Posted by Andrew Reichman on December 9, 2010
It’s no surprise that Dell is bidding on independent storage vendor Compellent as they are still licking their wounds from the loss of 3PAR in a head to head megavendor bidding war which ended with HP winning (?) at $2.4BB. Dell announced today that they have offered $27.50 per CML share, which equals around $876MM, and represents a discount of around 17% to the $33 CML was trading at when Dell first made the offer (increased significantly over the past couple of weeks by speculators anticipating such a deal). The discount is a surprise -- 3PAR and Isilon (bought by EMC for $2.2BB in mid November) had similar revenues, employee counts and customer counts, so I had thought that the $2BB mark was the going rate for established independent storage firms, but then, I’m not a financial analyst, so maybe I’m missing something there.
What I do know is that it is hard for Dell to say in September that they are willing to spend $2BB+ on a storage vendor, and then when they don’t win, to say that the EMC partnership and their EqualLogic products is all they need. EqualLogic has been a great product in the SMB end of the market and a big revenue generator, but hasn’t moved Dell into the realm of enterprise IT leadership that they so crave. The EMC deal has limited margin for Dell as a partner, and doesn’t establish them as a visionary provider with the chops to solve big enterprise problems. So, it’s no surprise that they felt they had to do something.
And, Compellent was the most likely choice partly because there aren’t that many options left for proven independent storage vendors. Compellent has offered a disruptive technology in the mid-range storage space, with a highly virtualized product. They were the pioneers in block level automated tiering, which is getting a great deal of attention from the big vendors like EMC, HDS, IBM and others, as well as having effective thin provisioning, unlimited snapshots, FC and iSCSI convergence, and probably most important, very happy customers and partners.
What Compellent doesn’t offer is big enterprise credibility. They have traditionally targeted the SME (small to medium enterprise) segment, and have lacked the massive scalability, big IOPS performance and 5 9’s availability needed to get firmly into true enterprise environments. They have not been able to deliver N way scalability of their controllers, although their recently announced Live Volume product may help there, offering the ability to federate control of data across multiple separate controller pairs. For Dell, with an established owned product in the low end of the market, this may be a problem. Compellent does bring Fibre Channel capabilities to the table, which enterprises generally still want and EqualLogic doesn’t (and probably won’t) have, but there is still big crossover with the existing product lineup and Compellent.
For Dell to make this deal successful, they will have to invest heavily in the roadmap of Compellent, to accelerate their path towards true enterprise capabilities, and in their own sales force to become better able to sell solutions that solve big hairy enterprise storage problems to buyers that are notoriously conservative. It’s a hard road to become credible in enterprise storage, one which 3PAR and NetApp have struggled with mightily over the years. Dell will have their work cut out for them to get there with Compellent, although it’s probably a better option than going it alone or with the EMC partnership. And, if the acquisition holds up as it stands today, then it seems that they are getting a pretty good deal on a company with great people, innovative products and strong customer/partner relationships.