The Top Ten Storage Acquisitions of 2010

January 3, 2011 -- I originally posted a Top Ten acquisitions list in September, under the assumption that after the blockbuster HP-3PAR buyout we may have seen the last of the big storage acquisitions for the year. Wrong. The storage industry capped a crazy year of M&A fever with the EMC-Isilon and Dell-Compellent acquisitions. With those additions, I had to knock off from the list a few of the relatively minor acquisitions of the year, including SolarWinds’ acquisition of Tek-Tools and Exar’s buyout of Neterion.
Here's my revised list of the Top 10 storage acquisitions of 2010, in ascending order:

#10: PMC-SIERRA – ADAPTEC

Throughout the 1990s, Adaptec was synonymous with SCSI, and had a lock on the SCSI controller/adapter market. The company reached its heyday when it racked up revenues of about $800 million in fiscal 2000. But Adaptec didn’t see the winds of change blowing.

PMC-Sierra acquired Adaptec this summer for a mere $34 million.

In addition to Adaptec’s technology and products, PMC acquired Adaptec’s extensive channel, where it is still strong in RAID adapters.

PMC-Sierra’s acquisition of Adaptec puts the company in even more intense competition with arch enemy LSI. Now PMC will compete in the channel with LSI at the board level, whereas previously the battle was fought primarily on the semiconductor front.

Related articles:
PMC-Sierra to buy Adaptec’s channel storage business
PMC-Sierra ships 6Gbps SAS controllers

#9: NETAPP – BYCAST

The terms of the NetApp-Bycast deal were not disclosed. According to our original article on the acquisition: “NetApp is advancing its efforts in the cloud storage market with the acquisition of Bycast, a developer of object-based storage virtualization software that turns multiple storage devices across geographically-dispersed locations into a single pool for storing fixed content data.”

See “NetApp to acquire Bycast for cloud storage software”

NetApp plans to leverage Bycast technology to go after markets such as digital media, Web 2.0, healthcare, and cloud services providers.

Bycast’s flagship product is its StorageGRID virtualization software. It will be interesting to see what happens to some of Bycast’s existing OEM deals, which include partnerships with IBM and HP.

#8: EMULEX – SERVERENGINES

Prior to acquiring ServerEngines, Emulex was in a dicey position: The company licensed critical technology, including 10GbE ASICs, from ServerEngines and that technology was key to Emulex’s (at the time) risky gamble of betting the farm on 10GbE (and going head-to-head with Ethernet giants Broadcom and Intel, in addition to long-time rival QLogic and others).

The position was dicey because a competitor could scoop up ServerEngines, thus pulling the rug from underneath Emulex’s strategy. Emulex paid a high price for ServerEngines, but there wasn’t any choice.

According to our original article on the acquisition: “Emulex will acquire ServerEngines for $78 million in cash and eight million shares of Emulex stock. Based on Emulex’s closing price of $10.11 last week, those eight million shares would translate into an additional $81 million, bringing the total to almost $160 million.”

But wait, there’s more: “In addition, Emulex will issue four million shares of stock if ServerEngines meets certain business objectives by the end of 2011. Emulex also agreed to assume ServerEngines’ debt, which is currently $25 million. As such, the deal could eventually exceed $200 million.”

See “Emulex to acquire ServerEngines”

The bet, and the acquisition, seem to have paid off. Emulex has racked up a number of OEM design wins for its 10GbE/FCoE/iSCSI converged network adapters (CNAs), including Dell, EMC, HDS, HP, IBM and NetApp.

ServerEngines was founded in 2004 by former Broadcom engineers that were previously with ServerWorks, which was acquired by Broadcom in 2001. In early 2009, Broadcom launched an unsuccessful hostile takeover of Emulex.

#7: DELL – OCARINA

Rumored to be in the $150 million ballpark, Dell’s acquisition of Ocarina came as a surprise to almost everybody, and (along with #6, see below) confirmed that capacity optimization (data deduplication and/or compression) of primary storage is The Next Big Thing.

According to my original blog post on this acquisition (see “Dell to acquire Ocarina for data deduplication”): “Until the announcement of its embeddable, OEM version of its software, Ocarina was known primarily as a vendor of data reduction technology for primary storage. But the embeddable version is applicable across the storage spectrum, from primary storage to backup and archive.”

I think Dell will initially leverage Ocarina’s technology in image-intensive, fixed-content applications on primary storage. That space is where, so far, Ocarina has made its mark, with large wins at companies such as Kodak. Dell will probably continue to resell Symantec, CommVault and Data Domain software where those companies’ technologies make more sense, or where customers demand it.

And in a related Top 10 acquisition . . .

