VCs score big in EMC-Isilon deal

November 29, 2010 – Whenever there’s a blockbuster acquisition such as EMC’s $2.25 billion buyout of Isilon, it’s interesting to speculate about what the marriage will mean to customers and competitors. But one angle I never look into is what the acquisition means to the venture capitalists (VCs) behind the acquired company.

According to a blog post on The Wall Street Journal’s wsj.com, the VCs behind Isilon made out quite well (see “EMC-Isilon Deal Is Another Data-Storage Win for VCs”).

According to that article: Atlas Ventures and Madrona Group, which provided Isilon with its Series A funding in 2001, as well as Sequoia Capital, which led the company’s Series B funding, all held significant stakes in Isilon.

Atlas said it will reap $473 million from the EMC-Isilon acquisition, or 20X its initial investment.

Madrona will get more than 15X the $15 million it invested, or $225 million+, according to a Madrona representative.

Sequoia Capital (which apparently did not sell any of its holdings prior to the acquisition announcement), will score $394.4 million.

Isilon was founded almost 10 years ago by Sujal Patel. The company went public in late 2006 at $13 a share. Going public was rocky in the beginning, with shares falling about 50% in the first year. Isilon’s stock price kept sliding through 2008 and 2009, when investors such as Atlas and Madrona added to their holdings.

Under the terms of the agreement announced a couple weeks ago, EMC will pay $33.85 per Isilon share.

Read the full blog post at wsj.com: “EMC-Isilon Deal Is Another Data-Storage Win for VCs”

Brocade boasts record revenues, but . . .

November 23, 2010 – Brocade set an all-time revenue record in its fiscal fourth quarter, and narrowly exceeded analysts’ expectations, raking in about $550 million. That’s up 9.3% over the previous quarter and up 5.5% year-over-year.

However, the company posted a net profit of $66 million in 4Q10, or 14 cents a share, which is down from $73 million, or 15 cents a share, a year ago. In addition, guidance for the current quarter was, well, cautious. Company executives predicted revenue for the current quarter of $535 million to $550 million, which translates into flat to -3% growth vs. the previous year That guidance was below Street projections. Brocade’s 1Q11 guidance was variously described as “cautious,” “tepid” and “dour.”

In other words, the company’s performance in this quarter was stellar, but the outlook for 1Q11 disappointed. Mixed signals, indeed.

Brocade earned the applause of analysts – and some Buy ratings -- by (narrowly) exceeding their expectations, but investors sent the stock down late Monday, a slide that continued into Tuesday, presumably because of the lackluster projections for the current quarter.

Brocade (NASDAQ: BRCD) shares closed at $5.13 today, down 10%.

Personally, I don’t think Brocade’s guidance on this quarter looks very bad at all, given an expected slowdown or stall in federal spending and Brocade’s challenging competitive position on the Ethernet side of the business against Cisco, HP and others.

Speaking of which, Brocade’s Ethernet-related revenue numbers suggest that the company is picking up steam against those formidable rivals.

4Q10 revenue from Brocade’s Ethernet line was $142.6 million (representing 26% of total revenue.) That’s an increase of 17% vs. the previous quarter. And the company gained about 300 new customers for its Ethernet switch line in the fourth quarter, bringing the total to 1,600 since the acquisition of Foundry.

Brocade’s SAN storage business remained at about 57% of total revenue (vs. 58% in the last quarter), or $316 million. Services accounted for the remainder of the total revenue, or about $92 million.

Gross margin was 62.3%, compared to 54.1% in the previous quarter.

Related articles:

Brocade, HP debut 8Gbps SAN starter bundles

Brocade tackles network convergence, VM mobility

Brocade increases density, throughput of DCX Backbone

NetApp revenue up 33%, earnings up 72%

November 17, 2010 – Over the past few weeks, analysts have opined that acquisitions such as EMC-Isilon ($2.25 billion) and HP-3PAR ($2.4 billion) spell bad news for NetApp. Maybe, but for now the NetApp juggernaut appears to be more than solid.
The company reported financial results today for its fiscal second quarter, highlighted by quarterly revenues of $1.207 billion. That’s up 33% over the same quarter a year ago. Similarly, NetApp’s revenue for the first six months of this quarter is up 34% vs. the previous year.

Net income was $165 million, or $0.42 per share, which compares to net income of $96 million, or $0.27 a share, a year ago. That’s a 72% increase year-over-year.

And gross margin was a whopping 66.9%, while operating margin was 19.8%.

