EMC Hears Dell's Footsteps

SAN FRANCISCO -- Shares of EMC (EMC) tumbled on news that one of its largest customers may soon become one of its largest competitors.

Computer giant Dell (DELL) announced plans Monday to acquire data storage gear maker EqualLogic, signaling its intention to develop homegrown data storage products rather than reselling EMC's as it does now.

What's more, the $1.4 billion price it paid for EqualLogic underscores Dell's aggressive approach to sell storage gear to small and mid-sized business, which have been a fast-growing segment of EMC's business.

EMC shares were recently down $1.07, or 4.4%, to $23.48 amid a selloff in the broad market. Earlier Monday, Goldman Sachs analyst Laura Conigliaro downgraded the stock, citing primarily valuation concerns, as well as possible competition from the Dell announcement.

EMC shares have doubled in the past seven-and-a-half months.

Over the last year, Dell has become one of the biggest buyers of EMC equipment. At the end of the June quarter, Dell accounted for about 15% of EMC's total revenue, up roughly 11% a year earlier.

Both EMC and Dell said that their relationship remains intact and that the EqualLogic storage gear won't replace purchases Dell makes from EMC. In 2006, the two companies extended their relationship through 2011.

But the deal will put the two squarely in competition for customers on the lower end of the market.