EMC Buys DG, Pushes into NT Storage - Company Business and Marketing

ENT, August 18, 1999 by Scott Bekker

With its $1.1 billion acquisition of Data General Corp. (DG, www.dg.com), EMC Corp. (www.emc.com) moves from the periphery to the core of the Windows NT storage market.

The companies announced the deal this month, which still requires stockholder and regulator approval. If all goes well, the union is expected to occur later this year.

EMC is the primary storage-only vendor. Other major vendors, such as Compaq Computer Corp., IBM Corp., Hewlett-Packard Co. and Sun Microsystems Computer Co., derive much of their storage sales from server sales.

Traditionally, most of EMC's sales were on the high end. The company seldom dipped into the Windows NT storage space. The company targets its Symmetrix Enterprise Storage systems at customers with Windows NT, but the price of the systems doesn't match the commodity orientation of the market for Microsoft's operating system. The pairing with DG's Clariion midrange storage line, however, gives EMC another route to the market.

"We lacked a product that matched closely to what customers wanted [in midrange storage]," said Michael Ruettgers, president and CEO of EMC, at a news conference. "We concluded that the best fit for the product that customers were asking for was Data General's Clariion products."

Ruettgers said the acquisition of Data General, which had $1.5 billion in revenue in fiscal 1998, wasn't necessary for EMC to reach its stated goal of $10 billion in revenue by 2001.

While much of Data General's midrange business is Unix storage, the company has a strong Windows NT presence, and Windows NT is critical to the storage industry. Research published earlier this year by research firm International Data Corp. (IDC, www. idc.com) indicates Windows NT will be the fastest growing platform for storage with a 30 percent compound annual growth rate from 1998 to 2002. IDC predicts that storage on Windows NT/2000 will have the largest revenue share of any platform by 2002 at 38.6 percent.

"We believe this allows us to increase our target marketplace by almost 40 percent. We believe our [addressable] market now is close to $50 billion [in 2001]," Ruettgers says.

For its part, Data General's products have a good reputation and are expected to benefit from EMC's aggressive sales tactics. The move also pushes the bifurcated company, with both storage and server product lines, in a direction many industry observers had urged them to go.

"We'll continue to have our server business, but the focus for our people going forward will be in storage," said Ronald L. Skates, Data General's president and CEO.

Dave Kelly, an analyst with Hurwitz Group (www.hurwitz.com), says the deal will probably be good for both DG and EMC customers. "Given EMC's strength in the marketplace, they'll be able to ensure continuation of the Data General product lines, which will be beneficial for the existing Data General customers. EMC customers will have a new potential set of products to select from," Kelly says.

EMC will run DG's Aviion business as a separate unit. Aviion sells servers and services targeted at enterprise Windows NT accounts, focusing on the nonuniform memory access (NUMA) architecture and vertical solutions for the health care market.

Jonathan Eunice, an analyst at Illuminata Inc. (www.illuminata.com), says Aviion could be difficult to integrate. "EMC is a very pure storage play. I do not understand where a server business fits in," he says.

Ruettgers says EMC will continue development within the Aviion unit. Regulations governing the deal prevent EMC from spinning off the Aviion unit for at least two years, and Ruettgers says the company has no plans to sell the business after that period.