Like all good partnerships the multi-billion storage area network deal between Dell and EMC aims to address both weaknesses and strengths, writes Karlin Lillington

Nearly a year into the partnership between computer manufacturer Dell and storage titan EMC, the prognosis for a mutually fulfilling marriage - at least for the five-year stretch of the prenuptial agreement - is good, say analysts.

In October of last year the two industry stalwarts - both highly independent companies that dominate their industry sectors, and both with significant operations in the Republic - agreed to a multi-billion euro deal in which they would jointly offer products and services into the storage and computer server market.

As often with partners from different backgrounds, each company found the other filled a gap in its own make-up, says Dell Ireland general manager Mr Tim McCarthy. "It's a complementary relationship for both parties."

The two companies are hoping their partnership will work to give them both a meaty piece of the fast-growing SAN, or storage area network market, which is expected to be worth $100 billion by 2005, according to analyst International Data Corporation (IDC).

Mr McCarthy says that at the moment, the market is worth $33.9 billion, and on its own, Dell estimates it could address about $13.3 billion of that market through its existing offerings.

But with the EMC partnership, the two could go after an estimated $29.1 billion of the market, he says.

Dell, which employs 4,500 people and has its European base here, comes to the table with broad market penetration. The company has a good foothold in the mid-range corporate market, the companies that buy lots of computers, including the powerful servers that run businesses' daily operations and bring high margins to Dell. What Dell hasn't had is an entrée into the very high end market, nor much to offer in the storage area.

EMC, with 1,300 employees and operations in Cork and Bray, dominates in the storage sector and typically targets big Fortune 500 corporations. EMC has concentrated on the high end of the market but to date has lacked the ability to push into the mid-range companies that comprise the real growth potential in the storage sector.

"Dell is enabling EMC to move into the markets which we really weren't having a conversation with," says EMC Ireland sales director Mr Tony Quinn.

Mr Quinn says the partnership has the potential to reap $500 million in new SAN revenue simply by selling into Dell's existing markets.

So the marriage is meant to address both weaknesses and strengths, say the companies. Dell and EMC will offer co-branded products that, on the hardware side, will be built to Dell's fast turnaround, just-in-time manufacturing model.

EMC will bring its storage business expertise and products. EMC hopes to move into lower levels of the market than is its norm, whereas Dell wants access to the higher end customers for its higher-margin products.

However, the two had nothing concrete to show from the partnership until this week, when they introduced the first offspring - a co-branded storage server, the Dell-EMC CX600, a large storage system that companies can use for data backup, video streaming or managing email. It has some of the features of EMC's higher-end Symmetrix servers, but not all the bells and whistles needed by really big companies.

At $98,000, it undercuts the pricing of rival products made by HP and IBM but remains a high-margin product, and signals an aggressive move into a new market area for both Dell and EMC.

The server enables Dell to enter the market at its favourite spot, the top of what it calls the "commoditisation curve", says International Data Corporation analyst Mr Stephen Meyer. The curve traces a long, falling line between the point at which a product is a proprietary technology and hence returns very high margins, and the point at which a product is so widely used that it becomes a low margin commodity.

"Dell's been constantly trying to move upstream in the server market. They are good at keeping margins high but have had trouble in moving upstream into back-end databases, for example," notes Mr Meyer.

"At $98,000, this server works with their model of picking up the market while prices are still very high, but keeping their costs low."

But why would two successful companies feel they need to form such partnerships, rather than opt for acquisitions or the mergers the industry has seen lately between giants like Compaq and HP?

Mr Meyer feels that looking for relationships instead suits both EMC and Dell, each a company that has been successful by focusing on its core strengths rather than trying to be all things to all customers. In this case, combining the strengths of both companies introduces more opportunities for both, without pulling either outside its area of expertise, he says.

The companies also need to build partnerships if they want to take on "big guns" like HP and IBM, with their broad range of services and products.

"Most companies need to ask themselves whether they're going to be in the area of technology branding, ownership or building," Mr Meyer says.

He offers IBM as an example of a technology builder, Intel as a technology owner, and Dell as a brander.

Dell is superb at branding, "but isn't perhaps the best at developing technology," he says. By choice, the company prefers to deliver the technology, not develop or own it. Thus, the match with EMC is a good fit.

Going forward, the two companies say they will work to further drive costs out of the manufacturing process, and are planning further co-branded products. Dell is particularly interested in broadening its reach into markets outside the United States, which now provides 70 per cent of the company's revenue.

Mr Quinn notes that through the partnership, EMC is now working with mid-size customers in the Republic that it wouldn't have had access to in the past, such as the Ordnance Survey, which holds all its digitised maps on Dell-EMC storage systems.

The two companies also say they gain a big advantage for the partnership from having their non-US bases in the State, and relatively near to each other in Limerick and Cork.

Bringing potential customers over to their executive briefing centres in Cork and Limerick is "proving extremely popular", says Mr Quinn. A bit of golf, a bit of craic, a bit of storage - now there's a partnership.