Dell's 3Par buy could be shrewd

The $1.15 billion acquisition might open the door to new cloud computing revenue.

By TheStreet Staff Aug 16, 2010 10:52AM

business news from the streetBy James Rogers, TheStreet

 

Dell's (DELL) $1.15 billion acquisition of digital storage specialist 3Par (PAR) could be a shrewd move, opening the door to new cloud computing revenue.

 

Long touted as attractive acquisition bait, 3Par is seen as well-positioned for the shift toward cloud computing, which will force users to drive more efficiency out of their servers and storage. 3Par is a pioneer in thin provisioning technology, which allocates storage only when it is needed in an attempt to boost utilization rates.

 

The Fremont, Calif., storage specialist, which competes with EMC (EMC) and IBM (IBM), lists Verizon (VZ), Savvis (SVVS), Credit Suisse (CS) and the New York Stock Exchange (NYSE) among its customers.

 

The 3Par acquisition is not Dell's first foray into the storage space. The tech giant bought privately held Ocarina Networks for an undisclosed fee earlier this year and spent $1.4 billion on EqualLogic in 2007.

Storage remains a small part of the broader Dell empire. Dell's storage revenue increased just 4% year-over-year to $554 million during the first quarter, compared with overall revenue of $14.9 billion. EqualLogic sales, however, increased 21% compared to the prior year's quarter and Dell said that its storage product mix is delivering better margins.

 

Dell also sells storage via a deal with EMC but is clearly eying additional opportunities in the storage market. In a statement released before market open, Dell confirmed that 3Par's technology will sit alongside its existing PowerVault storage products, as well as offerings from EqualLogic and EMC.

 

"3PAR brings the same values of performance, agility and ease of use to higher-end, virtualized storage deployments as EqualLogic does for the entry-level and midrange," explained Brad Anderson, the senior vice president of Dell's enterprise product group.

 

The 3Par deal has been approved by the boards of directors of both companies and is expected to close before the end of 2010.

 

Shares of Dell, which reports its second-quarter results after market close on Thursday, were up 0.25% on Thursday morning to $12.04. 3Par shares shot up 86% on the news, to $17.92.

 

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