Wednesday, October 27, 2010

Compellent shares pop on performance, speculation

October 27, 2010 -- Compellent's stock skyrocketed today due to stellar Q3 performance and continued rumors that the company may be acquired.

Compellent announced record revenue of $42.1 million, a 31% boost over Q3 2009 revenue. GAAP net income was $3.3 million (or 10 cents a share). Gross margin was 55.9%. And the company gained 179 new customers in the quarter, bringing its total to 2, 303.

Investors jacked up Compellent's stock price by more than 32%. The shares closed at slightly over $26 in after-hours trading -- an all-time high. And that's on top of about a 10% gain on Tuesday after Reuters reported that Compellent was actively seeking suitors and had held talks with Qatalyst Partners, among others. (Qatalyst, as you may recall, shepherded the $2.4 billion buyout of 3PAR by HP, and was also involved with Data Domain when they were acquired by EMC. Isilon also recently engaged with Qatalyst, according to various reports.)

ok, so Compellent's share price run-up was obviously based on a combination of the acquisition rumors and the company's Q3 performance.

On the acquisition front, most financial analysts and speculators (as though there was a difference) still think that Dell is the most likely acquirer of Compellent. I don't think so, if only because at the price Dell would have to pay for Compellent I don't see how they would reconcile the product line with the EqualLogic line.

However, if Compellent is not bought . . . as the company's tag line says: "The future is fluid," and that may apply more to the company's stock price than to Fluid Data.

Because of my skepticism about a Dell takeover of Compellent, I maintain my #3 ranking for Compellent in my List of the Most Likely Storage Acquisitions (see "Who will be acquired next? And the Top 10 are . . .").

Related blog post: "Isilon revenue up 77%"

Tuesday, October 26, 2010

Hybrid (flash + HDD) drives make a comeback

October 27, 2010 -- Hybrid drives, which combine NAND flash memory with traditional hard disk drives (HDDs), were first introduced about four years ago. Reception was lukewarm. More accurately, those early implementations failed.

The biggest problem was that the early models didn't have onboard data management for the flash component, according to Jim Handy, director of the Objective Analysis research and consulting firm; instead, they relied on data management embedded in Microsoft's Vista. It didn't work well.

In their more recent hybrid drives, manufacturers are integrating the data management functionality. And to boost performance, they're putting in much larger caches compared to the early hybrid drives.

So far, Seagate is the only HDD manufacturer shipping hybrid drives -- the Momentus XT, which was introduced in May -- but the other drive manufacturers are expected to follow soon.

In a just-released report on the market ("Are Hybrid Drives Finally Coming of Age?"), Objective Analysis predicts that shipments will go from about one million units this year (if Seagate is successful), which represents about $120 million in revenue, to 600 million units by 2016, representing revenue of $34 billion.

Hybrid drives are typically associated with PCs, but Handy says that they can be used anywhere HDDs are used today, including enterprise-class disk arrays.

What's driving renewed demand for hybrid drives? "Hybrids provide near-SSD functionality with HDD capacity and price," says Handy.

Can anything stop the expected rapid growth of hybrid drives? "Only if people believe Steve Jobs' recent statement that hard drives are dead," says Handy.

For more information on Objective Analysis' report, see "Are Hybrid Drives Finally Coming of Age?"

(Note: The report is targeted at manufacturers, and is priced at $5,000 for a single copy and $10,000 for a site license.)

Friday, October 22, 2010

Isilon revenue up 77%

October 22, 2010 -- Amid rumors that the company may be acquired (by EMC, in the ballpark of $2 billion), Isilon reported third quarter earnings yesterday. Revenue was up a whopping 77% vs. Q3 2009 -- $53.8 million vs. $30.5 million -- and up 19% vs. the previous quarter. Net income for the third quarter was $4 billion, which was 2x net income of $2 million in the previous quarter. That compares to a loss of $4.9 million in the same quarter a year ago.

