EMC, Dell Feel the Love

EMC Corp. (NYSE: EMC) and Dell Computer Corp. (Nasdaq: DELL) have extended their five-year partnership by two years -- a vote of confidence that indicates the deal is working out very well for both parties (see Dell, EMC Extend Alliance).

The companies, which signed their original agreement in October 2001, will now extend it through December 2008. Under the terms of the deal, Dell resells EMC products, primarily the Clariion midrange family, and has recently started manufacturing the low-end CX200 storage array (see Dell and EMC Do a Deal and EMC, Dell Keep Dancing).

Tony Prigmore, senior analyst at the Enterprise Storage Group Inc., says the deal extension reflects EMC's realization that Dell is its most efficient channel for selling into distributed, Windows-oriented environments.

"Right now, the energy it takes EMC to assist Dell in growing that business is a much better return than EMC figuring out how to do this with incremental partners, or by itself," he says.

EMC and Dell claim that -- in the 20 months since they hooked up -- they've landed more than 4,100 customers, including Brazil's Banco Santos, The Bombay Company, Computer Sciences CSC Ltd., Cox Communications Inc. (NYSE: COX), Mercedes-Benz, Precision Resource Corp., and Warburg Dillon Read (see Dell Plugs Cox Into EMC).The reaffirmation of the EMC/Dell partnership is all the more noteworthy because two years is a very long time in the technology business. And some analysts see some risk to EMC over the long run, suggesting that Dell may eventually start chewing into EMC's own accounts.

"What could have been EMC's revenues now are Dell's... Dell always squeezes their suppliers and comes out a winner," U.S. Bancorp Piper Jaffray analyst Dushyant Desai told Byte and Switch last month (see Dell's Even Sweeter on Storage).

But EMC officials note that, while the company generates less absolute revenue for each system Dell sells, its margins are actually higher. And, in this case, actions speak louder than words: EMC's obviously feeling happy enough with the Dell deal to extend it for another two years.

However, there's also the danger that EMC will further alienate its other reseller partners by getting cozier with Dell. "Withinthe channel we continue to see some backlash resulting from EMC's increasing reliance on Dell, with several contacts indicating an increased emphasis on IBM Corp., Storage Technology Corp. (StorageTek), Network Appliance Inc., or Hitachi Ltd.," writes RBC Capital Markets in a research note on Monday. But the firm adds, "It would appear, however, that overall demand for EMC's products remains strong due to the growing Dell contribution."

Analysts say another outcome of the EMC/Dell recommitment ceremony is that it quiets speculation that EMC would divest itself of the Clariion line and that Dell would be the natural acquirer. "This agreement clearly puts ice on that logic," Prigmore says. "EMC clearly intends to keep the Clariion line."Todd Spangler, US Editor, Byte and Switch