ACG Research

ACG Research
We focus on the Why before the What

Wednesday, March 14, 2012

Dell’s SonicWall Play

Companies are consolidating as players attempt to add or extend their security expertise and technology to address customers’ demands.

Dell announced it has signed a definitive agreement to acquire SonicWall for an undisclosed price, but which financial analysts estimate has a likely price tag north of $1 billion. Citing cyber security as a top customer pain point, this acquisition makes a lot of sense as a way for Dell to quickly deliver more advanced security technologies to its enterprise customer base.

This acquisition will help the company extend the range of security solutions it can offer, leveraging SonicWall’s unified threat management portfolio: NSA Series, SuperMassive Series, and TZ Series, which includes web security, virtual private networks, anti-virus and malware, intrusion detection and protection, content filtering, application control in an appliance, and next-generation firewall technology.

Enterprises are asking for more comprehensive security to help them protect their operations and intellectual property and address regulatory and compliance demands. Some of today’s security challenges are due to the exponential growth of data, the adoption of cloud-based solutions, and the increased presence of mobile consumer devices in the enterprise (BYOD).

Behind the acquisition

Dell hopes enterprises will turn to Dell to solve their security issues. At first glance, there appears to be good alignment between Dell and SonicWall to address the mid-market. Both have had success there; Dell has six million small business customers and SonicWall has been adding 200,000 new small businesses a year.

With only a little overlap within the channel partners, (15,000, SonicWall; 100,000, Dell), there is the potential for significant growth, if Dell can effectively leverage its brand and global distribution to attain greater penetration for the security technologies. (Note that two-thirds of SonicWall’s $260 million revenue is based in the US.) The challenge may be in getting the channel up to speed selling security; we have seen this take other organizations longer than they anticipated, for example, when Juniper acquired NetScreen or IBM acquired ISS.

Breaking into the big league?

Will Dell be able to effectively move up and into the large enterprise and provider markets? This has traditionally been a struggle for SonicWall, which is hoping its SuperMassive Series will enable the company to finally break through. Dell has a foothold in the data center and has had some recent success with providers, such as US Cellular and Telefonica, but we will have to see if, together, they can expand their footprint.

Competitors are Cisco, Juniper, with whom Dell has a relationship, Check Point and Fortinet. This acquisition is consistent with Dell’s strategy of trying to own more of its intellectual property, so it is fair to say the Juniper relationship is probably in jeopardy.

Dell expects the transaction to close in the second quarter of its 2013 fiscal year. Dave Johnson, SVP, Corporate Strategy for Dell said SonicWall represented a good strategic, cultural and operational fit. Time will tell. One thing we can say for certain is that we will see more consolidation in this market, as players attempt to add or extend their security expertise and technology to address customers’ demands.

Sarah Sorensen

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