Dell And EMC Exit Partnership Stronger Than Ever

While Dell and EMC may not be parting best of friends after ending their 10-year relationship two years before the latest agreement was to expire, they are both better off than when they became the IT industry's best-known odd couple. Prior to hooking up, EMC was a major player in the enterprise storage market, while Dell was a PC company best known for its selling expertise. Both companies had relatively narrow markets and primarily sold direct. During the partnership, Dell accounted for 8% to 9% of EMC's annual revenue, while EMC contributed approximately half of Dell's storage revenue. It was a multibillion-dollar relationship while it lasted.

Today, both companies have broader product and service portfolios, extensive sales channels and substantially larger addressable markets. A day after officially parting ways with Dell, EMC announced third-quarter 2011 results of $4.98 billion, up 18% year over year, with GAAP net income attributable to EMC jumping 28%. The company also stated that non-Dell channel revenues for the mid-tier was up 40% year on year.

Dell has transformed itself from primarily a storage reseller to a storage OEM, and its storage platforms grew revenue 15% year over year and now represent nearly 80% of its storage revenues and more than 90% of storage profits. Since the acquisition of Equallogic in 2008, Dell has grown its customer base seven-fold and has vaulted EqualLogic to the best-selling iSCSI solution worldwide. This February's acquisition of Compellent has resulted in more revenue and new customers in the first half of 2011 than Compellent had on its own in all of 2010.

Last week Dell leveraged another acquisition, Ocarina Network (data compression and deduplication software), with the DX6000G Storage Compression Node (SCN) for its DX Object Storage Platform. The company has invested more than $2 billion to expand its own family of storage products during the past three and half years and will spend another billion this year on a range of solutions. It states that with growth from acquisitions and new R&D, it sees itself on a trajectory to become one of the top three storage providers by 2014.

While Dell is no longer selling new Dell-branded EMC OEM storage products, including Clariion, Celerra and Data Domain, it will continue to provide existing Dell/EMC customers with Dell services and support. This will include capacity upgrades and software titles for as long as EMC also sells these upgrades, as well as provision of services and support for its customers through calendar year 2016.

According to the latest numbers from Gartner, the external controller-based disk storage market grew 11.6% year over year to $5.1 billion in the second quarter. EMC accounted for the lion's share, almost a third of the market and double that of its closest competitor, IBM. At just over 7% of the market, Dell was in sixth place, trailing the top two, plus NetApp, HP and HDS.

EMC and Dell are both better off because of the relationship, blogs Steve Duplessie, founder and senior analyst, Enterprise Strategy Group. "Dell learned the storage business and EMC sold storage to far off foreign lands (the SMB)--neither would have been able to do it themselves, certainly not in any reasonable timeframe. Both made a TON of money in the relationship. It’s about as win/win as it gets."

Neither should have any regrets, he writes, following the orderly breakup. "As soon as Dell bought Compellent [after it bought EqualLogic], the marriage become one of convenience. Both Dell and EMC ran around for the last year trying to take whatever they could out of the children they spawned together--Dell trying to get customers to leave Clariion for Compellent and EMC trying to make sure they stayed pure."