By Rik Turner
This weekÆs announcement by Data General Corp of plans to spend some $100m building up a direct sales force for its fast-growing Clariion storage business (CI No 3,664) led to questions from some analysts. Why, they asked, if maximizing shareholder value is the boardÆs prime remit, doesnÆt the company sell off Clariion and distribute the proceeds accordingly? DG CEO Ron Skates explains that one quite simply. To sell Clariion, he argues, DG would have to sell a bevy of service engineers along with it.
So far, service isn’t something that DG has had to worry about on the Clariion side of its business, as its OEM partners have provided all the service required for the arrays bundled into their server offerings. Of course, that’s all changing. Having taken the decision to sell Clariion kit direct, DG will also now have to build its own service capability. These plans are quite advanced, with roughly a third of the 450 new staff DG plans to recruit destined to join the service and support unit, but there’s much work still to do.
In the meantime, disposing of Clariion would only be possible of DG was also ready to allow part of its Aviion server services arm to be part of the deal. That, says Skates, is hardly an option, with the services business already fully engaged supporting DG’s supporting Aviion customers, not to mention a lingering but profitable installed base of old Eclipse mini users. A reduced services arm could be built up again, but only at the expense of reducing the shareholder value of any Clariion sale.
So, if you can’t afford to sell it, why not profit by it? The decision to beef up its Clariion business, DG argues, gives it the chance to capitalize on what it claims is a significant technology lead in the full-fiber storage area network (SAN) space. Not the least of these may turn out to be Aviion/Clariion synergies which could boost server sales too.
Although DG plans to push Clariion products independently of any OEM or Aviion associations, it makes no secret of its hope that opening new Clariion accounts will, in turn, generate fresh Aviion business. It says that already in the UK, one major Clariion deployment at a Sun shop is now considering DG as a second source server supplier.
Joel Schwartz, senior VP and general manager of Clariion, has another take on the subject. He argues that, with DGÆs stock trading at very poor levels, even before this weekÆs admission of the need for several quarters in the red to finance the build-out of its Clariion direct sales, the company would have to sell the storage arm at a give-away price. Compared to the kinds of multiples at which storage market leader EMC is trading it, that would be very bad business, he concludes, particularly since EMC itself singled out Clariion as its most important competitor in its last 10K filing with the SEC.
If DGÆs $100m bet on Clariion pays off in, say, 18-24 monthsÆ time, pushing up the companyÆs stock price as the invigorated storage vendor eats into rivalsÆ markets, would it be prepared to sell then? Schwartz is ruling nothing out.