But what really caught my eye was Isilon's gross margin of 63.5% in the third quarter, which set an all-time record for the company.

Isilon's revenue performance, coupled with the acquisition rumors, is why the company recently vaulted to the #1 position in my list of potential acquisition candidates (see "Who will be acquired next? And the Top 10 are . . .").

Isilon's shares (NSDQ: ISLN) are trading at $29.21 as I write this. That's up 115% over the last three months, and up 330% over the last year. That run-up is in part due to the mania surrounding HP's $2.4 billion buyout of 3PAR, but it's also due to just plain performance.

In the third quarter, Isilon earned $0.09 per share. That compares to analysts' estimates of $0.05 per share.

The company's market value is hovering around $1.8 billion, justifying the speculation that EMC may be willing to pay around $2 billion for Isilon.

In its earnings call yesterday, company execs raised their fiscal year revenue growth estimates to almost 60%, compared to their previous estimates of about 40%.

Isilon claims more than 1,400 customers, including heavyweights such as NBC, Eastman Kodak and MySpace. Approximately 37% of Isilon's revenue comes from the media/entertainment market, 16% from life sciences, and 11% from the Web/Internet vertical market.

Isilon is known primarily for its strengths in scale-out NAS, but the company recently added support for the iSCSI SAN protocol in its OneFS operating system, enabling both file (NAS) and block (SAN) I/O under a single file system and volume (although Isilon's storage systems do not support the Fibre Channel or FCoE protocols).

We'll keep an eye on those acquisition rumors, but even without the sales and marketing clout of a larger vendor Isilon seems assured of ongoing success.

Related article: "Isilon puts multiple tiers under one file system"

Tuesday, October 19, 2010

What is progressive deduplication?

October 19, 2010 -- Arkeia Software is putting the final touches on the 9.0 release of its Arkeia Network Backup software, which the company plans to deliver in the first quarter of next year, possibly by mid-January. We'll cover that release in more detail as the company gets closer to shipping, but for now . . .

The key addition to the 9.0 release is a technology that Arkeia now refers to as "progressive deduplication," which was previously called "sliding window with progressive matching deduplication."

You'd have to be a math wiz to understand this technology from an algorithmic perspective, but here are the basics, culled from a recent conversation with Arkeia CEO Bill Evans:

Progressive deduplication is an alternative to the older fixed-block deduplication and the newer, more common variable-block deduplication.

Arkeia's data deduplication implementation is global (vs. local), byte-level (vs. file-level), source-side (vs. target-side, although it supports both approaches as well as a mix), in-line (vs. post-processing), and content-aware. But the real differentiator is in how the software handles block sizes.

As with variable-block deduplication, the block size can be adjusted for optimal deduplication ratios, but Arkeia claims a "better" implementation that is more content-aware (or application-aware) than existing approaches. Arkeia Network Backup 9.0 software automatically adjusts block sizes based on file type in order to maximize dedupe ratios.

Arkeia acquired the data dedupe technology when it bought Kadena Systems about a year ago.

Arkeia claims two key advantages of progressive dedupe vs. traditional variable-block dedupe: It's faster (which reduces the size of backup windows) and it delivers higher deduplication ratios (which reduces storage capacity and network bandwidth requirements).

The company isn't ready to make specific performance or dedupe ratio claims, but CEO Evans reports that in internal tests using VMDK files the company achieved a 38% improvement in dedupe ratios compared to "one of the leading deduplication vendors" (which I assume to be either Data Domain or Quantum).

"We think we'll have better dedupe ratios than any other vendor," says Evans.

The proof will be in the pudding. Until we get some independent benchmark results, we'll have to take these claims with a grain of salt, but progressive deduplication appears to be an interesting technology that could take deduplication to a new level.

The Arkeia Deduplication Option will be priced at $2,000 per media, server, but will be free for companies that license Arkeia's software or appliances (physical or virtual) by December 31.

