Seeking Alpha
Research analyst, long/short equity, tech
Profile| Send Message|
( followers)  

Dell (NASDAQ:DELL) offers data storage hardware for medium sized businesses through its PowerVault brand and a through a partnership with EMC (NYSE:EMC) (Clariion & Celerra brands). Recently, Dell announced that its new line of PowerVault systems will incorporate Symantec’s (NASDAQ:SYMC) latest backup and de-duplication software Backup Exec 2010.

This is an attempt by Dell to capture the growing small and medium sized businesses (SMBs) storage market by providing a cost-effective integrated hardware and software solution. In addition to cost benefits, the integrated hardware-software product removes the inherent compatibility issues that can arise when hardware and software are purchased from different vendors.

Below we discuss the importance of the storage division for Dell’s stock and how this partnership has minimal impact on Dell’s stock price even if it can drive higher sales for Dell.

Storage Constitutes 4% of Dell’s Stock

We estimate that Dell’s storage division constitutes about 4% of the $17 Trefis price estimate for Dell. The major value for Dell comes from its Managed Services & Mobile PC businesses which together constitute 46% of the Dell’s stock price.

Dell-Symantec Partnership Can Drive Additional Revenue Growth for Dell’s PowerVault Systems

Dell’s storage revenue from its PowerVault and EqualLogic brands declined in 2007 and 2008 due to a combination of rising competition from EMC and NetApp and lower overall demand from customers during the recession. Demand for PowerVault among medium sized businesses in the second half of 2009 helped Dell’s storage revenues to register a modest amount of positive growth.

We expect 2010 revenues from Dell’s PowerVault & EqualLogic systems to improve slightly over 2009 levels and reach $780 million driven by SMBs making IT infrastructure upgrades. By partnering with Symantec, Dell is strengthening its PowerVault offering which can help drive higher storage hardware revenues.

Small Impact on Stock from Dell’s Storage Business

Due to the small contribution of Dell’s storage business to the overall value of the stock, increases in storage hardware revenues provide a small upside only.

If Dell storage hardware revenues were 5% higher than the current Trefis forecast, the impact of this growth on Dell’s stock price is as less as 1.5%. You can modify our forecast below to see the sensitivity of Dell’s stock to its storage hardware business.

Disclosure: No positions

Source: Dell Doesn't Have Much to Gain From Symantec Partnership