Dell, Network Appliance parting ways

Dell signed the agreement to sell NetApp's high-speed file servers in November 1998 and launched the Dell-branded products in May 1999.

But that relationship is changing as Dell and NetApp compete against each other for the same customers, said Gene Austin, general manager of Dell's Internet server products division. "We found ourselves competing more than we wanted to," he said. "You will see a change in our strategy going forward."

Dell hasn't mentioned a change in plans to NetApp, said Mark Santora, the company's senior vice president of marketing, but "the impact on us is negligible." Santora wouldn't say how much of NetApp's revenue comes from the Dell deal, but sales to Dell have accounted for less than 10 percent of NetApp's revenue, the company said in Securities and Exchange Commission filings.

Dell and NetApp have divergent product directions, said Technology Business Research analyst Brooks Gray. "I think Dell's strategy and business model may cater better to the low-end, low-cost network-attached storage (NAS) market, and NetApp's strategy seems to be at a higher end than that," Gray said.

The Yankee Group analyst William Hurley agreed with NetApp, predicting the effect of the changes would be "limited." For Dell, the reason to unplug the agreement isn't so much the amount of money NetApp sales bring in but how much control Dell has over the technology it sells, Hurley added.

The demise of the Dell agreement isn't the only change afoot at NetApp.

For one, the company has dropped the use of Compaq Computer's Alpha chips in its new high-end models in favor of Intel CPUs. The move, predicted by NetApp chief executive Dan Warmenhoven in March, was contingent on the arrival of supporting chips called the ServerSet III HE from ServerWorks that can transfer data in and out of memory fast enough.

Another change at NetApp is the acquisition earlier this month of WebManage technologies, which will help NetApp in its push to sell products that propagate information such as video streams across the Internet.

NetApp, along with EMC, has been one of the companies whose sole focus on information storage devices has led to booming success lauded by analysts and investors. The company's stock rose to an all-time high of $141.13 yesterday before dipping $4.88 to $136.25 in midday trading today.

NetApp entered into the Dell agreement, as well as a similar one with Fujitsu-Siemens, to help it expand from its stronghold of Unix customers to those who use Windows as well, the company has said in SEC filings.

The agreement between Dell and NetApp has a little life in it, however. Dell still has new NetApp products to announce, Mike Lambert, senior vice president of Dell's enterprise systems group, said in an interview. NetApp just released two new products, the F840 and F840C, which can hold as much as 6 and 12 terabytes of data, respectively.

Santora concurred that NetApp competes for the same customers as Dell, though the competition is with Dell's general-purpose servers, not special-purpose network storage servers, he said.

Adding to the competition, though, has been Dell's move to begin selling lower-end NAS products in August. The product is actually a Dell-branded version of Quantum's Snap Server 4100.

Dell's PowerVault line of storage products, begun in 1998, hasn't been a stunning success, Gray said. "I don't think we've seen much of a push out of them yet," he said. "I think they're still in the initial stages of the storage business."

Dell is working to increase its storage emphasis, though. On Monday, the company named Russell L. Holt, 39, to lead its new storage systems unit. The storage business formerly was part of the enterprise group that primarily sells servers. Holt joined Dell in 1998, running the company's low-end server business.