To participate in the beta program for Arkeia Network Backup 9.0 and the progressive deduplication technology, click here.

Next month, Arkeia will release a deduplication profiling tool that will enable users to measure actual deduplication ratios at various block sizes to determine the optimal block size for each file type.

Related articles:
Arkeia integrates backup with VMware vStorage
Arkeia acquires Kadena for data dedupe

Thursday, October 14, 2010

VM6: You don't need a (physical) SAN for virtual servers

October 15, 2010 -- To simplify the storage equation in Hyper-V virtual server environments, and to decrease costs, VM6 Software is shipping a suite of modules that, among other things, allows end users to leverage direct-attached storage (DAS) and eliminate the need for a physical SAN.

To understand where these folks are coming from, a little history: The company started out about six years ago as VM6 Inc., a systems integration and services provider specializing in VMware virtualization. According to COO and co-founder Eric Courville, the company started encountering a lot of remote sites that didn't have expertise in virtual servers, much less complex SANs. In addition, those sites found it difficult to justify the costs associated with VMware and SANs.

VM6 delivered its first software product -- VMex 1.0 -- about five years ago, but it was based on VMware and required a shared-storage physical SAN.

Given the requirements of remote sites and SMBs, VM6 went back to the well and introduced in September 2009 Version 2.0 of VMex, with two key changes: The software now leveraged Microsoft's Hyper-V, instead of VMware, and VMex 2.0 eliminated the need for a physical SAN.

Courville claims that VMex now provides all of the storage functionality users would expect from an iSCSI SAN, including high availability, but the software leverages DAS and eliminates the need for expensive SAN components such as switches.

VMex sits below Hyper-V and on top of Windows 2008 R2. Connections between servers provide high availability via heartbeats and failover. VMex also includes block-level replication across connected servers.

In addition to the Virtual Shared Storage (V-SAN) module, the VMex suite includes Advanced Clustering for high availability, support for Virtual Desktop Infrastructure (VDI), and virtualization management and monitoring tools. The latest version is VMex 2.1.

The company is targeting companies with less than 50 servers.

If you're looking for inexpensive, SAN-free virtualization, it might be worth checking out VM6.

Thursday, October 7, 2010

IBM: Goodbye Storwize, Hello Storwize

October 7, 2010 -- IBM made a slew of storage announcements in NYC today. At first glance, it looks like some winners on the disk array front, but there's one part of the announcements that may cause some confusion.

But first, let's take a step back. IBM recently acquired Storwize, which specialized in real-time data compression for primary storage. Big Blue has apparently scuttled the Storwize name as it applies to that company's products. The products now fall into the IBM Real-time Compression (note the url on that page) operation, and the products are generally referred to as IBM Real-time Compression Appliances for NAS, although IBM seems to be keeping the specific model names; e.g., the STN 6500 (up to 16 Gigabit Ethernet connections) and STN 6800 (up to eight 10GbE connections).

However, headlining today's product blitz was the IBM Storwize V7000 array which, at least for now, apparently does not have any of the technology associated with the products from the former Storwize company.

I thought I was missing something, so I checked in with Greg Schulz at The Server and StorageIO Group (formerly StorageIO), who was also confused on IBM's re-purposing of the Storwize moniker. Here's what Greg had to say:

"If IBM was trying to make a cloud storage announcement, they may have succeeded in creating a layer of fog around the renaming of the data footprint reduction (dfr) company formerly known as Storwize to Real-time Compression.

"That may be straightforward, but what's confusing, or foggy, is the use or recycling of the Storwize brand name, which was gaining ground and awareness around real-time compression for primary storage, to name an SVC-based storage virtualization system. Are they trying to say that using the V7000 is storage wise, or smart? Are they trying to differentiate from SVC, or storage virtualization, or virtual storage? Or trying to ride the growing awareness around the Storwize brand name?"

