Editor’s Note: Last week the SiliconANGLE team met and decided to introduce a new format for our readers called “The SiliconANGLE.”  Since our founding in the middle of 2009, there is one thing that SiliconANGLE has become known for – a unique angle on key news, trends, technologies, and companies.

Now we are introducing “the SiliconANGLE” story format. One that combines all the angles into one post. It includes not just the news, but the news, opinions, analysis, and overall impact to users. Our goal is to get all the angles covered on the most important stories around social science and computer science such as tech angles, business angles, market facing angles, and more importantly society angle. The “SiliconANGLE” is the business angle, technology angle, market angle, and social angle rolled up into one post.

Here is the “SiliconANGLE” on Dell’s acquisition of Compellent.

Sun founder Scott McNealy used to attack Dell saying that Michael Dell’s idea of innovation was the “W” on a keyboard, because that’s all he makes. What a difference a decade makes. In the past the ten years we are seeing an entire transformation of Dell,  focused on owning IT stacks and providing value added services. Dell announced this morning (12/13/10) that it will pay $27.75 per share in cash for each share of Compellent for a total equity value of approximately $960 million, and aggregate purchase price of approximately $820 million, net of Compellent’s cash.

What are  the  angles on this deal?

BusinessANGLE:

Compellent is a publicly traded company (CML Nasdaq) founded in the early 2002 by three storage industry fixtures: Phil Soran, CEO,  Larry Aszmann (CTO) and John Guider. The firm has a  revenue run rate of around $160M annually. Compellent’s flagship offering is software called Storage Center and  its value prop is to bring enterprise class storage to small and mid-sized  businesses, focusing on simplicity and low cost. The company’s philosophy has always been to eliminate the need to have specialized storage managers. All of Compellent’s major features are automated to reduce the cost of storage provisioning and management. Users and resellers love Compellent products because they are easy to support.

Why would Compellent want to sell to Dell?
According to industry experts, Compellent’s ability to grow into the enterprise is limited and  as such a sale at roughly $1B is more attractive to management and shareholders than competing as an independent publicly traded company. To compete deeper into the enterprise, Compellent would have to increase its sales channel bandwidth and R&D significantly.

As of friday CML’s market cap was $925M, slightly higher than the reported $900M that Dell had offered the company at the time. In weeks leading up to the  acquisition, Compellent’s valuation exceeded $1B based upon a spate of recent M&A activity including HP’s $2.35B acquisition of 3PAR and EMC’s $2.25B acquisition of Isilon. Some analysts were questioning the shorter price of the deal however unlike 3PAR where Dell lost a bidding war to HP no alternative bidder emerged for Compellent. Dell, which for years has relied on EMC for storage products, acquired  storage player EqualLogic in 2007 and was motivated to acquire additional storage assets to further fill out its product line and tap new growth markets.

The bottom line according to observers is that Dell coveted an asset to further boost its nearly $2B storage business which comprises less than 5% of the company’s overall revenue. In addition its margin on internally owned storage is much higher than that realized from products OEMd from ECM. For its part, Compellent viewed an acquisition as the fastest way to grow beyond a being niche player.

MarketANGLE:

Compellent competes with EMC, IBM, NetApp and HP and others in the  external storage systems  market which according to researcher IDC generated approximately  $5B in Q3 2010. Compellent serves the mid-to-small end of the enterprise storage market which comprises 30-40% of the revenue opportunity or approximately $7B. Compellent, at a $160M annual run rate currently captures a very small portion of the total enterprise storage systems business.

After the dot.com crash, the storage industry saw significant innovation from new entrants. Companies including 3PAR (HP), Compellent, EqualLogic (Dell), Lefthand Networks (HP) and XIV (IBM) began producing enterprise-class arrays that were much less complex to deploy than traditional storage arrays from leaders such as EMC, IBM and HP. These new entrants were highly disruptive and attracted substantial attention in the market and ultimately commanded very high exits through acquisitions by large companies trying to  fill out  their portfolios.

Many analysts believe Dell’s management believes its experience with EqualLogic can be replicated with Compellent. Specifically, Dell’s 2008 $1.4B acquisition  of EqualLogic a $91M company at the  time, has paid substantial dividends. According to analysts, Dell’s EqualLogic  business  is approaching $1B in revenue this year. Further, Dell has reduced its reliance on EMC storage and owning the intellectual property vastly increases its gross margins. Some analysts SiliconAngle spoke with indicated they believed Dell’s gross margin on EMC products was in the 20-30% range while its EqualLogic margins are at least double that figure according to industry sources. The Wall Street Journal quoted industry analyst Steve Duplessie of the Enterprise Strategy Group as saying:

Buying Compellent will allow Dell “to take a 20-point margin business and make it a 70-point one” by owning the intellectual property it is selling.

The bottom line from a market  perspective is Dell sees an opportunity through Compellent to increase its current roughly 9% of the storage systems market to perhaps as much as 12%, placing the company in a number two or three position behind EMC.

TechANGLE:

Increasingly end users are demanding much more  efficient stacks  where OpEx requirements  for installation and maintenance are reduced. Compellent is an industry leading example of  removing  complexity in storage. Its technology comprises several innovations, including:

• Virtualization
• Thin provisioning
• Automatic tiering
• Array to array migration
• Space efficient snapshot technology
• Remote replication
• Multi-protocol (i.e. iSCSI, FC/FCoE)
• Automated reporting

According to Wikibon Senior Analyst David Floyer, “What’s unique about Compellent is the simplification and automation of storage so that no storage specialist is required.” Floyer told SiliconAngle that he has spoken to dozens of Compellent  customers and has found satisfaction to be exceedingly high.

Compellent was one of the first companies to provide automated storage tiering where less frequently accessed data is automatically moved from more expensive faster storage devices onto cheaper slower disks. Compellent refers to this capability as Fluid Data Architecture which has recently prompted similar capabilities from other suppliers such as EMC and IBM.

According to analysts, from a product  standpoint, while Compellent’s offerings overlap with the Dell/EqualLogic lineup,  EqualLogic is exclusively focused on Ethernet storage whereas Compellent offers Ethernet and Fibre Channel-based solutions which have historically been served by EMC within Dell.

According to analysts, the bottom line from a technology perspective is Dell is acquiring a strong storage software platform that runs on standard Intel-based hardware; a comfort zone for Dell. The engineering team at Compellent, led by Larry Aszmann has had a laser-like focus on perfecting a code base that is stable and simple to deploy and manage. However analysts suggest that the scalability of the Compellent solution is limited.

SocialANGLE:

Compellent  has been able  to reduce the cost of storage deployment at small and mid-sized organizations while at the same time delivering the reliability of enterprise class solutions. Recent case studies from Compellent include customers such as Comic Relief, the magazine Marie Claire, NBA teams, including the Orlando Magic and hospitals, governmental municipalities and others. Consumers benefit when firms are able  to reduce storage expenses, adapt to market  changes and securely protect their (our) data.

The bottom line from a social standpoint is that Dell is a premier provider to small and mid-sized  businesses and will  dramatically increase the reach of Compellent’s technology into the enterprise and society.