Dell's EqualLogic Buy Could Drive Down iSCSI Storage Prices
While EqualLogic has the technology, industry analysts suggest Dell has the manufacturing capabilities to build less expensive products that could eventually pressure rivals to lower their prices.
Dell's plans to buy EqualLogic, a specialist in storage area networks based on Internet technology, could eventually drive down prices for so-called iSCSI SANs, according so industry analysts.
In an unusual move for a company that specializes in commodity PCs and servers, Dell on Monday said it had agreed to pay $1.4 billion for fast-growing EqualLogic, eventually incorporating the latter company's technology into Dell's PowerVault storage line.
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"It's not characteristic of Dell to purchase outside companies," Steve Schuchart, analyst for Current Analysis, told InformationWeek. "Dell has not been big on the acquisition path in the past. It either partners for technology or makes it internally."
Nevertheless, if it was to make a billion-dollar-plus acquisition, then EqualLogic was the right choice. "In terms of companies they could have bought, EqualLogic is a great choice," Schuchart said.
Forrester analyst Andrew Reichman agreed. "It's a very good fit."
The reason is EqualLogic would give Dell technology that fits squarely into the small and medium-sized enterprise market, Dell's sweet spot in storage. Traditionally, SANs have been built mostly around Fibre Channel, a protocol used in equipment that's expensive and thereby affordable mostly to large corporations. Because ISCSI SANs are based on the Internet protocol, the equipment used to build the networks is far less expensive and are easier to manage and maintain.
EqualLogic has built iSCSI storage appliances that are based on a modular architecture that enables customers to easily add to the systems as their storage requirements grow, Reichman said. For managing storage, EqualLogic incorporates virtualization technology that provides a relatively simple way for customers to slice and dice disk arrays among business systems.
While EqualLogic has the technology, Dell has the manufacturing capabilities to build less expensive products that could eventually pressure rivals to lower their prices.
"Dell may be able to drive down the price even further with higher volume manufacturing, and by using parts from other product lines," Reichman said.
Falling prices and simpler deployment and management are among the reasons why the market for iSCSI SANs is expected to boom over the next few years. In the second quarter of this year, the market grew more than 57% year over year to $191 million, according to IDC. That double-digit growth rate is expected to continue, with the market topping an annual $5.1 billion by 2010.
Network Appliance currently leads the iSCSI SAN market, followed by EMC. But as a pure-play vendor, EqualLogic has shown strong potential, gathering more than 3,200 customers since launching its first products in June 2003.
Besides the market impact, Dell's latest acquisition could mark the start of tensions between the computer maker and its partner EMC. Dell helps the storage leader take its products to the SME market.
For now, that partnership is expected to remain strong, but if Dell continues to do more on its own, and rely on EMC less, then that could become a strain on the relationship. "Overtime, it could grow to be a problem," Reichman said.
Dell is not new to the iSCSI storage market. Earlier this year, the company released the PowerVault MD3000i, which is aimed at cost-conscious businesses looking to move from direct-attached storage to a centralized strategy using iSCSI.
Dell expects to close the acquisition of EqualLogic by the end of the year, or the first quarter of next year. The computer maker plans to continue EqualLogic's product lines, and expand its channel-partner programs.