In February 2011, Dell (DELL) acquired Compellent Technologies, Inc., a pioneer in virtualized storage. Looking back nine months later, are Dell customers better off? And are Dell shareholders getting their money’s worth? The following are my 3rd quarter grades for the acquisition.
Strategic Importance: A
If Dell shareholders are to get the return they want on their investment, the Compellent acquisition must play an important role in Dell’s strategic direction.
During Dell’s recent Q3 earnings call, Michael Dell led off by saying,
This is a new Dell. ... In Q3, our enterprise solutions and service business grew 8% to a record high $4.7 billion, and increased 13% excluding third-party storage hardware. Enterprise solutions and storage now account for 46% of our gross margin dollars.
Additionally, Dell-owned IP storage increased 23%, led by a new EqualLogic solution suite and Compellent Fibre Channel SANs. Clearly, the reshaping of Dell’s enterprise capabilities is critical to profitable growth, and nine months after the acquisition closed, Dell Compellent remains at the heart of this strategy from a storage perspective. I give Dell Compellent an “A” grade for strategic importance.
Architecture: A
Dell EqualLogic storage is hugely popular in medium- sized business for its performance, cost and simplicity. As a result, Dell built their EqualLogic acquisition into a billion dollar iSCSI storage franchise and market leader. To extend this momentum into larger data centers, Dell needs an enterprise storage architecture designed to win in the emerging cloud era.
I attended the last Dell User Conference where presentations, demos, and signs that generated sloshy sounds when you walked by, constantly reminded attendees the Compellent Fluid Data architecture had become the Dell Fluid Data architecture. It’s easy to see why Dell adopted Compellent’s architecture and branding. Fluid Data captures the disparate technologies - such as storage virtualization, deduplication, thin provisioning, and automated tiering – which we can expect to see integrated into a new class of cloud storage from market leaders in the future, so I give the visionary Fluid Data Architecture an “A” grade.
Synergy with other Dell Products: A-
Dell shareholders will maximize their investment if Compellent technology is amortized across other product lines, and other technology is used to beef up the Compellent line.
To that end, Dell announced the assets acquired from Exanet, now called the Dell Scalable File System, have been integrated into both the PowerVault and EqualLogic platforms in the form of the PowerVault NX3500 and EqualLogic FS7500. They’ve also said you can expect the Dell Scalable File System to be integrated into the Compellent platform in the future.
Dell believes compression and deduplication will become a pervasive feature across the Fluid Data architecture and, since the acquisition, Dell has been working to integrate their Ocarina technology into its line of storage products. In November, Dell announced the Ocarina compression capabilities have been integrated into Dell’s DX Object Storage Platform which helps users compress data by up to 90% depending on the file type.
Dell has openly talked about its plan to port the Fluid Data capabilities from the newly acquired Storage Center products, down to its EqualLogic products, and up to their newly announced clustered NAS products. They’ve retained almost 100% of the key talent from Compellent, and expanded the team from 500 to over 800, in order to make this happen. The probability of full integration is near 100%, and I give Dell Compellent an “A-” grade for synergy with other products.
Business Development: A-
The road is littered with great strategies, architectures and products that did not sell. The ultimate test for the success of Dell Compellent is developing new business.
According to Dell, the Dell Compellent line is now available through twice the number of channel partners, in more than 100 countries, and has been sold in more than 50; has a deal pipeline that increased by 4xto a total of $1.4B in the first half of 2011; and generated more revenue and customers in the first half of 2011 than in all of 2010.
With EqualLogic, Dell wrote the playbook for turning newly acquired storage IP into hundreds of millions of dollars of revenue from small and medium enterprises. It appears Dell is running the playbook with Compellent and will be equally successful in medium sized enterprises. I give Dell another “A-” for business development.
Areas for Improvement
This year my benchmark for Dell storage products is competency in small and medium enterprises, which resulted in Dell achieving all “A”s. But given Dell’s push into large enterprises, next year I’m holding Dell to a new, higher standard for delivering scalable systems which can handle Big Data, and for offering systems which are integrated into leading cloud frameworks. Next year, Dell will also have to show some success in large enterprises in order to earn an “A” grade.
The Bottom Line
The bottom line is this: Dell has already replaced a billion dollars of EMC revenue while establishing itself as an SMB storage market leader. Dell Compellent technology will play a crucial role in helping Dell maintain its storage growth trajectory by delivering more sophisticated solutions needed by large enterprises and cloud providers.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
