Dell announced 12/13/10 that it will pay $27.75 per share in cash for each share of Compellent for a total equity value of approximately $960 million, and aggregate purchase price of approximately $820 million, net of Compellent’s cash.
The following is Wikibon's initial analysis of the deal.
As expected, Dell announced this morning an agreement to acquire the outstanding shares of Compellent for about $820 million ($27.75/share) Dell was in a protracted bidding war with HP for 3PAR in August and September, and Wikibon wrote on September 22 that it believed HP a better fit for 3PAR. HP finally bought 3PAR for $2.35 billion. This time Wikibon believes that “Last of the Summer Wine” Compellent is an excellent fit with Dell, despite some product overlap and channel challenges.
Storage Market Dynamics
Wikibon quoted IDC figures to show that 2Q 2010 external storage market share for Dell was 9.4%, in fifth place behind EMC, IBM, NetApp and HP. After its purchase of EqualLogic, Dell was able to grow that company's annual revenues of $94 million to about $1 billion in two years while converting it from a VAR channel model to a direct model and continuing to invest in development. The EqualLogic product is iSCSI only, and despite aggressive marketing that iSCSI is “good enough”, it has not been able to break into the performance-sensitive database parts of the markets supporting SQL, Exchange, and Oracle, where Fibre Channel is king.
Compellent complements EqualLogic and shares the same low-cost support requirements. Dell’s direct model and extended reach should help Compellent break into the enterprise storage market. Wikibon believes that Dell should be able to grow the current Compellent annual revenues of about $163 million to $1 billion within two years, and Dell could be knocking on the door for second place in the external storage market.
The first decade of the millennium has seen the emergence of what Wikibon has termed tier 1.5 storage vendors, including:
- 3PAR (now acquired by HP),
- XIV (now acquired by IBM),
- NetApp (which powered its drive from a NAS vendor to a full function unified storage vendor),
- Compellent (Last of the Summer Wine).
All the 1.5 vendors focused on software functionality rather than performance, and all virtualized the storage on commodity hardware. The performance was “good-enough”, but the result of the virtualization was far quicker and easier implementation of advanced functionality such as thin provisioning, thinned storage (eliminating blank data), space- and controller-efficient snapshots, remote replication, and multi-protocol support. NetApp now offers de-duplication, compression, and read-flash caching as well. This advanced functionality has had the traditional performance-based architectures struggling to keep up, and often they only partially succeed, imposing significant restrictions.
However, the most important contribution of the 1.5 vendors is to have re-written the book on ease-of-use. 3PAR was a leader in the “click reduction wars” to reduce storage administrator effort. Compellent has taken this even further by eliminating the need for a storage administrator at all and offering built-in “hero reports” which show the saving of advanced functionality to the business.
Compellent’s Storage Center 5.4 is well architected and functionally rich. It supports, SAS, FC, iSCSI, native FCoE protocols, and both 2.5-inch and 3.5-inch disk drives. The controller hardware is based on the latest standard Intel based architecture. The software functionality includes:
- Storage Virtualization,
- Thin Provisioning,
- Dynamic Storage Migration,
- Data Placement Optimization,
- Continuous Snapshots,
- Snapshot Consistency,
- Remote Replication,
- Boot from SAN,
- Storage Resource Management,
- Automated Tiered Storage, and,
- Live Volume.
Two functions that Compellent has quietly implemented much quicker and effectively than any other storage vendor are:
- Automated Tiered Storage – which allows data to be migrated seamlessly from high performance to cheaper lower-performance disks at a very granular level (sub-LUN), and,
- Live Volume – which allows sharing of volumes between two Compellent arrays as both a local and “Metro” cluster, and seamless migration of volumes between these arrays.
Functions that Compellent has not implemented yet include:
- True real-time read-write flash-cache implementation, and,
- Secure multi-tenant capabilities.
Compellent will need to add these functions and others over time, and Dell will need maturity to allow both EqualLogic and Compellent to invest and compete aggressively and let Dell customers decide the right solution.
Wikibon expects the second decade of this millennium to be the era of "Big Data." Data will not be in traditional large silos but spread across organizations, partners, customers, suppliers, and the cloud. Traditional data center models of expensive storage hardware and even more expensive storage and database software will not survive. And, equally important, the OPEX costs of storage administration, environmentals, and other have to be brought down.
Compellent’s fundamental business model will comply with the imperatives of Big Data. The hardware is based on industry-standard volume components, and the software is bundled and aggressively priced. Wikibon has talked to many Compellent customers who agree that everything just works. Compellent accounts have no storage specialists, just IT generalists who try things out and are delighted when everything works as advertised. Wikibon has yet to meet an unhappy Compellent customer, and given that Compellent is well positioned to meet the needs of Big Data storage, IT storage specialists (and in the future database specialists) will need to transition to higher value services.
The only negative business impact of Dell’s potential purchase of Compellent is the likely reaction of the existing fulfillment channels. Not surprisingly they have a pathological dislike of the Dell direct model and are unlikely to assist a non-disruptive transition. Dell successfully managed a similar transition with EqualLogic.
Overall Assessment & Conclusions
Wikibon believes that the Compellent purchse is a good strategic fit for Dell. Unlike 3PAR, Compellent is not a pretender for Tier 1 storage and will not need the significant investment that 3PAR will require to achieve that status. Compellent is much more closely aligned with future Infrastructure 2.0 trends of low CAPEX and OPEX within the data center and with the Big Data trends both inside the enterprise and service provider data centers.
Action Item: If Dell completes the purchase of Compellent, CIOs and CTOs should actively encourage the adoption of Compellent and similar storage solutions with low OPEX requirements.