The brightest spot was the company’s hardware revenues (which NetApp refers to as “product” revenue).

“NetApp produced 49% year over year growth in product revenue and our highest non-GAAP operating margin in over a decade,” said Tom Georgens, NetApp’s president and CEO. Product revenue in the second quarter was $780 million. And none of that came from the products NetApp announced a couple weeks ago as part of a wide-ranging refresh (see “NetApp overhauls product line, from arrays to OS”).

Other product lines were not so impressive. For example, software revenue was $177.9 million, up 5% year over year, and services revenue was $249.5 million, up 16% year over year.

What may raise some eyebrows is that NetApp is sitting on net cash of more than $3 billion, which will surely spark speculation on possible acquisitions that NetApp might make given the current climate of red hot M&A activity in the storage space.

Company officials predict third quarter revenue in the $1.24 billion to $1.29 billion range, which would translate into sequential growth in the 3% to 7% range.

NetApp [NASDAQ: NTAP] shares closed at $49.25 today, down 6.5%. The company’s 52-week trading range is $28.92 to $57.96.

Trading on the company’s stock was halted this afternoon due to a leak of the earnings report prior to NetApp’s official conference. Shares plunged, apparently because investors were not pleased with the Q3 earnings estimates.

Related blog post: “NetApp hits a home run in Q1”
Related article: "NetApp overhauls product line, from arrays to OS"

Also today, scale-out NAS specialist (and NetApp competitor) BlueArc reported record third quarter revenues and a 100% quarter-over-quarter growth in channel revenues. More details were not available in time for this post. (BlueArc is a private company.)

SSDs hit mainstream stride

November 17, 2010 – You know a storage technology is hot when there are four significant (well, at least interesting) announcements related to that technology in a single day. Such was the case yesterday with announcements related to solid-state disk (SSD) drives from Hitachi GST (in partnership with Intel), LSI, Violin Memory, Anobit and Intel.

Hitachi Global Storage Technologies (GST) claims to be the first hard disk drive (HDD) vendor to ship both SAS and Fibre Channel “enterprise-class” SSDs, albeit in only limited quantities to OEMs, with production shipments ramping over the first half of next year.

See “Hitachi GST enters SSD market.”

LSI announced a PCIe accelerator card based on SSD technology this week, with shipments slated for the end of the month. With 4KB block sizes, LSI claims performance of 240,000 IOPS on sequential reads and 200,000 IOPS on random reads. At an MSRP of $11,500, LSI’s 300GB WarpDrive SPL-300 card isn’t cheap but the company has some cool technology that integrators can bundle, including MegaRAID CacheCade and FastPath software.

See “LSI ships SSD-based accelerator card.”

Violin Memory introduced cache appliances based on flash and DRAM memory that significantly boost the performance of NFS-based NAS systems. The secret sauce in the NFS caching software comes from Violin’s acquisition of Gear6 earlier this year.

See “Violin’s cache appliances accelerate NFS NAS.”

Also yesterday, Anobit announced that it had received $32 million in a funding round led by Intel Capital, Intel’s equity investment unit. That brought the total funding behind Anobit to more than $70 million. Anobit specializes in NAND flash memory and Memory Signal Processing technology.

It’s not surprising that so many vendors are trying to get a piece of the SSD market. Market researcher IDC predicts that the total SSD market will grow at a 58% CAGR in unit shipments and a 44% CAGR in revenues over the next few years.

However, the fastest growing segment of the overall market is enterprise SSDs, where unit shipment are expected to surge at a CAGR of 74%, and revenues are expected to grow at a 54% clip, through 2014.

IDC expects the total SSD market to exceed $7 billion in 2014.

Related article: “Vendor group develops standards for PCIe SSDs”

EMC’s $2.25 billion bid for Isilon exceeds expectations

November 15, 2010 – I was wrong. When I blogged about EMC possibly acquiring Isilon late last week, I guessed that EMC would indeed buy the scale-out NAS vendor but at a price considerably less than the rumored $2 billion. In fact, EMC’s bid came in at $2.25 billion today – which is surprisingly close to HP’s $2.4 billion buyout of 3PAR.

Some observers have speculated that the $2.25 billion suggests that there were other suitors involved. I don’t think so. I think EMC wanted to seal the deal without a bidding war, and $2.25 billion should do the trick.

EMC’s positioning of the deal was interesting. Predictably, the words “big data” and “cloud” came up a lot in EMC officials’ explanation of the deal, but so did the synergies between Isilon’s platforms and EMC’s Atmos platform.

