Changing channels

In the hyper-competitive storage market, it seems that one vendor’s pain is another vendor’s gain. We’ve heard from three market sources recently that Dell’s largest-ever acquisition — its $1.4bn purchase of EqualLogic — has hit some difficulties around defections and uncertainties from the SAN vendor’s existing channel partners. Resellers who pushed EqualLogic’s offering in the past are worried about being crushed by Dell’s powerful direct-sales machine, as has happened to some of Dell’s ‘partners’ in the past.

Based on the recent numbers posted by rival SAN vendor Compellent Technologies, there may be something to those concerns. Compellent, which recently signed up its 1,000th customer, said second-quarter sales surged 74% to $21m — which is about what they were for the first two quarters of 2007 combined. (The performance, along with the forecast for profitability for the rest of the year, helped spark a 20% rally in the company’s shares over the past month.) At a recent investment banking technology conference, Compellent CEO Phil Soran told us he’s looking to poach EqualLogic’s channel partners. We’ve heard similar plans coming from rival storage player Lefthand Networks.

How well Dell is able to balance the sales channels for EqualLogic will go a long way toward determining how much of a boost the acquisition will give to its emerging push into storage. Already, the return on EqualLogic is made more challenging by the fact that Dell bought it literally at the top of the market. The day that Dell announced the acquisition, the Nasdaq hit a level it hadn’t seen since early 2001. (The index is currently off 14% since then, after having dropped as much as 23% from its early-November highs.) To make its high-priced acquisition of EqualLogic pay off, Dell is going to have to work hard to keep its new SAN rivals from siphoning off channel sales.

6 thoughts on “Changing channels

  1. Well all acquisitions go through a transitory phase. And of course the DELL (almost entirely direct) buy of EqualLogic (100% Channel) was going to be an issue.
    However I believe form the numbers I have seen publicly, DELL has signed on vastly more channels since the acquisition than either Compellent and Lefthand combined have managed to ‘poach’.
    And at time of acquisition I believe EqualLogic was in the several thousand customer mark – gee can’t imagine how many have been added now. And what Compellent is at what? 1000 ! Gee…so what.
    There are always going to be naysayers I guess and teh investors in Compellent and Lefthand need to talk up their lot I suppose…

  2. On behalf of Dell, I’d like to respond with the facts. In Q2 alone, more channel partners closed business with Dell EqualLogic offerings than in any quarter in the history of EqualLogic – – and that doesn’t count the collaboration outside of our Americas region.

    We are seeing a larger and more diverse set of partners closing business. In fact, fewer than 10% of EqualLogic former partners have opted out but, in turn, Dell has seen an 84% growth of partners certified at top level to sell EqualLogic.

    While there are misperceptions about Dell remaining in the channel, we’re working hard to put them in the history books by developing loyal Dell partners — and that includes quickly addressing issues as they arise. Thanks for the opportunity to tell our side.

  3. At time of the announcement of acquisition by Dell (Nov. 2007), Equallogic had almost 5000 customers world wide. Revenue was close to $200 Million. This was 5x the number of customers that Compellent has now. (they just announced the 1000th customer in July of 2008, 8 months after the Dell announcement). Compellent is on target to close maybe $100 Million in revenue (at a LOSS) for fical year 2008. Equallogic closed 2007 with almost $200 Million at a profit.

  4. Steven — I think you’re being a bit ambitious in your assessment of EqualLogic. I don’t know what financial statements you’re looking at but final S-1 has EqualLogic q1-q3 2007 (up to takeout) at $90m in sales. YTD it had doubled sales, so if we figure that continued in q4 2007, it would leave full year sales at $140m, a fair distance from your $200m target. Also, EqualLogic had never — not once — turned a profit.

  5. Well, that is under the assumption that growth of Q4 was only 2x the previous year. I’m willing to concede at $150M publicly.

    However, your statement about profitability is wrong.

    Looking at the final S-1A submitted for numbers through Q3-2007, Net Income in a positive number was reported for June2006, December2006, and sept.2007. event in June 2007, it was an “almost” profitable business with being negative only 360k.

  6. Sporadic profitablity is NOT sustained profitablity. (Witness, the $50m+ in accumulated deficit at EqualLogic.)

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