Cracks In The Dell-EMC Storage Strategic Partnership Widening

The recent strain in the strategic storage relationship between EMC and Dell seems to be rapidly turning into a break between the two as Dell, which at one time accounted for 10 percent of EMC's storage revenue, looks to be following its own road.

The fissure between the two storage allies widened on Thursday when Dell reported that fiscal third-quarter 2011 storage sales were up 7 percent year-over-year. At the same time, Dell also said its EqualLogic storage business grew 66 percent over last year.

Dell did not break out revenue of the other main components of its storage, including sales of its own PowerVault appliances, based on its PowerEdge servers, or its Dell-EMC line.

Even without the complete breakdown, it is obvious that the Dell-EMC relationship is in trouble, said Eryck Bredy, president of BNMC, an Andover, Mass.-based solution provider and long-term Dell partner.

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"It has to be a strategy of Dell to mention the 66 percent increase in EqualLogic sales," Bredy said. "You'd have to know the actual breakdown to get the whole picture, but it doesn't take a rocket scientist to see what's happening."

What's happening, according to solution providers and analysts, is that EMC and Dell are drifting apart.

Aaron Rakers, an analyst with research firm Stifel Nicolaus, wrote in a report after Dell released its third-quarter financials that the 66 percent growth in Dell's EqualLogic storage compared to a 7 percent growth in its overall storage over last year "notably reflects fracturing Dell/EMC relationship."

Jayson Noland, an analyst with Robert W. Baird & Co., wrote after the financial release that it appears that the EMC contribution to Dell's storage sales is fading. "At this point, we don't believe the EMC relationship is long-term salvageable," Noland wrote.

EMC originally signed Dell as a reseller in October of 2001, and for years Dell was EMC's largest reseller, at times accounting for about one-third of EMC's indirect channel storage sales.

Dell and EMC signed a five-year extension to their reseller agreement in late 2008, but strains between the two were already evident.

That strain dated from late 2007, when Dell unveiled a $1.4 billion bid to acquire EqualLogic, one of the pioneers in the fast-growing iSCSI business. Dell closed that acquisition in 2008.

Next: The Fissure Between EMC And Dell Widens

The strain widened to a crack this Summer when Dell made a bid to acquire another storage vendor, 3PAR. Dell eventually lost the deal to Hewlett-Packard after a short but intense bidding war, but not before the damage to its relationship with EMC was done.

EMC took a step back from its relationship as Dell moved to acquire 3PAR, said EMC Chairman, CEO, and President Joe Tucci at a meeting with analysts in October.

EMC's Clariion business was "obviously" affected by Dell's bid for 3PAR, Tucci said.

EMC and Dell are in discussions about how to restore their relationship, Tucci said. However, he said, it is important that the two make sure any agreement between them benefits both of them before their relationship returns to normal.

"Obviously, 3PAR was a setback in the relationship," he said.

EMC and Dell executives were unable to comment on their storage relationship.

However, David Frink, a corporate spokesperson for Dell, said in a statement e-mailed to CRN, "(I can) tell you that we value our relationship with EMC and believe that it will continue to be mutually beneficial. The CX family is doing well and we’ve recently launched the Dell-EMC data de-dupe and NAS solutions. As we build out our storage business, the nature of our relationship with EMC may evolve, but we’re in regular discussions with EMC on it. Secondly, (I) would say that EqualLogic is a high-margin solution."

The combination of Dell's acquisition of EqualLogic and its bid for 3PAR indicates that Dell has less of a need for its EMC storage relationship than in the past, and that means EMC no longer sees a reason to support Dell like it did in the past, said one solution provider who works with both vendors.

"Everybody has an agenda, from Tucci down to the sales reps on the street," the solution provider said. "EMC is all about getting the deal. If a partner sells EqualLogic, or even if it doesn't have right competencies, EMC will take the deal back."

Bredy, the Dell solution provider, said he cannot see how the Dell-EMC relationship can continue much longer, especially given how well Dell is doing with both its EqualLogic and its PowerVault storage lines.

"Dell is now able to stand on its own two feet," he said. "And EMC is capable of standing on its own. There's no reason for their strategic relationship."