Dell's storage strategy has a hole to fill
EqualLogic's unequal status
Comment Dell's storage strategy is in a mess. While EqualLogic booms, its other products languish. The EMC-sourced CLARiiONs and Celerras are failing to deliver the revenue goods. This is the gloomy picture implied by Dell's results since the EqualLogic purchase closed in February 2008.
The latest results for Dell's third fiscal 2011 quarter show revenues of $15.4bn and net income of $822m, up 19 per cent and a massive 144 per cent from a year ago. Storage revenues were $543m, up 6.9 per cent on a year ago. But storage revenues represented just 3 per cent of total revenues in the latest quarter contrasting with the 4 per cent a year ago.
Also, Dell's latest results statement said EqualLogic revenues had grown at 66 per cent. So, hang on, storage segment revenues grew 6.9 percent, less than Dell as a whole, while EqualLogic revenues grew 66 percent. That means non-EqualLogic storage revenues fell, unless EqualLogic is a small part of the storage segment.
Stifel Nicolaus analyst Aaron Rakers said EqualLogic revenues were $163.9m in Dell's third quarter, 4 per cent lower than the second quarter ($170.5m). He also said non-EqualLogic Dell storage revenue (primarily Dell/EMC and PowerVault solutions) decreased approximately 7.4 per cent year-on-year and 16.4 per cent sequentially. Furthermore he said he believes that Dell's EMC storage contributes only 20 - 25 per cent of Dell's overall storage revenues.
This suggests EqualLogic revenues now account for 26.3 per cent – just over a quarter – of Dell's overall storage revenues, slightly more than EMC, and its growth contrasts with the implied poor performance of Dell's other storage products. Our suspicion is that the EMC-sourced storage arrays are simply not doing the storage business for Dell. Rakers is describing a fractured Dell/EMC relationship, and that is part of the reason Dell wanted 3PAR, to fix a hole in its storage product range above the EqualLogic iSCSI arrays.
Supportive evidence for this view comes from IDC's quarterly disk storage tracker published in September. It showed Dell in fifth place in the external disk storage sector by revenue – after EMC, IBM, HP and NetApp – with a 9.4 per cent share and a growth rate of 17 per cent, lagging the market as a whole which grew at 20.4 per cent. Dell is falling behind. Rakers characterised its latest, third quarter performance "as far below the overall storage peer group performance."
If this modelling is correct, then Dell's storage products are rescued from the doldrums by EqualLogic, whose growth has masked the relative poor performance elsewhere. Dell needs to fix this because EqualLogic revenues on their own can't make up the gap and the storage results will drag Dell's overall results down. EqualLogic is not equal to the task.
There is another implication: If Dell wanted to buy 3PAR to fix a hole in its storage product line-up, and failed, then it still has a hole in its product line-up and still needs to fix it. What is it going to do? ®
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