How will 3Par help Dell?

While announcing its decision to buy 3Par, Dell said the addition of 3Par will bring the “same values of performance, agility and ease-of-use to higher end, virtualized storage deployments as EqualLogic does for the entry-level and mid-range, rounding out our industry-leading solutions portfolio.”

“With 3PAR, Dell will offer innovative systems and customer choice at every storage tier, from direct-attach to highly-virtualized, clustered SANS,” the company said in a statement.

In other words, 3Par is expected to augment Dell’s core computer sales business and will help it compete with bigger rivals such as HP and IBM in the complex computer systems and technology services market that offers higher profit margins than the traditional desktop and laptop PCs market.

The 3Par deal also comes at a time Dell, which has been hit by shrinking market share in PCs and tightening profit margins, is trying to clean up its image.

Recently the company and Michael Dell had settled charges by the market regulators that it had improperly reported income. The Securities and Exchange Commission (SEC) had accused the company of not disclosing to its investors “large exclusivity payments” made to it by microprocessor maker Intel in exchange for not using chips made by Intel’s rival, AMD.

Under the settlement, Dell had to pay a million fine while the company forfeited 0 million without admitting the allegations.

However, the incident triggered distrust between the investors and Michael Dell and culminated with over 25 percent shareholders opposing his re-election to the board at Dell’s August 12 annual meeting.

How 3Par will help HP?

“The addition of 3PAR’s next-generation storage architecture will accelerate HP’s winning Converged Infrastructure strategy, which provides customers with an unmatched portfolio of intellectual property across storage, server and networking solutions. 3PAR’s highly scalable storage systems will further strengthen HP’s ability to deliver the highest levels of performance, efficiency and reliability to customers worldwide. The combination will bolster HP’s storage offerings and diversify its portfolio across key growth markets,” HP said in a statement when it announced its decision to make a bid for 3Par.

According to Dave Donatelli, who leads HP’s enterprise servers, storage and networking business, 3Par is an “ideal fit” for HP and will help accelerate its “converged infrastructure strategy…particularly in cloud and scale-out markets.”

However, analysts feel that in HP’s case, the decision to buy 3Par may be as strategic as it is tactical because 3Par would not only be a nice addition to its business portfolio but also HP’s offer may be more a move to prevent Dell from growing in the corporate data center business.

Who will emerge as the (probable) winner?

Analysts said both Dell and HP need 3Par but Dell is more desperate.

3Par, analysts said, will help Dell break into bigger corporate customers, such as large institutional banks, that they don’t have today.

3Par is also the only company in the high-end data storage market that is on the block and within Dell’s buying range. The only other major players are IBM, EMC Corp. and Hitachi.

“3Par gives a lot of credibility to Dell’s strategy and if it doesn’t end up with 3Par then it lost that credibility, so this is a big decision for Michael Dell,” Robinson said.

Agrees Hapoalim Securities analyst Kevin Hunt. According to Hunt, Dell will never be able to compete with the likes of HP or IBM “if they don’t do anything like this.”

“If HP gets them (3Par), Dell has no other options – they’ll never have a high-end solution and have to keep selling other people’s boxes,” Hunt said.

However, things do not look good for Dell now that HP is in the race to buy 3Par.

“Dell needs a marquee piece of high-end technology” but the “fact that HP is coming in aggressively” is not a good sign for Dell, Hunt said.

Agrees Rob Enderle, president of technology research firm the Enderle Group. “The interesting thing to me is that, I think 3Par is worth more to HP than Dell. HP has a deeper storage background. Since they got involved, it shows they don’t want Dell to have this,” Enderle said.

Analysts also doubt whether Dell will be able to match HP’s firepower.

HP has about twice the sales of Dell and is more than three times as profitable. It also has a cash balance of billion or more than double of Dell’s.

HP has also shown in the past that it’s not afraid of big-ticket purchases. While Dell’s last acquisition of more than billion has been Perot Systems for nearly billion in 2009, HP already has an established track record of big ticket purchases – in 2001, HP bought Compaq for billion, a deal that made it one of the forerunners in the PC and laptop market, and strengthened its presence in the software and IT services market by scooping up IT consulting firm EDS in 2008 for .9 billion. Within the last one year, HP also made a couple of billion-plus purchases – it agreed to buy network device maker 3Com Corp. for .7 billion in November 2009 and in April this year it agreed to pay .2 billion for smartphone maker Palm Inc.

“HP is going to win,” Wedbush’s Roy said. “Dell just doesn’t have that ammunition. HP has the balance sheet to buy anything.”

Agrees Cross Research analyst Shannon Cross. “Both companies have the capacity to bid up, but HP has a significant cash balance and significant cash flow, and it has over two times the revenue of Dell,” Cross said.

However, the price, though an important consideration isn’t everything for 3Par as it needs a stable owner and master to help it grow. In this regard, HP has proved itself as a company that has integrated diverse business categories and still has emerged successful. The technology giant can, in fact, point to early successes from its 3Com purchase. It can also offer 3Par’s services to a much larger array of clients, increasing its sales.

In comparison, Dell has always been trailing HP is nearly all the business categories and even now it looks scrappy as it tries to gain ground in the server and IT services market. Yes, Dell too can point to the success of EqualLogic – it bought EqualLogic in late 2007 for .4 billion, which was worth about 10 times the company’s annual sales at that time. EqualLogic is now approaching 0 million in annual revenue. However, Dell still has a long way to go before it can emulate HP’s success.

So HP looks to be the favourite to buy 3Par.

But HP cannot rest easy till it, as one analyst puts it, “hits the check-out counter.”

The reason is because the race to buy 3Par is far from over and like HP and Dell, Oracle, the world’s second biggest software maker after Microsoft, is also looking to broaden its enterprise technology business through dealmaking. It bought Sun Microsystems for about .3 billion to expand in hardware and 3Par would be a nice fit to its portfolio. And, Oracle is one of the few technology companies that has pockets deep enough to outbid both HP and Dell.

Other technology giants like IBM and EMC are not expected to enter the bidding fray as they already offer high-end storage solutions.