EMC Loses Ally in Rollins

Michael Dell's decision to retake the CEO reigns from Kevin Rollins has analysts wondering whether the move will affect Dell's partnership with EMC. (See Dell Replaces Rollins as CEO.)

Dell has co-marketed EMC's midrange Clariion storage systems since 2001 in a move that helps both companies battle common foes Hewlett-Packard and IBM. (See EMC, Dell Feel the Love.) The Dell-EMC partnership has financially benefited both, and the companies recently extended the deal five years to 2011. (See Five More Years.)

EMC CEO Tucci and Rollins often pointed to their close working relationship as one of the keys to the partnership's success. Tucci was a surprise visitor at Dell's Technology Day last fall as the companies extended their deal, while angry investors were calling for Rollins's head. If the Tucci-Rollins relationship was such a key to the partnership, there is a chance it will be weakened with Rollins out.

Goldman Sachs analyst Laura Conigliaro wrote a note to clients today wondering what Rollins's exit will mean for EMC.

"We question the extent to which Kevin Rollins exit from Dell will impact the EMC relationship which, to a large extent, was built on the strength of the relationship between [Tucci and Rollins]," she wrote.Dell makes up about one third of EMC's Clariion revenue and about 15 percent of EMC's total revenue. That translated into about $1.6 billion for EMC last year.

The core of the relationship is safe for EMC for now, thanks to the recent extension. But the deal is not exclusive, so Dell could explore other storage partnerships. It is already using a controller from LSI Logic's Engenio group for a low-end system launched in December. (See Dell, Microsoft Team on NAS-Plus-iSCSI.)

"Dell could well start to look elsewhere -- possibly even at small company acquisitions -- to expand its storage line beyond EMC," Conigliaro speculates.

Other analysts point out that Dell has more important problems to address. It lost its PC market share lead to HP in the fourth quarter of last year, and it has accounting and legal troubles. (See Dell Searches for a Lift and Dark Days at Dell.) With dark clouds like that hanging over the company, why mess with a silver lining?

One analyst who asked not to be named calls the EMC-Dell relationship "a marriage of convenience" and doesn't expect any changes soon. "The midrange storage business has been good for Dell," he says. "There is no reason to change all that immediately. But that doesn't meant it could not change in the future."R.W. Baird analyst Dan Renouard wrote in a research note today that Dell would benefit from maintaining not only the EMC deal, but its other key partnerships with Intel, Lexmark, and Microsoft.

"Any hiccups in these relationships could put Dell at a serious technical disadvantage," he wrote.

Dave Raffo, News Editor, Byte and Switch