EqualLogic deal puts Dell in iSCSI driving seat

Dell’s plan to buy iSCSI storage hardware specialist EqualLogic for $1.4bn may cause friction in a market dominated by resellers, but it is also likely to drive down the price of network storage kit for smaller enterprises.

Dell already manufactures an iSCSI array, the PowerVault MD3000i, aimed at small to medium-sized enterprises (SMEs). It also offers a range of re-badged Fibre Channel (FC) and iSCSI storage appliances, such as the Clariion AX-150i, which it sources from storage giant EMC under an original equipment manufacturer (OEM) agreement.

Praveen Asthana, Dell’s director of enterprise storage, said one of the main things that attracted Dell to EqualLogic is the latter’s PS Series iSCSI arrays, which are simple for IT departments to install, configure and manage. “One of the biggest pain points [for customers] is the storage back-end. We want to make sure we provide a simpler system because our current product set does not provide the ease of use we wanted,” he said.

Asthana refused to comment on what Dell will do with the EqualLogic product line, but it seems likely that it will build EqualLogic’s technology into its 1000, 3000, and 3000i PowerVault disk arrays. EqualLogic’s PS Series hardware could also form the basis of a new high-end PowerVault device.

Shrewd move
Ovum analyst Graham Titterington believes Dell is trying to leapfrog current storage technology and use its muscle to promote iSCSI, rather than FC technology, as the future of the storage area network (SAN).

“This is quite a shrewd move because the world is moving to all-IP networks, which remove the distance limits associated with FC for remote backup and replication, and cut the cost of SAN infrastructure, particularly in smaller enterprises that do have the enormous data volumes to justify a dedicated storage network,” Titterington said.

Dell expects to close the deal by the end of this year and is keen to stress that it will keep both EqualLogic’s brand and its well-established reseller channel.

“We want to reassure the channel, because we look at it as an important aspect to growing the business and reaching more customers,” Asthana said. “We already want to have more of a channel presence and this acquisition helps us jump-start that. We do not want to look like we are competing with resellers.”

Some analysts expressed surprise at the $1.4bn price tag, which they say is about six times EqualLogic’s recent annual revenues. EqualLogic has around 3,000 customers worldwide, including the Royal British Legion.

“It is an expensive buy, especially for a privately held company, but the timing is significant because Dell has just finished restating its accounts after earlier problems. So it may have collectively heaved a big sigh of relief and found itself with cash available for investment,” said Titterington.

Customer support

John Joseph, EqualLogic vice president of products and solutions, conceded that not all EqualLogic customers will welcome the deal. “Some people will think it is great because they will have a much broader set of options when buying servers, switches and storage. Others look at any change in the support infrastructure with a degree of scepticism. We are working hard with Dell to address those concerns and we expect EqualLogic’s current support quality to continue,” Joseph said.

“There will be some [customer] nervousness, but most will wait to see how things work out,” said Titterington. “Those that already have a Dell server infrastructure are likely to welcome the move because there is less scope for support arguments between different vendors. But non-Dell shops may have concerns.”

Resellers believe that Dell is likely to lower the price of EqualLogic arrays in an attempt to gain market share. If Dell does help expand the modest impact iSCSI technology has made on the SAN market so far, its OEM partner EMC may prove to be the biggest loser.

Terry Beale, channel manager for EMC UK, disagreed. He pointed out that EMC’s strength lies in FC-only arrays or the FC and iSCSI connectivity options included in EMC products like the CX3-10.

“There will be an element of [product] overlap but we do not particularly play in the PowerVault space ­ our strategy is to provide options within the box, both FC and iSCSI and NAS or iSCSI [not iSCSI only],” Beale said.

Nor does Beale believe the EqualLogic deal necessarily means Dell will favour iSCSI rather than FC going forward, or that iSCSI technology is guaranteed to steal the lion’s share of the SAN market from FC in the future.

“ISCSI will grow, but it is difficult to predict what will happen. ISCSI speeds are going up, but you have a combination of more data and the requirement to move data around, which is also going up at an exponential rate. If everything stays still, yes, you will have a crossover point [between FC and iSCSI] but can you guarantee performance? That is the big question,” Beale said.

EqualLogic resellers wary of Dell’s direct approach
Richard Blandford, head of EqualLogic reseller Fordway, gives his take on the deal
EqualLogic has a good distribution model and a very aggressive sales strategy. The range of fixed configuration iSCSI NAS appliances it sells can be clustered into much larger solutions for corporates, though we have not seen too many customers taking up that option.

EqualLogic fills in the bottom end of the EMC story – equivalent EMC arrays generally come in either Fibre Channel or iSCSI iterations but rarely both together. Also, Dell makes low-end arrays itself, and there will be some cannibalising of that.
As well as mixing Sata and SAS disk drives in the same storage arrays, EqualLogic has marketed itself very well as a back-end storage solution for VMware, and is also certified for Xen and Virtual Iron.

So there is justification for the Dell acquisition, but it is paying a hefty price tag. I’m staggered by the amount of money offered for the company, given that it is not especially profitable.

Dell’s reasoning is probably that SMEs are looking for consolidated storage options rather than direct attached storage. Dell can see the amount of disk drives it is selling in its servers is going down and it wants to sell NAS boxes to offset that.
Our biggest concern as a channel partner is that Dell is not a channel-friendly company, and EqualLogic’s success has been based on a strong channel partnership.

In the future, EqualLogic kit is more likely to be sold directly off the page and be priced far more aggressively.”

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