Will Dell Dive Deeper Into Storage?

NEW YORK ( TheStreet) -- EMC's ( EMC) $2.2 billion acquisition of Isilon ( ISLN) has set tongues wagging about the sector's next big storage acquisition, with Dell ( DELL), Cisco ( CSCO) and Oracle ( ORCL) touted as potential acquirers.

With the combination of servers, networking gear and storage seen as a must-have tech trifecta, some of Silicon Valley's biggest hitters are under pressure to bolster their product arsenals, according to Vanessa Alvarez, an analyst at Forrester.

Dell and Cisco, in particular, could be prime candidates for storage M&A.
Dell

"Dell really needs the last component to their converged infrastructure story; I could also see Cisco being a bidder for a storage company," she told TheStreet. Dell, however, is unlikely to jump into a bidding war with EMC over Isilon, and is still "licking its wounds" after losing out to HP ( HPQ) over 3Par ( PAR), said the analyst.

"I think that Dell could potentially go for NetApp ( NTAP) or Compellent ( CMP)," said Alvarez.

NetApp, she added, has been increasing the pressure on EMC with its network-attached storage products, while Compellent has been in the spotlight since the tug-of-war over rival 3Par.

Dell, whose storage business grew 14% year-over-year during the company's recent second quarter, has not yet responded to TheStreet's request for comment on this story.

Paul Mansky, an analyst at Canaccord Genuity, raised his Compellent rating from sell to hold Tuesday, but is skeptical on the prospect of M&A. "We continue to argue against a Compellent take-out," he wrote, explaining that Dell already has midrange storage from its EqualLogic acquisition, while HP has its EVA and 3Par products. Additionally, Mansky believes that there are plenty of compelling privately-held alternatives to Compellent such as BlueArc, Xiotech, DataDirect and PillarData.

Oracle, however, could be a more likely acquirer, according to Mansky, who cites Compellent's use of the ZFS file system developed by Sun Microsystems, now part of the database giant. A mitigating factor, however, could be Oracle's focus on high-end systems, he added, and Oracle has also indicated that its current M&A focus is on chip companies.

An Oracle spokeswoman declined to provide comment for this story.

Rumors that Cisco would make a storage acquisition, possibly buying EMC or NetApp, have swirled for some time, although, with a market cap of $43 billion EMC would not come cheap, and would pose big integration challenges for Cisco. At least for the near term, Cisco is likely to focus its energy on resolving the sales issues that emerged during its recent first-quarter.

Additionally, Cisco is already a close partner of EMC and its VMware ( VMW) subsidiary, so an acquisition could be both expensive and superfluous. A Cisco acquisition of NetApp would likely be cheaper, given the storage firm's $18.85 billion market cap, but would seriously complicate the networking giant's tight relationship with EMC and VMware.

Cisco has, however, moved into new technology areas in recent years, entering the server, video and consumer markets.

As for EMC and Isilon, Charles King, an analyst at research firm Pund-IT, believes that the two companies are a good fit. "The pair appears well-suited strategically,and both companies' individual products and broader strategies offer multipleleverage points," he explained, in a note released on Monday. "EMC's size, experience, resources, market penetration and industry leadership will offer the dynamic yet still immature Isilon what it needs to get to the next level."

EMC shares fell 47 cents, or 2.2%, to $20.98 on Tuesday, mirroring the broader retreat in tech stocks that saw the Nasdaq fall 1.72%.

--Written by James Rogers in New York.

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