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Dell: Play it Again Sam

By Drue Reeves | August 31, 2010 | 1 Comment

OK, most of you might think this is crazy, but Dell should raise their bid for 3Par one more time. Why? Isn’t this madness? Isn’t HP already overpaying for 3Par with their latest $2 Billion USD offer?

Yes. HP is overpaying. In fact all of the bids have been too high. As Bob Barker would say on the “Price is Right” — YOU’VE ALL OVERBID. But, as I talk to those of us in the storage world, I realized something… the “overbid” ship has already sailed. And while the bids go from crazy to incredible, there’s something subtle going on here that Dell can turn into their advantage.

In karate, a smaller, less aggressive, yet skillful martial artists can use the size and aggressiveness of a larger opponent as a weapon to gain an advantage. The larger opponent is using so focused on pressing his size advantage that he forgets to anticipate the smaller opponent using his weight and inertia against him. Dell can do the same. From the beginning of the 3Par race, HP has been quick to counter Dell’s every move. At first, it seemed that HP was upping the ante just to mess with Dell…to make Dell pay more than they should for storage technology that could replace the revenue earned by reselling EMC’s VMax. (more on that in a sec). But now, after HP has repeatedly pounced on Dell’s every move, it feels like an ego thing. It’s almost as if HP is saying “3Par is more strategic to us than Dell and we’re willing to out spend anyone to prove that we’re a better technology company”.

If HP is truly “in it to win it”, then Dell should use that aggressiveness against HP by doing exactly what they did last time…match HP’s offer. 3Par would be crazy not to accept, because they know it would push HP even higher So, the table would be set for an ultra aggressive HP to bid again. Why is this a win for Dell? Well, let’s look at both potential outcomes.

1. HP raises their bid for 3Par above Dell’s offer (again). In this case, Dell should let HP have 3Par, but execute two additional strategic moves. First they should subtly cast HP as an ultra-aggressive, win-at-all-costs, drunken sailor spending company by explaining why Dell pulled out of the 3Par race. Dell can easily turn the tables on HP by saying something like “Dell has decided not to rebid for 3Par because doing so is not in the best interest of Dell’s shareholders. Dell wanted to leverage our customer scale to increase 3Par’s revenue, but even if we were to raise 3Par’s revenue 3 times what it is today, it would take almost a decade to see a return on our initial investment at 40% profit margins.” By saying this to the press, Dell would essentially be saying, there’s no way HP can make a return on their investment and may have won the 3Par battle, but just made a critical blunder in the IT tech war. Second, if HP acquires 3Par then HP has the same issue with HDS that Dell has with EMC. Currently, HP OEM’s their high-end storage from HDS. While we don’t know HP’s plans for 3Par, you can imagine that HDS won’t be happy about the acquisition and it could spell the end of the HP/HDS relationship. With the Dell/EMC relationship on the rocks, HDS might be an attractive option for Dell who — without 3Par — will be looking for an enterprise storage partner. HDS might be willing to deal more than EMC is on profit margin too. Another win for Dell.

2. Dell gets 3Par (i.e. HP doesn’t rebid). Then, Dell achieves what they set out to do. Dell get the technology they need to build an enterprise storage portfolio (perhaps more than they want to have paid for the storage company, but ultimately, they get it)…and they complete a risky, but strategic move. What do I mean? Dell has already tipped their hand with regards to their EMC relationship the moment they began bidding on 3Par. 3Par is a direct competitor to EMC’s VMax (Symmetrix) product — the very heart of EMC’s business. Everyone knows that Dell and EMC’s relationship has always been strained (even before the Equallogic acquisition), but now that Dell has gone after 3Par, the relationship is at an end. Dell is implicitly telling EMC that they want to go after the high-end storage array business, without EMC.Dell can’t go back to EMC and say “Hey EMC, you know that whole 3Par thing, we were just kidding”. That dog just ain’t gonna hunt.

I’m sure the media and pundits will say Dell overpaid. And, if Dell gets 3Par, then they did, but as I said earlier, that ship has sailed. Plus Dell can make the argument that they didn’t overpay too much since they simply matched HP’s offer. Plus, Dell has some bragging rights that they wrestled some key technology away from HP, which apparently, is much more important to HP than Dell.

Now, one could make the argument that Dell could go for option #1 right now. HP has already overbid and Dell making another bid is risky. True. But, if HP is as aggressive as they have proven to be, I think Dell can turn the tables and push HP just a little higher.

What do you think?

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1 Comment

  • This is a very interesting point of view. Your blog is refreshing, but I wish one could find more content, though. I am looking forward to reading more from you. Keep up the good work. thanks.