relationship with Symantec would not be a factor in such an acquisition. "No matter who Dell buys, it will upset someone," the solution provider said. "Dell has its hands in everything."

An acquisition of CommVault would make a lot of sense, Robert W. Baird's Noland said. "It would be easy for Dell to digest and integrate," he said. "And it wouldn't anger EMC as much as if [Dell] bought a hardware company."

CommVault declined to comment for this story.

Next: So Many Potential Choices For Dell

While CommVault is the top contender as a Dell acquisition target, other names pop up on solution providers' shortlists.

But no matter who Dell acquires, it does have to look over its shoulder at its largest partner, EMC, Bredy said.

"Dell does not want to lose its existing relationship with EMC," he said. "If that happened, it would lose customer relationships. Dell wants to sell EMC product even at a 2 percent profit. Otherwise, Dell will see its revenue drop."

For those who think Dell needs to become a software vendor to grow, an alternative to CommVault is BakBone Software, a San Diego-based data protection software vendor.

A number of solution providers called BakBone a good fit for Dell, especially because, given its relatively small size, it would be an easier acquisition than CommVault.

Bredy said Dell might also buy a small software vendor or two to get other types of technologies to enhance its existing products.

For instance, he cited Burlington, Mass.-based software vendor Acronis, a developer of technology for rebuilding downed servers on other physical or virtual servers for migration or disaster recovery.

Another possibility would be Ft. Lauderdale, Fla.-based DataCore Software, which allows the ability to pool low-cost storage devices to run on a single server, a high-availability server pair or on a network of multiple servers. DataCore would add certain capabilities to Dell's EqualLogic product line, including synchronous replication, making it more competitive with HP's storage line, Bredy said.

The anonymous solution provider, who works with both EMC and NetApp, said that Dell is actually the best choice to acquire Data Domain.

"Boy, I wish they'd throw their hat in the ring for Data Domain," the solution provider said. "I really don't want Data Domain to go to either NetApp or EMC. Our concern is, will EMC be smart enough to leave Data Domain alone, like they did with VMware? Our guess is no, it would be too easy for EMC to make it part of their other technology. It's the same with NetApp."

Noland said Dell buying Data Domain would never happen. "There's just no way," he said. "It would be a direct attack on EMC."

Other possible storage acquisition targets of Dell, solution providers said, include San Diego-based disk and tape appliance vendor Overland Storage; Campbell, Calif.-based IP storage vendor ONStor; and Eden Prairie, Minn.-based SAN virtualization vendor Compellent.

Noland said there is also no reason Dell would limit itself to storage. Some of the potential Dell acquisitions on his list include handheld device maker Palm, Sunnyvale, Calif.; services providers Computer Sciences, of Falls Church, Va.; and New York-based Accenture.

Among networking vendors, Nolan said Dell could consider Seattle-based F5 Networks; Marlborough, Mass.-based 3Com; Force10 Networks, of San Jose, Calif.; or a smaller PC vendor to gobble market share.

Bob Venero, CEO of Future Tech, a Holbrook, N.Y.-based solution provider and Dell partner, said he would like to see Dell acquire a Unix provider, such as the hardware business of Sun, which itself is in the process of being acquired by Oracle.

"Unix is still a very strong player in the data center," Venero said. "If you took a survey of how many data centers have a Unix platform, I guarantee you it'd be 80 percent. If you want to run in the data center, you need to control as much of it as possible."

Next: Dell As A Buyer: Good Track Record So Far

Regardless of who Dell might acquire, the company has shown itself to have a good track record as far as acquisitions go since its purchase of EqualLogic.

Venero, who worked with EqualLogic before the Dell acquisition, said that Dell has brought credibility to EqualLogic and also helped scale its technology.

"If you look at the Dell/EqualLogic or HP/LeftHand deals, it's easier for smaller companies to grow as part of a larger company," Venero said.

The success of such acquisitions needs to be understood not only from an individual company or technology perspective, but also in terms of how they fit the buyer's strategy, Venero said.

He cited Dell's acquisition of EqualLogic, remote SaaS management vendor EverDream and remote IT infrastructure monitoring vendor SilverBack as examples of how to bring multiple technologies together as part of a long-term strategy.

"Dell is looking to be more of an enterprise player, and a player in the services business," he said. "[Those acquisitions] all help Dell in the services support and infrastructure and the enterprise markets."

The anonymous solution provider said Dell has done a surprisingly good job of keeping the channel in the forefront in the wake of its acquisition of EqualLogic. "We would hope Dell uses the same intelligence with whatever vendor it chooses," the solution provider said.