According to EMC’s press release on the announcement: “EMC’s Atmos and Isilon’s solutions will offer customers a highly scalable, low-cost storage infrastructure for managing ‘Big Data.’ . . . EMC Atmos object storage provides the perfect complement to Isilon for massive globally distributed environments and object access to data for usages like Web 2.0 applications.”

EMC went on to estimate that the combined revenue from the Isilon and Atmos platforms will hit a $1 billion run rate during the second half of 2012.

EMC also emphasized synergies between Isilon’s clustered scale-out NAS platforms and systems/software from Greenplum, which EMC acquired earlier this year.

In short, all of these acquisitions are complementary, not internally competitive. Nice positioning, and in fact it’s true. It’s rare that a vendor can make acquisitions of these sizes without having to shake up its existing product lineup (which is what HP will have to do as it folds 3PAR’s systems into HP’s venerable disk array lineup).

Not surprisingly, the EMC-Isilon announcement sparked more acquisition rumors, but now vendors that play in Isilon’s ballpark are getting some attention, including BlueArc (to be acquired by long-time partner Hitachi Data Systems?) and Panasas, which is moving into more commercial markets (see “Panasas Pushes Scale-Out Storage Performance Envelope” on Enterprise Storage Forum).

If $2.25 billion seems like a high price to pay for a barely profitable Isilon, consider the fact that IDC predicts that the market for scale-out NAS will grow on average 36% per year, reaching $6 billion by 2014.

Related articles:

EMC snaps up Isilon for $2.25 billion (Enterprise Storage Forum)

Isilon revenue up 77% (InfoStor blog post)

NetApp overhauls product line, from arrays to OS (InfoStor news story)

Isilon stock volatility stabilizes, but acquisition speculation stays

November 11, 2010 – The bidding war between HP and Dell that ended in HP’s $2.4 billion buyout of 3PAR has sent a number of storage vendors’ stock prices skyward. One good example was Isilon.

Fueled by a combination of acquisition rumors and a stellar quarterly financial report (see “Isilon revenue up 77%”), Isilon’s shares hit an all-time high of $29.48 late last month. The 52-week trading range: a shocking $5.32 to $29.48.

More recently, shares of Isilon (NASDAQ: ISLN) seem to have stabilized, closing at about $26 today.

EMC was reportedly in deep and exclusive talks with Isilon regarding a buyout, with the New York Post reporting that deal was in the $2 billion neighborhood (where 3PAR lived). More recently, various reports said that the EMC-Isilon talks were either dead (because of the pricey neighborhood) or stalled. I’d bet on the latter.

Realistically, I don’t think that (the barely profitable) Isilon can get $2 billion+ from anybody. So I’d still say that EMC is the most likely acquirer.

However, assuming that EMC is out of the bidding, financial analysts cite the usual suspects as possible bidders: Dell, NetApp, HP, IBM and Oracle – usually in that order. However, a bidding war a la HP vs. Dell for 3PAR will be highly unlikely this time around, in part (as I’ve said before) Isilon’s technology is great but it’s a product line gap plugger rather than the game changer that 3PAR would have been for Dell and could be for HP.

Financial analysts such as Morningstar’s Mike Holt, on thestar.com, cite Dell as the most likely candidate to snap up Isilon. However, rather than take what would be sort of a consolation prize after losing its bid for 3PAR, I’m guessing that Dell heads in a different (non-storage) direction in its acquisitions. And besides, Dell has the Exanet technology.

Isilon’s clustered scale-out NAS technology would fit nicely into NetApp’s lineup, but NetApp has shed a lot of blood, sweat, tears and money integrating the Spinnaker technology, and acquiring Isilon would be a lot of expensive crow to eat.

With Isilon’s hiring of Qatalyst Partners (which shepherded the 3PAR bidding), it seems quite likely that Isilon will be acquired. Then again, given the company’s traction and recent earnings report, the Isilon could very well go it alone.

Related blog post: “Isilon revenue up 77%”

Intel’s card play in unified networking (10GbE+iSCSI+FCoE)

November 3, 2010 – InfoStor has been covering converged, or unified, networks and the Fibre Channel over Ethernet (FcoE) protocol for years, but most of our product-oriented coverage has been centered on adapters from vendors such as Emulex and QLogic. Those vendors are clearly out in front in this space, both from a time-to-market and market share perspective, but there are other vendors with host adapters for converged networks, and we’ve been remiss in not covering a little player called Intel.
First, a note on terminology: Vendors such as QLogic and Emulex use the term converged network adapter (CNA) to describe cards that support protocols such as 10GbE, Data Center Bridging (DCB), iSCSI and FCoE. Other vendors, such as Broadcom, are expected to use the term Converged Network Interface Card, or C-NIC.