As mentioned, the confusing part is that the Storwize V7000 does not have Storwize's (the company) real-time compression technology, at least not yet.

The IBM Storwize V7000 is a mid-range storage system that incorporates elements of IBM's SAN Volume Controller (SVC), as well as Big Blue's Easy Tier technology and the XIV interface. (IBM claims that Easy Tier provides a performance improvement of up to 300% via automatic migration to solid-state disk drives, and the SVC functionality enables users to virtualize existing storage resources.) The Storwize V7000 also includes IBM technologies such as FlashCopy, Systems Director and thin provisioning.

Hardware specs of the 2U array include up to 24 2.5-inch drive bays or 12 3.5-inch drive bays, up to 24TB of capacity using 2TB SAS drives or 14TB using 600GB SAS drives, eight Fibre Channel host ports and four 1Gbps iSCSI host ports, and a RAID controller that supports up to nine storage expansion units.

In his blog post (which is a good one) on the Storwize V7000, IBM employee and SVC specialist Barry White says that the V7000 integrates:

"Something old (SVC)
Something new (the controller and enclosure)
Something borrowed (DS8000 RAID)
But it's ALL BLUE!"

For another good blog on the Storwize V7000, check out this Storage Buddhist post.

Shipments of the Storwize V7000 are slated for mid-November.

Particularly if you're an SVC fan, the V7000 may be a very cool product -- and it is Blue through and through -- but I'm still scratching my head over the Storwize branding.

"They seem to like the name Storwize so much that they've elevated it," says the Taneja Group's Arun Taneja. "The V7000 is the first in a series of products that could replace IBM's entire mid-range arrays. This is a very strategic product, but the question is: How high can it scale?"

Also at the event in NYC today, IBM introduced the high-end System Storage DS8800 array, which IBM claims is 40% faster than the DS8700. As are its high-end competitors, IBM has moved away from 3.5-inch disk drives, going only with 2.5-inch, 6Gbps SAS drives on the DS8800, which can be configured with up to 1,056 drives for a total capacity of 634TB. The array can also be configured with SSD drives, and support for Easy Tier is expected next year.

Monday, October 4, 2010

Who will be acquired next? And the Top 10 are . . .

UPDATED October 21, 2010 -- Following HP's $2.4 billion acquisition of 3PAR, speculation continues to run rampant over which storage vendors will be acquired next. Whether it's a good thing or a bad thing from the perspective of end users, further contraction in the industry is inevitable as the largest IT vendors attempt to control the entire IT stack and the pure-play storage vendors plug the gaps in their product lines in order to goose revenue growth.

For the following list of the Top 10 storage acquisition candidates, I factored in the opinions of readers, which I received after posting "The Top 10 storage acquisitions of 2010." Interestingly, the majority of the reader responses came from channel professionals -- VARs and integrators -- leading me to believe that channel pros are much more interested in mergers and acquisitions than are end users. I also factored in opinions from industry and financial analysts. And topped it off with my own misguided opinions.

(Note: The ticker symbol links below take you to that company's entry page on the InfoStor Market Index, which provides up-to-the-minute info on the company's stock as well as company- and competitor-related news.)

#1 -- Isilon

Isilon scooted to the top of this list because of two recent developments: (a) The company hired Qatalyst Partners to solicit potential acquisition offers. Qatalyst was the advisor to Data Domain when EMC acquired Data Domain, and Qatalyst also shepherded the HP-3PAR acquisition. (b) The NY Post reported on Friday that EMC may be close to acquiring Isilon for about $2 billion (see "EMC in exclusive talks to buy Isilon").

Isilon is known primarily for its strengths in scale-out NAS, but the company recently added support for the iSCSI SAN protocol in its OneFS operating system, enabling both file (NAS) and block (SAN) I/O under a single file system (although Isilon's storage systems do not support the Fibre Channel or FCoE protocols).

In addition to EMC, financial analysts have cited Dell, HP and IBM (and, less likely, Oracle or Cisco) as potential acquirers of Isilon (NSDQ: ISLN).

