Earlier this year, EMC looked set to extend its lead in the high end storage market. In no small part that was due to its close and profitable relationship with Hewlett-Packard (HP) - something that is now abruptly coming apart.
The two companies renewed their Symmetrix reseller agreement in January for a further three years and the omens were good. EMC accrued more than $700 million from HP customers in 1998, and between November 1995 and the end of the third quarter last year, the relationship generated more than $1.3 billion in revenue for EMC.
Then the sniping started and the relationship went sour. In early May at a conference in New York, HP's Marilyn Edling, general manager of HP's enterprise systems group, said HP was getting into bed with EMC's direct rival, Hitachi Data Systems (HDS), to develop high end open storage products and strategies. She was scathing of EMC's technology.
"We believe EMC's Symmetrix will be an ageing architecture. We believe HP's new product [HP SureStor E Disk Array MC256] will do it better, and we have real doubts whether Symmetrix can achieve the highest levels of reliabilty," said Edling. This is despite the fact that HP incorporated Symmetrix into its '5 nines: 5 minutes' programme, its strategy for providing 99.999 per cent uptime.
Some commentators said the reason for the very public rift has less to do with the functional capabilities and reliability of Symmetrix, than EMC's refusal to let HP put its own nameplate on the systems, to customise and support them. That's an important consideration for company investing heavily in storage, aiming for the top spot and used to making big money from long term support relationships.
"EMC wants resellers, HP wants to OEM, but EMC's business model is always to deal through partners," says Claus Egge, IDC's senior storage analyst.
He adds: "EMC knows every single HP Symmetrix client and it did not allow HP to do the maintenance and support. EMC always wants to own the customers. The companies need to decide formally where they go from here."
Michael Ruettgers, EMC's CEO, told CNBC/Dow Jones in mid May that HP sales represented only 13 per cent of revenue in the first quarter 1999 and he confirmed the iron grip that EMC keeps on its Symmetrix business.
"Something like 90 per cent of the sales calls that HP makes are made in conjunction with our people...once a product is sold to the customer, we do all the installations and servicing," he said.
HP's new MC256 array is based on the Hitachi array, badged by the HDS subsidiary as the 7700E, but HP has incorporated new connectivity and features designed to appeal to its own users. The enterprise box will compete directly with EMC's Symmetrix and it will be sold directly and through selected channels, one of which is Comparex Information Systems, one of only two European distributors of Hitachi mainframes and storage systems. The other is HP's new partner, HDS.
According to the Boston based Aberdeen Group, HP may continue to resell EMC disk arrays under its current contract with EMC, "but both EMC's products and strategic direction are now in indirect conflict with HP's Enterprise storage business unit."
The report continued: "Sales of EMC disk arrays on HP servers, either through HP, directly by EMC itself, or by joint EMC-HP distributors, probably account for over 20 per cent of EMC's revenue. And EMC products may account for more than 50 per cent of HP's storage systems revenue. HP's actions cut right to the heart of both HP's and EMC's 1999 business operations - and provide users with two strong, viable choices."
Can HP and EMC continue to flourish without the other's significant input? Egge believes that they can.
He said: "They are telling us that they can do the business directly, and EMC drives its people very hard. They have hired the salespeople and we will see them pushing into those HP accounts. EMC does not expect its revenue to decline."
Again, Ruettgers told Dow Jones: "We think the relationships we have with the [HP] customers is very strong and we won't see the impact of this transition."
And should HP be taken seriously as a high end storage player without EMC's support? Egge believes there is no doubt. HP announced in May that it is investing over $50 million on a European initiative to grow its share of the storage market, reflecting the core importance of storage in any IT deal.
Storage can account for over 60 per cent of the total solution and there's big money to be made from ongoing support, maintenance and strategy management.
"It's not the hardware or even the software bill, it's the services that can be sold in the future," says Egge.
He adds: "Yes, HP should be taken seriously. It is known for adding value and the HDS product is already proven in the high end environment. It has all the attributes of a industrial strength mainframe storage subsystem. HP now has a product that can be sold comprehensively to its client base and its hands are no longer tied."
If there is one company is enjoying the spectacle of an HP-EMC divorce, it is IBM. Big Blue's high end storage division was a right royal mess in the early and mid 90s, and EMC trampled all over its customer base.
Pragmatism intervened eventually and IBM turned to its old rival, Storage Technology, for the Iceberg product which it badges as an IBM Ramac. That relationship terminates next year and IBM says it is now ready to go it alone with Shark, the codename for its next generation system, due sometime this year.
"We compete directly with EMC and HDS," says Don Lewis, IBM's European regional sales and channels manager. "And we will compete with HP. One good thing to emerge from this, I hope, is that HP customers recognise the storage decision should be entirely separate from the server decision."
IBM's OEM business today is hugely successful and it sells technologies to any number of partners, including a $16 billion contract with Dell Computers and disk drives to EMC.
The two high end storage competitors cemented their existing relationship in March when they announced that IBM is supplying EMC with storage components in a five year $3 billion deal that will lead to more custom work and cross licensing.
EMC's Mark Fredrickson, EMC's director of public relations said the deal included provisions for further cooperation, "and we have agreed in principle to look at mutual business opportunities."
No details yet on what those opportunities might be, but Lewis is adamant that IBM and EMC won't do a StorageTek. He said, "the OEM contracts rubber stamp our technology, and yes, we are collaborating with EMC at the technology level - but we compete vigorously...we are still bitter business rivals."
"IBM is very good at developing and manufacturing disk drives at price EMC is willing to pay. There's certainly something going on in joint design and development, and there are moves within the industry to develop very intelligent disk drives, so it might be in that area," says Egge.
He adds: "There are rumours that IBM and EMC will get closer but I don't see any real evidence for that. IBM claims it will have the Shark family fairly soon and it's poured a fair amount of investment into it. EMC must have a competitor and IBM wants to be seen in that role. That said, the deal with Storagetek surprised me and if an IBM-EMC deal is announced tomorrow...well, it happens."
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