EMC/DG Merger:The perfect match?

EMC swallowed an ailing Data General this week in a move that many analysts say will net the high-end network storage vendor a strong entry into the midrange storage market.

The $US952 million acquisition gives EMC access to DG's Clariion division, which makes midrange RAID and SCSI storage systems that complement EMC's high-end products. The deal also gives EMC access to DG's Non-Uniform Memory Access (NUMA) clustering technology, which EMC will try to incorporate into larger systems.

"Synergistically, the acquisition makes a lot of sense," says George Elling, an analyst at Lehman Brothers in New York. "EMC's strength is in the high-end storage business and DG's is in the midrange. EMC can really leverage its strengths to help DG."

What's in the Future?

Less clear is EMC's long-term intentions for DG's Aviion server division, which accounted for 45 percent of DG's $1.5 billion in 1998 revenue. Aviion Windows NT and Unix servers compete with products from Compaq, Hewlett-Packard and Dell. DG posted a loss of $154 million last year.

EMC last month reported second-quarter revenue of $1.29 billion, up 36 percent compared to the same quarter last year, and net income of $289 million, up 52 percent compared to last year. The company is the leading supplier of enterprise storage systems, which make it possible to centrally manage storage for different types of networked computing environments.

Besides strengthening EMC's product portfolio, the deal is also seen as a way for the company to change the market's perception that EMC peddles proprietary products. The company's FibreAlliance has been widely criticised as a proprietary measure to ensure that other vendors' Fibre Channel equipment works with EMC storage. Adding the Clariion storage equipment to the mix is seen as opening up the EMC architecture.

Product Synergy

In many ways, the acquisition is a boon for both companies. There is very little product overlap. DG's storage subsystems give EMC a broad span of Fibre Channel RAID and SCSI-based storage products. They also fit well with EMC's Symmetrix storage arrays for mainframe, Unix and Windows NT environments, says Dave Hill, an analyst at Aberdeen Group in Boston. DG's storage products, which range from 18G bytes to 2 terabytes in size, are pint-sized compared to EMC's storage products, which handle from 72G bytes up to 9.2 terabytes of data.

Although there is some product overlap in midsize Windows NT and Unix networks, the products are differentiated by function. DG's Navisphere for Unix and NT is designed for installing, monitoring, configuring and managing the physical characteristics of multiple Clariion Fibre Channel and SCSI storage arrays. EMC's products, on the other hand, are targeted at specific tasks, such as duplicating data, providing dual active volumes for processing and moving large amounts of data from one location to another.

With the exception of Clariion's Remote Mirroring Software, which allows data to be duplicated to local or remote NT or Unix sites, DG relies on third-party products to provide these functions.

An EMC spokesperson estimated that some EMC products, such as its volume replication TimeFinder utility and the Symmetrix Remote Data Facility mirroring product, will be made available on Clariion devices. EMC will continue to use the Clariion brand name for these software and hardware products.

An Odd Couple

While there is a lot of synchronicity in the company's hardware and software products, there are questions as to how EMC will integrate its service offerings with DG's products and whether there is any benefit in gaining control of the Aviion server line.

According to analysts, EMC's services model, although comprehensive, is pricey. Whether EMC will be able to move its all-inclusive model to the midrange market, which is unaccustomed to handholding and 24-7 monitoring, is questionable, Aberdeen's Hill says. But David Donatelli, EMC's vice president of new business development, insists that customers have been asking for lower-end services.

DG's Aviion server line also presents a quandary for EMC, which sells nothing but storage systems. It is uncertain whether the company will try to use the servers to take advantage of storage sales in the midrange market, as its competitors Compaq, Dell and Sun do, or if it will simply focus on using NUMA technology to make large storage clusters.

NUMA is a symmetrical multiprocessing architecture that is useful in the creation of large clusters -- 250 or more servers and storage subsystems -- exceeding the size of clusters that rely on message-passing architectures, such as Microsoft Cluster Server.

Mark Kelleher of SunTrust Equitable Securities in Boston echoes analysts on this issue.

"Although the company really does not want to be in the server market, it gains NUMA technology, which has clustering capabilities that can be transferred from servers to storage," he says. As part of the acquisition, EMC must hold on to the Aviion division for at least two years.

"That is, of course, EMC's goal -- to place intelligence down in the storage subsystem and make servers a commodity. They are going to need that type of technology to make large storage-area networks," Kelleher says.

While EMC's Donatelli says the company is particularly interested in NUMA, he notes that a number of Fortune 2000 customers ask for server options, too. The acquisition will let EMC take advantage of DG's investment and research in Intel processors, and sell servers to midrange storage customers that want to purchase from a single vendor, he says.

DG's Aviion server business will operate as a separate unit of EMC.

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