3Par Buy Could Propel Dell Into High-End Storage Turf

The US$1.15 billion that Dell has pledged to spend for data storage vendor 3Par could turn out to be a wise investment if Dell is able to use 3Par’s assets — its product line and its sales and support staff — to carve out a position at the high end of the storage market.

Dell announced its intent to purchase 3Par on Monday. “This definitely seems like a good move for Dell because it puts them on equal footing — at least in terms of storage capabilities — with IBM and HP,” Gene Ruth, research director for storage with Gartner, told the E-Commerce Times.

“Dell still comes up a bit short in terms of large-scale backup and archive environments, but in terms of primary storage, Dell now has a pretty decent product line,” he said.

Building a Storage Line

Dell has been building its storage line over the past several years, primarily through acquisition, as a means of moving away from total dependence on PCs — which typically generate low profit margins — as a source of revenue, Ruth said.

Just last month, Dell agreed to purchase Ocarina Networks, a storage optimization company, for a price that still has not been disclosed. In 2008, Dell paid $1.4 billion to purchase storage area network supplier EqualLogic.

Those purchases gave Dell the wherewithal to meet the storage needs of small businesses and medium-sized enterprises. The 3Par acquisition provides an entree into the Fortune 1000, furthering Dell’s goal of securing higher-margin revenue streams, Ruth opined.

Seeking Higher Margins

“When you deal with enterprise-class customers, your margins are going to be higher than they are in a commodity-based marketplace like desktop PCs,” Ruth noted. “Dell is becoming better equipped to serve those enterprise-class customers.”

Serving enterprise-class customers also typically requires having consulting and systems integration expertise, which Dell acquired — at least to an extent — with its $3.9 billion purchase of Perot Systems in 2009.

Even with all its recently acquired assets, Dell still will have obstacles to overcome if it hopes to compete with the likes of HP and IBM at the high end of the storage market. Its chief obstacle could be the perception that Dell is efficient at assembling and delivering PCs, but it’s not necessarily good at supporting its products or developing new technology.

The EMC Partnership

“That’s always been an issue with Dell; the idea that they don’t have the trained staff to walk into a data center and go head to head with an HP or IBM,” Ruth said. “With the addition of 3Par, I assume they will pick up the 3Par folks, who presumably are experts in their product line, and fold them into the Dell sales and support staff.”

This acquisition also raises the question of what will happen to Dell’s partnership with EMC. Dell relied on that partnership, which involves Dell reselling EMC products, to make its initial inroads into the high end of the storage space.

“When you look at a full-service computer company like IBM or HP, they can go in and offer almost turnkey solutions to a data center,” Ruth concluded. “Dell couldn’t do that without the partnership with EMC. Now, with the 3Par acquisition, Dell is closer to being able to do that on its own.”