The Best Deal of the Year - Company Business and Marketing

Computer Technology Review, Oct, 1999 by Hal Glatzer

If any storage company can be said to have struck the best deal of the year, I think it's EMC, with its acquisition of Data General (DG). The market leader for mainframe-attached storage components, and for big network storage systems running under heterogeneous platforms, EMC is the dominant player in its field; but, paradoxically, it's also light on its feet. Dataquest analysts estimate that EMC enjoys almost a 50-percent share of the enterprise-scale storage market, while its closest rival, IBM, holds on to barely 30 percent. You don't beat IBM by sitting still.

Now, EMC has positioned itself for market dominance in Storage-Area Networks (SANs) by buying DG, a key player in midrange systems and a vendor that claims to have already shipped more than 90,000 disk arrays, representing over 6.5PB (6,500,000GB) of RAID storage capacity.

DG was one of the first companies to create and promote SAN installations, and has been among the most aggressive in pushing the concept. At industry expos for the past two years, DG and some hardware and software partners have set up working SAN demonstrations on the show floors. That, surely more than all the ecstatic talk and ink about some supposedly imminent "Year of the SAN," is what has convinced real-world customers that there might actually be a SAN in their future--and maybe sooner than they thought.

EMC's flagship product line is called Symmetrix, the architecture of which is based on its MOSAIC:2000 hardware and its Intelligent Storage Architecture (ISA) software. The Symmetrix 5000 family ranges in capacity from 35GB to multi-terabytes and specified to be centrally manageable, even when allocated across different hosts. EMC also offers an optional Symmetrix Data Migration Services (SDMS) for moving files off of what a spec-sheet pointedly calls "aging mainframe disk devices" and onto new Symmetrix systems.

Data General's flagship product line is called Clariion, which was the first commercial, large-scale SAN to offer end-to-end Fibre Channel connectivity. But DG hasn't rested, waiting for EMC to take charge. This past summer, while the acquisition was still under review at the Securities and Exchange Commission, DG continued to broaden its partner relationships.

For connectivity, it entered into an OEM agreement with Brocade Communications Systems, which will package Brocade's SilkWorm FC fabric switches with Clariion SAN solutions, and will designate DG as a worldwide authorized service provider for Brocade-branded products. The CLARiiON/ Brocade combo is specified to support Sun Solaris, IBM AIX, Hewlett-Packard HP-UX, and Windows NT platforms.

Speaking of platforms, DG also signed an agreement this summer with Fujitsu Computers, which will result in a Fujitsu FC SAN solution for the European market. Jim Dawson, VP of Clariion European operations, was quoted as saying: "All major players are making moves to ensure that they provide the storage architecture that corporate customers demand. A partnership with a high-end, server-focused organization like Fujitsu testifies to our market and technology leadership." That's not the sort of thing one usually hears from a company that's being bought out.

Unlike most acquisitions too, this one doesn't seem likely to merely subsume the target company under the buyer's banner. DG's president and CEO Ronald L. Skates sent letters to his customers in August, calling the deal "a pooling of interests"--an apt term for a merger that should cement the two companies' respective (and clearly valuable) market positions. If, as expected, it also coalesces their respective development efforts, the deal will yield products well positioned for the future of storage--a future when "capacity" will be less important as a system feature than "availability."

The deal surely looked good to the visored bottom-liners on both corporate boards, but their customers are likely to be winners too. They get a common sales and support environment and the prospect of upgrade and/or expansion paths that will be much more broadly scalable and powerful than either company probably could have delivered alone.

Sure, only time will tell if EMC and DG can do all this wonderful stuff, and do it well. But there's another winner in the deal, positioned to make it all pay off--and that's the employees. Even in this age of globalization and seemingly insatiable merger mania, don't discount the factor called "corporate culture" in making a deal work.

These are not startup, dotcom companies. EMC and DG were founded in the 1980s and still maintain their headquarters in the Massachussetts high-tech corridor west of Boston (EMC in Hopkinton and DG in Westborough). The New England entrepreneurs who established themselves along Route 128 and Interstate 495 tend to be more cerebral and more respectful of maturity and experience than their California/Silicon Valley counterparts. It's not that one style is better, but rather that the corporate cultures of EMC and DG are similar enough to make the transition a smooth one. That augers well for employees, meaning that managers will have an easier task consolidating assets, and that stockholders can expect a smooth ride. Lastly, and by no means least, customers should feel a high comfort-level from the people they deal with one-on-one.