By William Fellows
Hewlett-Packard Co will reportedly begin reselling Hitachi Data Systems Ltd storage equipment in an OEM deal expected to be announced today as part of a rekindling of HP’s interest in the lucrative storage market. Storage sales are now reckoned to account for as much as 65% of the total cost of a system, which is presumably why HP is so keen to get its storage house in order.
The news, which confirms industry reports earlier this year that such a deal was in the offing, is a blow to EMC Corp, HP’s current high-end storage partner. Sales to HP customers will be worth some $1bn to EMC this year out of the company’s projected revenue of around $5.1bn. HDS recently announced a plan to begin selling storage area network solutions that it calls Freedom Data Networks comprising its high-end 7700E storage arrays together with a slew of third party routers, hubs and switches. HDS wouldn’t comment on a Wall Street Journal report about the deal, but HP’s billing its product launch in New York today as stress free storage.
EMC told Computergram that it has been making extensive preparations for the time when the HP relationship would fall apart. Indeed it was more than a year ago that HP told Computergram it was re-evaluating all of its reseller and OEM relationships, including storage. That set the alarm bells ringing at EMC as well as Data General Corp, another of HP’s storage suppliers.
EMC believes it can make more money selling directly to HP customers than under their current agreement, and that its attach rate to HP systems will rise once its own sales force gets on to the job. Brokerage Merrill Lynch & Co thinks that in the worst case EMC could lose 20% of $200m of its HP business. Although HP and EMC recently signed a three-year extension of their agreement which dates back to 1995, EMC says the terms were non-binding and that any deal HP strikes with another storage supplier at the high-end will enable it to break the terms of its agreement and sell directly to HP customers. Although HP will be able to sell both product lines, if it is prepared to strike a deal with HDS, then in all likelihood it will sell HDS kit in favor of EMC storage. It says that in any case all Symmetrix systems used by HP customers have sold out of EMC and are serviced and supported by it. EMC says that an HP-HDS deal on storage reminds it of IBM’s dwindling partnership with StorageTek for Iceberg and other disk array technologies. EMC says HP had wanted to re-brand Symmetrix as its own but that EMC, trying hard to build a franchise, refused. It says it had previously tried both models through an OEM deal with NCR Corp and a reseller arrangement with HP that became its predominant third party business model. Customers didn’t want the OEM flavor, it claims.
Meanwhile, the WSJ report suggests HDS has committed 150 people to work with HP on storage sales. The deal will be a significant boost to HDS, which the WSJ says has been losing market share to IBM for some years. HDS is reckoned to have about 2% of the $30bn worldwide storage market.
