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Dell Snatches EqualLogic from IPO Pipeline

Dell made a bold move into the SMB storage market today by coughing up $1.4 billion for iSCSI vendor EqualLogic — a move that could have ramifications for Dell partner EMC.

The move comes less than three months after EqualLogic filed for an IPO. EqualLogic has more than doubled sales annually since 2004. Enterprise Strategy Group analyst Tony Asaro said the company boasts more than 3,500 customers to date.

"I think it's a great move, right in your face," said Asaro. "The SMB market is massive, and no one owns it."

EMC, HP, HDS and NetApp have all made aggressive moves into the space as the high-end market has become saturated, but Dell's move just might be the biggest yet.

"I've got to place a lot of money on Dell," said Asaro. "They seem really committed to this. $1.4 billion says it all — it's extremely strategic to them."

Dell was quick to say that its relationship with EMC remains strong, but Asaro noted that the deal is a lost opportunity for EMC.

EMC's Clariion line "doesn't have that ease of use that EqualLogic has," said Asaro. "It's just so simple to use." And at more than 1.5 million IOPS when ESG tested it two years ago, EqualLogic boasts performance too. The deal also gives Dell a strong channel presence.

Praveen Asthana, Director of Storage, Dell Product Group, said the deal "is fairly complementary to our existing relationships," and he characterized Dell's partnership with EMC as "strong, fruitful and growing."

Dell recently launched the entry-level MD3000i, while its long-running partnership with EMC has been fruitful for Fibre Channel sales. EqualLogic's products will fit in the middle of that line.

Dell's biggest motivation for acquiring EqualLogic is to solve storage problems for server virtualization customers and to provide an end-to-end virtualization solution, said Asthana.

"Storage is the biggest pain point" for virtualization, Asthana said, and "iSCSI storage works the best for storage virtualization." Fibre Channel, he said, "doesn't map as well onto virtualization."

The deal is a big payoff for EqualLogic's venture investors, who had put $52 million into the company, although Asaro said he thought the company was already headed for a $1 billion IPO.

Greg Schulz, founder and senior analyst at StorageIO, wondered if there are more deals to come from Dell.

"They certainly have a large pile of money in the bank for acquisitions, and with their accounting issues hopefully behind them, it will be interesting to see if we see Dell embark on a shopping spree across not just storage, but other IT technology domains as well moving forward," said Schulz. "Dude, Dell just got EqualLogic, what else is on the holiday shopping list?"

The acquisition is expected to close early next year. Dell said it expects the acquisition to be dilutive to earnings by two to five cents a share for fiscal 2009 and fiscal 2010. The deal has been approved by the board of directors of each company and is subject to regulatory approvals and customary closing conditions.

After the deal closes, Dell said it plans to grow EqualLogic's channel-partner programs with current and future EqualLogic-branded products, and also plans to incorporate EqualLogic technology into future generations of its Dell PowerVault storage line.

In midday trading today, EMC shares were off four percent, while Dell traded down less than one percent.

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