Intel doesn’t use either of those terms, referring to the technology in general as “unified networking” or just referring to its Ethernet X520 Server Adapter card.

Intel’s approach to unified network cards is architecturally different from the CNA approach taken by vendors such as Emulex and QLogic. With CNAs, protocols (and protocol offload functionality) are implemented on the CNA, which architecturally is similar to a host bus adapter (HBA).

In contrast, Intel uses native initiators for FCoE and iSCSI that are implemented in the host operating system (Windows and Linux) kernel. Thus Intel’s use of the term “open FCoE.”

“We rely on native protocols in the OS kernel, so it’s free and easy to implement and use,” says Sunil Ahluwalia, senior manager of product marketing in Intel’s LAN Access Division. “CNAs are special-purpose adapters that are more complex and costly.”

Intel’s Ethernet X520 Server Adapter has an MSRP of $799 (and often sells for considerably less), which is about half the price of CNAs.

Rather than implementing hardware-based full offload of the storage-over-Ethernet protocols, Intel offloads only the data path part of the protocol.

“We have what we call ‘intelligent offload,’” says Ahluwalia. “We don’t offload the full protocol because we don’t think that’s required, and full offload adds complexity and cost to the cards because you need processing engines, memory, etc. on the card, which also adds power requirements.”

Performance

CNA vendors have historically claimed that the native initiator approach (a) lacked full support for protocols such as FCoE (which is no longer the case) and (b) had relatively poor performance.

Intel begs to differ. However, it’s important to note that all vendors in this space can point to internal or third-party testing that shows superior performance for their products. As always, benchmark results should be taken with a grain of salt.

“Intel and Microsoft demonstrated one million IOPS with native iSCSI earlier this year, but the question was: Who needs that level of performance in real-life applications?,” says Ahluwalia, “so we performed some tests [with Demartek] running applications such as Exchange and SQL and we found little difference in performance between a CNA and an initiator approach.”

For full info on the testing procedures and results, see Demartek’s “Intel 10GbE Adapter Performance Evaluation for FCoE and iSCSI.” (Demartek’s site has a lot of other interesting FCoE-related content).

“We found that the performance of the Intel X520 adapter was comparable to competitive 10Gb FCoE adapters for a broad spectrum of tests,” said Dennis Martin, Demartek’s president. “Because the adapter performance was reasonably close in most of these tests, IT professionals need to consider the cost of these adapters, especially in environments where many adapters are required.”

Intel’s Ahluwalia also claims that the native initiator approach does not consume a lot of CPU cycles (another criticism of this approach).

To take one example from the Demartek tests: In a Microsoft Exchange Jetstress benchmark with 5,000 mailboxes, Intel’s card/initiator consumed only about 2% CPU utilization.

But you really have to take a close look at the Demartek tests, as well as testing of CNAs conducted by other vendors and third parties, to get to the bottom of the performance claims in the unified, or converged, network adapter market.

Related article: QLogic announces 10GbE NICs, CNAs

CommVault reports solid second quarter

November 2, 2010 – With virtually all storage vendors racking up impressive revenue numbers over the last couple quarters, it’s no surprise that CommVault turned in solid performance figures for its fiscal second quarter today. In fact, the company achieved record revenue of $75.2 million, an increase of 13% over the same period a year ago, and also up 13% over the previous quarter.
Breaking those numbers down a bit, software revenue was $35.8 million, up 7% year-over-year and 26% sequentially. Services revenue was $39.5 million, up 19% year-over-year and 13% over the prior quarter. Income from operations was $9.2 million. That compares to $6.5 million in the same quarter last year.

CommVault executives highlighted a number of recent parternships that could fuel growth, including a distribution agreement with Hitachi Ltd. subsidiary Hitachi Computer Peripherals, as well as a partnership with Mezeo Software that will integrate CommVault’s Simpana software with the Mezeo Cloud Storage Platform.

But the big highlight in the quarter was CommVault’s launch of the long-anticipated Simpana 9 software, which included significant enhancements for data protection in virtual server environments, as well as source-based (in addition to target-based) deduplication and integrated array-based snapshots (see “CommVault unveils Simpana 9”).