#2 -- CommVault

I don't understand why CommVault's (NSDQ: CLVT) stock jumped so high during the HP-Dell-3PAR bidding war, but it did. I guess it was because CommVault has been an acquisition speculation darling for years.

CommVault has done a great job stealing revenue from the big four vendors in the data protection space, in part because CommVault's underlying architecture is newer and designed better for rapid enhancements, as evidenced in the recent release of its Simpana 9 software (see "CommVault unveils Simpana 9").

Conventional wisdom on Wall Street has Dell (NSDQ: DELL) as the most likely suitor under the assumption that none of the leading backup/recovery vendors (EMC, Symantec, IBM, CA) would be interested in CommVault, but I'm not so sure about that. Any of those vendors would have to eat some crow if they acquired CommVault, but they might be better positioned for the long haul.

Another possible CommVault suitor: NetApp which, by the way, is the #4 storage software vendor -- ahead of CA and HP (see "The Top 6 storage software vendors").

In addition to the fact that many financial analysts put the company at the top of their storage acquisition target lists, CommVault earns the #2 spot on this list because I think the storage M&A focus is going to shift from hardware to software. And with CommVault, it's hard to argue with low debt, high growth and high margins.

#3, #4 -- Compellent, Xiotech

Isilon, Compellent and Xiotech have all been cited often as potential Dell acquisitions post-3PAR/HP. I doubt it, because Isilon/Compellent/Xiotech are gap pluggers rather than the game changer that 3PAR would have been for Dell. Isilon, Compellent or Xiotech don't give Dell the high-end array technology that would enable Dell to go up against EMC/IBM/Hitachi, although they would be good complements to Dell's EqualLogic line. On the other hand, any one of these disk array vendors would help Dell doff its "Dude, you're getting a Dell" image.

Given their technology differentiators, and the difficulty of being a relatively small player in the contracting disk array market, it's likely that one or both of these vendors will be acquired by someone.

Xiotech, which is not publicly traded and has a nice differentiator with its Intelligent Storage Element (ISE) technology, would be the least expensive buy in this category.

The question with Compellent is whether the company has enough differentiation from what the potential acquirers already have in their portfolios.

#5 -- Permabit

Earlier this year, Permabit introduced an "OEM embeddable" version of its data deduplication software. dubbed Albierio. The company seems to be off to a good start with its OEM strategy, having already racked up reseller deals with BlueArc and Xiotech (see "Data deduplication: Permabit finds success with OEM model").

As the last standing "independent" data deduplication player, Permabit could thrive with its OEM model, but in light of the IBM-Storwize and Dell-Ocarina acquisitions in the data reduction space I think Permabit is an attractive acquisition candidate. The company's focus now is on deduplication for primary storage, but there's no reason Permabit's technology couldn't be used across all storage tiers -- and that could be very attractive for some of the larger storage vendors that have a diverse mix of data reduction solutions in their portfolios. Of course, that assumes that a "one size fits all" approach to data reduction is the way the larger vendors want to go in this space.

#6 - Brocade

IBM has been mentioned most frequently as a potential suitor for Brocade. That might have changed recently with Big Blue's announcement that it plans to acquire Blade Network Technologies (BNT), making it less likely that IBM would go for Brocade.

BNT specializes in blade and rack Ethernet switches, so it's not an overlap with Brocade's business, but the IBM-BNT acquisition will still dampen speculation that IBM will scoop up Brocade. More likely, perhaps, IBM will go after Juniper Networks. (Both Brocade and Juniper are IBM partners and, making it even more interesting, Juniper is a BNT partner.)

If we take IBM out of the Brocade acquirer lineup, that would leave Dell as the most likely acquirer (although Dell is also tight with Juniper). But that goes to the heart of the question of whether Dell will, post-3PAR, try for another disk array vendor (Isilon, Compellent, Xiotech?), software vendor (CommVault?) or surprise everyone and light out into LAN/SANland via Brocade.

