EMC, Dell Keep Dancing

Dell Computer Corp. (Nasdaq: DELL) announced Wednesday that it has begun manufacturing EMC Corp.'s (NYSE: EMC) CX200 entry-level storage array, which it will bundle with Oracle Corp. (Nasdaq: ORCL) or Microsoft Corp. (Nasdaq: MSFT) database software -- and sell for significantly less than EMC is charging for the same product (see Dell Starts Making EMC CX200).

Dell's version of the CX200 storage system, configured for two PowerEdge servers with three years of service and support, is available starting at $19,500 for 180 Gbytes. EMC is charging 28 percent more -- around $25,000 -- for the same base hardware. Both firms will add software to the system boosting the cost further.

The tale is a familiar one, as EMC's idea of "low cost" doesnt always match up to everyone else's. The baseline pricing for its recently introduced Clariion ATA system, for example, is 35 percent more if you buy it from EMC rather than Dell (see EMC Backs Clariion Into ATA).

Dell representatives say this is entirely the point of the deal. Dell’s raison d’être is to drive down the cost of manufacturing by running systems through its low-cost supply chain model and, consequently, to lower the overall cost for customers. The products it manufactures from EMC are no different.

Customers unable to afford SANs to date are the target market for the CX200. "The healthcare and education sectors in particular can’t afford expensive storage systems," says Dell spokeswoman Michelle Hanson, "but these prices should change that."EMC and Dell like to refer to the deal publicly as a "win-win" for both sides, but Byte and Switch has learned there is plenty of tension between the sales teams that could add strain to the relationship going forward.

A Wall Street analyst close to both companies says EMC was recently forced to restructure the percentage that its own sales executives receive from sales of Clariion systems, as the Dell dudes were getting more of the pie.

"This didn’t go down too well and was causing some rift between the EMC salespeople and their Dell counterparts," our source says. Previously, EMC sales staff got credit for 100 percent of the base hardware sale, but nothing for add-ons, such as service, support, software, and peripherals (HBAs and switches) -- which can often be a sizeable part of the ticket.

"In an apparent attempt to arbitrate this issue, EMC has recalibrated the quota allocation to 125 percent of that base hardware ticket," the Wall Street source adds. This has apparently alleviated the tension, for now.

Should it turn out that Dell sells significantly more CX200’s than EMC, analysts say, the storage giant may decide to outsource manufacturing of the whole Clariion product family to Dell. EMC and Dell representatives say only that they are exploring all possibilities.Dell currently cobrands the CX line it sells as "Dell | EMC" products. But it's worth noting that for the quarter ended Dec. 31, 2002, EMC says it sold approximately $200 million worth of Clariion hardware and software, and that about a third of that Clariion revenue came from Dell, the largest reseller of this product (see EMC's Q4 Stars Clariion).

And so far, Dell’s versions of the Clariion looks to be the more appetizing of the two. The new SAN bundle based on the CX200 includes Oracle9i database software or Microsoft SQL Server database software, plus VisualSAN storage resource management (SRM) software from Prisa, a startup EMC acquired last year. Dell officials say backup products from Veritas Software Corp. (Nasdaq: VRTS) and CommVault Systems Inc. will be added to the bundle over time. Meanwhile, EMC has yet to detail its plans for selling the CX200 (see EMC to Acquire Prisa, Finally).

Sales tensions aside, the partnership is clearing generating business for both companies. Since the deal was announced a year ago, EMC and Dell claim to have more than 2,500 new customers purchasing joint systems (see Dell and EMC Do a Deal).

— Jo Maitland, Senior Editor, Byte and Switch