EMC and Data General - 1 Year Later

When EMC acquired Data General in early 1999, many analysts thought well of the acquisition. Data General's CLARiiON group had developed significant new fibre channel technology that EMC and other vendors coveted. Ron Skates, Data General's president and CEO at the time, didn't want to see the company split up, so EMC's interest in buying the whole company made the deal.

EMC—a powerhouse in the enterprise storage market—added Data General's CLARiiON storage technology to its portfolio and extended the company's offerings into the midrange storage market. Michael Ruettgers, EMC president and CEO, said that the addition of the CLARiiON products to EMC has extended EMC's market potential by nearly 40 percent. In the intervening months, EMC integrated the CLARiiON group into the parent company and renamed the technology EMC CLARiiON.

To make the Data General deal sweeter, EMC is also pressing IBM with a patent infringement suit for using CLARiiON technology. The net result might be that IBM ends up paying for EMC's Data General acquisition. Good deal.

Data General's server operation remains an independent subsidiary of EMC. According to a 1999 International Data Corporation (IDC) study, Data General was the leading vendor of Intel-based Windows NT servers (i.e., AViiON) in the $25,000 to $100,000 range in 1998. The study also showed that the company held 56 percent of the market for Intel servers priced between $100,000 and $250,000. To play well in this enterprise market, Data General offers packaged solutions such as NT Cluster-in-a-Box, TermServer-in-a-Box, and Exchange-in-a-Box. In late 1999, EMC's Data General server subsidiary began to formulate its strategy for the year 2000 and beyond. This strategy involves consolidating Data General's server products into mid- to high-end Windows 2000 (Win2K) offerings and emphasizing Win2K and NT server-based applications in the future.

EMC installed Robert Dutkowsky as the new president of Data General. Before joining Data General, Dutkowsky was vice president of worldwide sales and marketing for IBM's RS/6000 business, and a highly regarded marketing executive at EMC. I sat down with Dutkowsky and his management team at Data General in December 1999 to discuss the company's plans and expectations for the coming year. Dutkowsky impressed upon me that Data General enjoys strong support from its parent company and that the company plans to vigorously compete in the developing Win2K enterprise space. Data General estimates that Win2K will become a significant data center player, following the same cycle of server upsizing and consolidation that UNIX took in the 1980s. Data General believes that the same market forces are at work now and that the company's business model overlaps with the areas of greatest potential growth and highest margin. To begin the implementation of the company's Win2K strategy, Data General announced at the Win2K launch in February 2000 its offering of consolidation services as part of a Win2K Jump Start program.

In 1999, Data General was a $1 billion business with operations worldwide. In the next year, Data General expects to close some of its less profitable sites to concentrate on its areas of strength in the United States, Canada, and Europe. The company will also discontinue making large PC servers, such as pedestals and towers, and concentrate on thin rack-mountable servers, such as blades. This consolidation will reduce Data General to revenues of about $750 million, but according to the management team will position Data General to take better advantage of Windows 2000 Server (Win2K Server) and Windows 2000 Datacenter Server (Datacenter). When the large deployments of Win2K begin in late 2000, Data General hopes to capture some major projects.

Data General supports both NT and UNIX and is one of the few players in the developing Non-Uniform Memory Access (NUMA) architecture market. You can partition some AViiON servers between NT and UNIX, and these servers require only a reboot to move processor assignments.

Data General's emphasis on Win2K and NT brings into question the disposition of Data General's UNIX customers. Dutkowsky said, "Data General will continue to support DG/UX, and our UNIX customers will be very well taken care of." As to future OS offerings, Dutkowsky said, "Data General will support a 64-bit OS, which will be Windows 2000."

In the next year, vendors will heavily contest the enterprise space for Win2K system and application deployment. At the high end of the Win2K market space, Data General will compete with established players, such as IBM, Hewlett-Packard (HP), Compaq, and Unisys, and newer players, such as Dell. Each vendor has rack-mountable offerings that compete with the AViiON line, and like Data General, each is increasing its rack-mountable offerings. In the lower-end market, companies such as Network Engines concentrate on large-scale deployments for cost-sensitive environments such as those of ISPs.

Data General has some advantages over its enterprise-market competitors for Win2K deployments. The company has a strong position in the health care industry and a substantial track record of mission-critical deployments, and Data General's service group has in-depth NT experience.

Data General offers many packaged solutions for the mission-critical market: a thin-client/server solution, TermServer-in-a-Box, with Microsoft Exchange 2000 Server; a SAP R/3 NT with Microsoft SQL Server product; NT Cluster-in-a-Box with SAP R/3; and DG/ManageSuite. The company offers its TeraCLIN decision support medical data warehousing system and a Datacenter-ready 4-node cluster system consisting of AV 3704 servers, CLARiiON storage, and Win2K's Microsoft Internet Information Services (IIS).

The future challenge for Data General will be to bring new products to market that differentiate the company from its competitors. Data General will need to leverage EMC's resources to expand its sales and marketing beyond its traditional strengths and into new markets such as financial transactions, application service providers (ASPs), ISPs, and application hosting environments. Given EMC's policy of neutrality toward server vendors, whether EMC will commit the necessary marketing resources to Data General is unclear. However, expansion into new markets offers Data General the greatest growth potential in dense Win2K server deployment, an area in which vendors will aggressively compete for market share in the coming year.