Making a Dell acquisition shift toward networking more likely, Dell recently hired a former Cisco exec -- Dario Zamarian -- to run its networking business. Assuming Dell turns to networking in its acquisition spree, it's a 50/50 bet between Brocade and Juniper, according to some Wall Street wags.

In an article posted on MarketWatch (see "Brocade targeted by M&A rumor mill"), Wedbush analyst Kaushik Roy was quoted as saying, "It makes a lot more sense for Dell to buy Brocade than IBM. With Dell, it's a no-brainer. If Dell has half of a brain, they should be taking Brocade out right now."

Then again, if Dell goes after Brocade (NSDQ: BRCD), they could wind up in another crazy bidding war with, say, IBM or Oracle. And Dell's been there, done that.

In addition to IBM and Dell, analysts have cited Oracle and Hitachi as possible acquirers.

#7 -- BlueArc

Hitachi Data Systems (HDS) has been mentioned as a potential suitor for BlueArc, but it doesn't seem to be in HDS' genes to take the acquisitions route. But HDS and BlueArc do have a tight relationship and BlueArc has some attractive technology differentiators.

# 8 -- FalconStor

Only one of our readers mentioned FalconStor as an acquisition target, and it was in the context of the company potentially being acquired by HDS or NEC, but FalconStor would be relatively inexpensive and the company has great technology (although not everybody knows it because FalconStor's software is often sold "under the covers" by its OEMs and resellers).

In addition to getting storage management and data protection software (VTL, CDP, data deduplication, replication, etc.) across a variety of product lines, an acquirer could put the hurt on a lot of competitors because, although a relatively small company, FalconStor's tentacles reach across a lot of vendors via its reseller deals.

The possibility of FalconStor (NSDQ: FALC) being acquired heightened recently with the resignation of ReiJane Huai, the company's CEO. In the wake of the resignation, FalconStor tapped Jim McNiel as interim CEO and president. Some analysts think that McNiel may be more open to acquisition than was Huai.

#9 -- Symantec

The latest rumors regarding Symantec centered on Microsoft as a potential acquirer (see "Is Microsoft Looking to Buy Symantec?" on InfoStor sister site eSecurity Planet).

However, that (unlikely) move would be more for Symantec's security product line, rather than its storage software, and would be in response to Intel's acquisition of McAfee.

Given the breadth of Symantec's product line, and the fact that the company would be expensive and is not a pure-play storage vendor, I put Symantec low on this list. I don't see Symantec being bought any time soon, if only because of the company's huge market cap.

#10 -- NetApp

Rumors about NetApp (NSDQ: NTAP) being acquired have existed as long as the rumors surrounding CommVault and Brocade have, maybe longer. I think the time to buy NetApp is long gone, but due to the persistence of the rumors the company still makes our Top 10 list.

I see NetApp more as an acquirer than a target. The problem with that (for NetApp) is that, if the IT market does contract down to five or six soup-to-nuts vendors, NetApp doesn't have a chance of making that list even if it does dip into its deep piggy bank to make some acquisitions. It's that logic that keeps NetApp on our Top 10 acquisition targets list.

One other company that occasionally comes up in acquisition conversations is Quantum. This would be for the company's data deduplication technology and products. However, an acquirer would also get Quantum's tape business, and I don't think any of the likely acquiring vendors is looking to add tape to their portfolio.

And in the Least-Likely-But-Often-Mentioned category of acquisition targets: EMC. The Wall Street Journal reported last week that Oracle may be eying EMC (see "EMC Shares Rise On Oracle Buyout Rumor"). Sure, that would fill in the Tier-1 storage hole in Oracle's portfolio and, more importantly, give them VMware, but I still think the Oracle-EMC acquisition speculation is ludicrous.

Related blog post:

The Top 10 storage acquisitions of 2010