Even though it was only introduced on October 5, Simpana 9 accounted for 13% of CommVault’s software license revenue in its second quarter, according to Stifel Nicolaus analyst Aaron C. Rakers.

Rakers also reported that the number of >$100,000 deals in CommVault’s Q2 were up 17% year-over-year and 45% sequentially, indicating that CommVault is well-positioned at the high end of the market vs. chief rival Symantec.

(Rakers maintained his hold rating on CommVault’s shares [NSDQ: CVLT], which were trading around $29 today.)

Related blog post: “Who will be acquired next? And the Top 10 are . . .”

Guest blogger: DCIG's Jerome Wendt on The Future of RAID

November 1, 2010 -- There was a sizable uptick last month in the readership of a blog entry that appeared nearly two years ago on DCIG's website on the topic of data loss on SATA storage systems. While this blog entry received a fair amount of interest when it was first published, exactly what prompted a resurgence of interest in this topic last month is unclear.

Maybe it's just an anomaly driven by the whimsical interests of Internet users who are for whatever reason searching on this topic.
However, it may be a more ominous indication that SATA disk drives are wearing out and that the traditional RAID technologies used to protect them are failing. As a result, users are looking for information as to why RAID, in some circumstances, is not doing the job in their environments.

The death of RAID (or at least RAID 5) has previously been forecast by some analysts. But even now, when I look at the features of new storage arrays, the number of RAID options that they support is always prominently mentioned.

A good example is Overland Storage's recent introduction of the SnapSAN S1000. It offers at least 10 different ways that RAID can be configured (including RAID 5) on a storage array that starts at less than $10,000, so it's clear that RAID is not dead or even on its last legs.
But there is no disputing that capacities of SATA disk drives will cross the 4TB, 8TB, 16TB and 32TB thresholds over the next decade. As that occurs, it becomes questionable whether current RAID technologies will be able to protect disk drives of these sizes. If the increased interest in DCIG's 2008 blog entry (see "Data Loss on SATA-based Storage Systems -- Coming Soon to Your Company?") is any indication, the answer would apprear to be 'no.'

Am I predicting the death of RAID? Clearly not. RAID technology is as much a part of the storage landscape as tape, and odds are that innovation will continue to occur in RAID to make it a relevant technology for the foreseeable future.

Yet it was clear from speaking to a few users and storage providers at Storage Networking World (SNW) last month that new approaches to protecting data stored on larger capacity SATA disk drives are going to be needed.
One specific company that I met with at SNW was Amplidata, which is already innovating in this space to overcome two of the better known limitations of RAID, including:

•The increasing length of time required to rebuild larger capacity drives. Rebuild times for 2TB drives are already known to take four hours or longer to complete, and in some cases -- depending on how busy the storage system is -- it can take days for a rebuild.
•The need to keep all disks in a RAID group spinning so no power savings can be realized. Spin down is likely to become more important in the years to come as more data is archived to disk, with it likely becoming a function of the storage array to intelligently manage and place the archived data on these drives -- as opposed to the software -- to facilitate the spin down of drives.

Amplidata's AmpliStor distributes and stores data redundantly across a large number of disks. The algorithm that AmpliStor uses first puts the data into an object and then stores the data across multiple disks in the AmpliStor system. By storing the data as an object, Amplidata can reconstruct the original data from any of the disks on which the data within the object resides.

This technique eliminates growing concerns about the rebuild times associated with large disk drives since the original data can be retrieved and reconstructed even if one, two or even more disks fail. Also, should disk drives in the system be spun down to save energy, they do not need to be spun up to retrieve needed data since the data can be retrieved and reconstructed from other spinning disks in the system.

While it is unlikely that AmpliStor or its underlying technology will be widely adopted in the next few years, the simple fact is that increasing capacities of disk drives will eventually make technologies such as AmpliStor a prerequisite in almost any high-capacity enterprise storage system.

So in the same way that enterprise storage vendors started to adopt RAID 6 about five years ago to prevent the loss of data should two SATA drives fail, look for some variation of Amplidata's AmpliStor to find its way into enterprise storage systems over the next decade to prevent the loss of data on these ever larger disk drives. At the same time, expect RAID to find a new home on smaller storage arrays where the level of protection and speed of recovery that RAID currently provides is more than adequate.
This post originally appeared on the DCIG site (see "RAID is Certainly not Dead But its Future Looks Small").