Dell & EMC May Do NAS

After recording a 46 percent revenue increase from the SAN systems it sells in partnership with EMC Corp. (NYSE: EMC) last quarter, Dell Inc. (Nasdaq: DELL) is looking to expand the relationship into NAS.

Analysts say Dell will co-brand EMCs NS500G and NS700G NAS gateways, and the two might eventually consolidate their low-end NAS systems based on Windows.

Dell sells EMC Clariion SAN systems as part of a 2001 deal, but the two companies have kept their NAS lines separate (see Dell and EMC Do a Deal).

Neither Dell nor EMC would confirm or deny a pending NAS deal, but sources say Dell could begin selling EMC NAS gateways by mid-year. Considering Dell’s storage sales through EMC grew at more than twice the rate of its overall 17 percent revenue increase last quarter, it would make sense to deepen the relationship.

“We expect Dell and EMC to further expand their storage partnership in 2005 with Dell reselling EMC NAS products,” analyst Les Santiago of Piper Jafray wrote in a research note today.EMC sells integrated NAS systems, NAS gateways that connect to its Clariion and Symmetrix storage, and a NetWin family of Windows-based NAS (see EMC Challenges NetApp NAS, EMC Hits Hardware Refresh, and EMC Joins Rush to Windows NAS). Dell sells a PowerVault line of Windows-based NAS (see Dell Covers Its NAS).

Sources say Dell will rebrand EMC’s NAS NS500G and NS700G gateways, but not the NS500 and NS700 integrated systems. Analyst Paul Mansky of Citigroup Smith Barney wrote in a research note that he expects Dell to begin co-branding the NS500G by June and the NS700G next year. Mansky also expects Dell and EMC to consolidate their Windows-based NAS systems eventually.

“We expect a series of announcements and product repositionings in the coming months will expand the two companies’ relationship into the NAS market, with Dell consolidating its PowerVault N700 family around the low end while leveraging EMC’s NAS in the midrange and enterprise,” Mansky writes.

The deal would give Dell its first enterprise NAS products and expand a relationship with EMC that analysts estimate brought it around $1.5 billion in revenue last year.

EMC could use the deal to widen its NAS distribution channel in an attempt to win share from its major NAS rival Network Appliance Inc. (Nasdaq: NTAP). An arrangement could also push sales of EMC's Legato and Dantz backup software through Dell, perhaps at the expense of Veritas Software Corp. (Nasdaq: VRTS). (See New EMC Group Jabs Veritas and EMC Dances With Dantz).EMC and Dell could both benefit from an increase of Clariion sales as back-end storage for the gateways Dell sells. And the NAS deal removes the direct competition between the two at the low end, forged when EMC launched its NetWin110 for SMBs last May.

Bumping up NAS sales appears to be a major priority for EMC. Last month SAN switch vendor Cisco Systems Inc. (Nasdaq: CSCO) agreed to resell EMC NAS filers with its new wide-area file services (WAFS) appliance (see Cisco & EMC Close NAS Deal).

Dell did not address the NAS partnership on its earnings call today, but CFO Jim Schneider said Dell will offer iSCSI SAN arrays soon. Dell is expected to sell the entry level Clariion AX100 iSCSI system that EMC will announce next week, but not the midrange Clariion CX300 or CX500 IP SANs (see EMC to Serve Up IP SANs).

— Dave Raffo, Senior Editor, Byte and Switch