FRAMINGHAM 9 DECEMBER 2010 - Dell said Thursday it is in advanced talks with storage vendor Compellent Technologies regarding a merger that would call for Dell to pay $27.50 per share, or roughly $876 million, for the company.
The companies gave no assurances that a deal will be consummated, and said they do not plan to make additional comments "until an agreement is reached or discussions are terminated."
Dell's offer falls significantly below Compellent's closing share price on Wednesday of $33.65.
The storage market has been heating up of late. Earlier this year, Dell lost a bidding war for storage vendor 3Par to Hewlett-Packard, and last month EMC said it would pay $2.25 billion for Isilon Systems.
Companies around the world are ramping up spending on storage to handle exploding data volumes. Global disk storage systems revenue during the third quarter was $7 billion, growing by 18.5% compared to the third quarter last year, analyst firm IDC said last week.
The worldwide storage software market is showing momentum as well, seeing third-quarter revenue of $3.1 billion, an 8.7% jump over the same quarter last year, IDC said Tuesday.
Dell's intentions for Compellent came as no surprise to Forrester Research analyst Andrew Reichman. The loss of 3Par was "a huge motivating factor" for Dell to make a follow-up deal, he said.
"However, 3Par was a pretty proven, top-tier enterprise storage play," whereas Compellent has had a presence in the SMB market, Reichman said. Its products have are very good in terms of automation and ease of use, "but it has not really cracked the glass ceiling into the enterprise," he said. Compellent also has some overlap with Dell's own EqualLogic products, he added.
One big advantage Compellent has over EqualLogic is Fibre Channel networking technology. EqualLogic is iSCSI-only, Reichman pointed out. "Fibre is the enterprise standard. However, [Compellent] doesn't have massive scalability or massive performance."
Dell's deep pockets could potentially help Compellent engineers build out enterprise-grade functionality, he added. But it's an open question as to what will happen, since Dell "has not really been a visionary leader in storage," he said.
Overall, Compellent's road map may not see huge changes under Dell, he said. "The bigger challenge for Dell is whether they can independently sell storage to enterprises. It's not an easy thing to do."
To that end, Dell's relationship with EMC as a reseller of its high-end Symmetrix product as well as the midrange CLARiiON line will likely fade if the Compellent deal is completed, said Mark Peters, senior analyst at Enterprise Strategy Group.
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