EMC, Dell try to patch up relationship

BOSTON Tue Oct 19, 2010 3:34pm EDT

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BOSTON (Reuters) - Tech giants Dell Inc and EMC Corp are trying to repair a long-running business partnership that was damaged when one of them flirted with the rival of the other.

The trouble began in August when Dell offered $1.15 billion to buy high-end storage maker 3PAR, a competitor of EMC. Although 3PAR was eventually acquired by Hewlett-Packard Co, Dell's overture upset EMC CEO Joe Tucci.

"We are again in discussions to see if we could do something more meaningful and lasting," Tucci said. "Both companies would like to do that, but the key is it's got to be meaningful, and it's got to be lasting for me to tell you that it's back on track."

The relationship has been on a downturn for several years as EMC has reported a decline in the percentage of revenue it gets from Dell.

Tucci told investors on Tuesday that the move undermined the relationship through which Dell has resold billions of dollars of EMC's data storage equipment, mostly to small and mid-sized businesses.

"Dell went after 3PAR and obviously cooled things off," Tucci said in a conference call with analysts discussing the company's third-quarter results.

But the two tech giant are now trying to resolve their differences, Tucci said.

Dell spokesman David Frink said in a statement that EMC remains a key partner, noting that his company has started selling two new EMC product lines this year.

"EMC is a strategic partner and plays an important role in our storage portfolio," Frink said.

The stakes are high for EMC: In 2008, 11.5 percent of its $14.9 billion in revenue came from Dell. The company didn't disclose last year's data, except to say it was below 10 percent.

An EMC spokesman declined to elaborate on Tucci's comments.

In an industry once composed of small upstart companies where power is now increasingly consolidated in a few large players, one analyst said EMC and Dell will find a way to work out their differences -- at least in the short term.

"EMC is not going to risk all that business just because they got a little egg on their face," said Steve Duplessie, an analyst with the Enterprise Strategy Group. "I'm sure they'll get over it."

Although Dell failed in its effort to buy 3PAR, it is possible another deal could emerge to challenge the relationship between Dell and Tucci.

If Dell were to buy another direct competitor, or if EMC were to seek to go toe-to-toe with Dell in the server business, then all bets are off, Duplessie said.

"As long as it makes good business sense for the relationship to continue it will," he said. "But who knows?"

(Reporting by Jim Finkle, editing by Dave Zimmerman)

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