By Manikandan Raman
September 8, 2010 3:25 PM EDT
After its failed attempt to buy storage firm 3Par, Dell could eye Brocade (BRCD), Compellent Technologies (CML) or CommVault (CVLT) as part of its efforts to boost its storage presence.
After a bidding war, Dell lost 3Par to Hewlett-Packard (HP), which agreed to buy the storage company for $2.4 billion.
Over the past several years, Dell has invested heavily in the IP and infrastructure necessary to provide customers with a comprehensive and differentiated set of storage solutions.
The expansion in storage space will help Dell to compete with bigger rivals such as HP and IBM in the complex computer systems and technology services market that offers higher profit margins than the traditional desktop and laptop PC market.
But, Dell's ill-fated dalliance with 3PAR could have harmed its relationship with EMC, which sells about $1.5 billion worth of product through its Dell channel, with about 80 percent or more being CLARiiON.
CLARiiON is a mid-range SAN disk array manufactured and sold by EMC Corp. A storage area network (SAN) is an architecture used to attach remote computer data storage devices such as disk arrays, tape libraries, and optical jukeboxes to servers so the devices appear as locally attached to the operating system.
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"With Dell telegraphing its intentions on competing more aggressively with EMC very clear, we are told by our industry contacts that EMC might consider de-emphasizing Dell in favor of its other channel partners while targeting the mid-range SAN market," ThinkEquity analyst Rajesh Ghai said in a note to clients.
Ghai said Compellent Technologies (CML) could be a strong beneficiary of Dell's failed attempt to acquire 3Par. Compellent serves the mid-market data storage market with relatively low-cost products.
The analyst added that though Compellent may not satisfy Dell's ambitions to play in the high-end SAN market, Dell may consider it as a defensive play in the event EMC decides to begin emphasizing its non-Dell channel in the future.
"CML is unlikely to prove as expensive as PAR, and the possibility of replacing its reseller margins on CLARiiON with CML's approximately 50% gross margins might be other reasons why CML might considered by Dell as a target," Ghai said.
Analysts value Compellent between $700 million and $1 billion, which would be a cheaper bet for Dell as it was willing to spend over $2 billon for 3Par.
Oppenheimer analyst Ittai Kidron said Dell, apart from Compellent, could also target buying Brocade (BRCD) or CommVault (CVLT). Kidron also said data warehousing players such as Teradata (TDC) and Netezza (NZ) could be alternative potential targets for Dell.
"We believe the recent consolidation activity in the storage space needs to be viewed in the greater context of data center consolidation and the growing importance of offering an integrated and complete end-to-end data center solution," Kidron said in a recent note.
"Thus, we expect Dell, which we view as weak overall within the enterprise, to continue to aggressively expand its storage presence and perhaps even venture into networking," Kidron said.
Shares of Dell were up 17 cents at $12.49 on Nasdaq.
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