Dell Expands Beyond NT Storage Market

Dell Computer Corp. is buying its way into the heterogeneous storage area network (SAN) market.

Dell Computer Corp. is buying its way into the heterogeneous storage area network (SAN) market.

Earlier this month, Dell announced an agreement to acquire San Jose, Calif.-based start-up ConvergeNet Technologies Inc. ( for $340 million.

A relatively new entry to the storage market, Dell previously focused on storage associated with Intel-based servers loaded primarily with Windows NT. Dell says ConvergeNet’s technology extends its market reach from the Windows NT-attached storage market into the RISC territory of Unix-attached storage and heterogeneous SANs.

"The ConvergeNet technology combined with Dell’s efficient, low-cost business model will mean our customers can get leading-edge data-center storage solutions at values unseen before in the industry," said Michael Lambert, senior vice president of Dell’s Enterprise Systems Group, in a statement.

Dell is positioning the acquisition as a way to become one of the top three storage vendors in the world and as a means to broaden the market it addresses with its year-old line of PowerVault tape, disk and SAN products. The company cited figures from IT market research firm International Data Corp. (IDC, sizing the new combined market it can address at an estimated $38 billion in 2002.

Dell’s plans are a tall order for ConvergeNet, a two-year-old, 130-employee company with about $30 million in venture capital and no shipping products. ConvergeNet has been secretive about its product plans and was set to unveil its vision for a storage domain management solution next month.

John McArthur, program director for storage system research at IDC, says the companies’ combined efforts will produce a storage server along the lines of IBM Corp.’s Enterprise Storage Server, which optimizes a RISC-based processor for storage serving. Such technology moves intelligence off an application server and out of storage hardware.

"Once they complete the products and bring them to market, Dell has an opportunity to sell off platform, so they’re no longer constrained by the Dell server business," McArthur says. "It allows them to compete both for server and storage business as commodity products while capturing the real value in storage systems and data management."

One of the largest challenges McArthur sees for Dell is succeeding in shepherding the technology from the lab to the market. "Dell’s never been a big owner and/or developer of technology. This is probably the largest technology acquisition that Dell has made," he says.

Overall, McArthur says, "This should be viewed as an investment. [Dell] should be viewed as serious about their commitments."

IDC research published earlier this year placed Dell seventh in overall disk storage system revenue with nearly $1 billion in sales for 1998. An IDC forecast for 1999 has Dell leapfrogging Hitachi America Ltd. to gain sixth place. Dell trails Compaq Computer Corp., IBM Corp., EMC Corp., Sun Microsystems Inc. and Hewlett-Packard Co.

Dick Watts, president and CEO of ConvergeNet, will become vice president and general manager of Dell’s storage systems division. He will report to Lambert.

The deal has Dell exchanging about 6.9 million shares of common stock for all outstanding shares and options of ConvergeNet. The transaction is expected to close by early November. The board of directors at both companies have approved the deal.