#6: IBM – STORWIZE

This one had been rumored for weeks before IBM made it official, so it ranks low on the surprise factor but high on the industry influence scale. Even more than the Dell-Ocarina deal, and even more than NetApp’s evangelizing, IBM’s acquisition of data compression specialist Storwize put data reduction for primary storage in a top spot among Hot Storage Technologies.

Rumors put this deal in the range of $140 million.

Storwize’s data reduction technology differs from some of its competitors in that it is in-line, real-time compression, as opposed to data deduplication.

It’s certainly not an understatement to say that being acquired by IBM was the smartest thing Storwize did since changing its name from Storwiz.

The Storwize product line is now part of the IBM Real-time Compression business unit.

See “IBM to Buy Storwize for Real-Time Data Compression” on InfoStor partner site Enterprise Storage Forum.

#5: VISION SOLUTIONS – DOUBLE-TAKE

This one ranked high on the surprise factor and it also ranked high in dollars, being valued at $242 million.

That amounted to about $10.55 per Double-Take share. Double-Take went public in 2006 at about $11 a share.

Prior to the Vision Solutions announcement, it was well known that Double-Take was on the block, with vendors such as Dell and HP considered to be potential acquirers.

Vision Solutions specializes in data protection software for IBM systems, while Double-Take’s strengths are in backup, replication, disaster recovery and high availability software, primarily for Microsoft platforms.

See “Vision Solutions to acquire Double-Take”

#4: EMC – GREENPLUM

I never did find out exactly what EMC paid for Greenplum, a data warehousing and analytics specialist, but my (questionable) sources tell me that the acquisition payment would easily put the deal near the top of this list.

Greenplum claims more than 100 customers, including NASDAQ OMX, NYSE Euronext, Skype, Equifax and T-Mobile.

In addition to its massively parallel processing (MPP) Greenplum Database, the company has Greenplum Chorus, a cloud platform for collaboration and data sharing. Greenplum became the foundation of a new division within EMC’s Information Infrastructure business.

Greenplum is a nice fit with EMC’s cloud initiatives, but it also heats up the competition between EMC, Oracle, IBM and Sun.

See “EMC acquires data warehousing vendor Greenplum”

#3: DELL – COMPELLENT

This one may not be a done deal, but it’s pretty close so Dell’s “take-under” acquisition of Compellent takes the #3 spot on our list. The latest offer is $27.75 per share, which translates into about $960 million, or $820 million net of Compellent’s cash.

In a sense, Compellent is a consolation prize after Dell lost the bidding war with HP over 3PAR. Acquiring 3PAR would have solidified Dell’s position in high-end disk arrays, but Compellent fills out Dell’s mid-range (and slightly high-end) positioning.

It will be interesting to see how Dell positions Compellent’s disk arrays relative to the EqualLogic product line (which grew 66% in revenues over the last year), but it will be even more interesting to see what happens to Dell’s EMC reseller agreement.

#2: EMC – ISILON

EMC shelled out around $2.25 billion for scale-out NAS vendor Isilon Systems, net of Isilon’s existing cash balance. That’s an eye-popping amount of cash, particularly considering that Isilon was barely profitable, but market researcher IDC predicts that the scale-out NAS market will grow on average about 36% annually, reaching an estimated $6 billion in 2014.

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 officials 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.

Isilon wasn’t EMC’s only acquisition this year. The company bought Bus-Tech about a week prior to the Isilon announcement. Bus-Tech specializes in VTL technology for mainframe environments. The financial terms of the Bus-Tech acquisition were not disclosed.

See “EMC snaps up Isilon for $2.25 billion” on InfoStor partner site Enterprise Storage Forum.

#1: HP – 3PAR

By virtue of its price ($2.4 billion) and the drama of the bidding war with Dell (which started at $1.15 billion), HP’s acquisition of 3PAR was clearly the #1 storage acquisition of 2010.

The acquisition of 3PAR puts HP in a much better competitive position, but it will be interesting to see what happens to the rest of HP’s disk array lineup. Does the 3PAR acquisition sound the death knell for the venerable EVA line? And what will be the fate of HP’s reseller deal with Hitachi? Months after the acquisition was announced, we still have more questions than answers on this acquisition.

2010 wasn’t a record-setting year in terms of the number of storage acquisitions, but it certainly was a record setter in terms of the amount of money that was shelled out.

As we enter 2011, the big question is: Who will be acquired next? According to the financial analyst community, CommVault is the most likely storage vendor to be acquired, but other possibilities cited by financial analysts include (in no particular order) Xiotech, Brocade, BlueArc, FalconStor and NetApp.

Related article:

Top 10 Storage Predictions for 2011 (by Henry Newman, on Enterprise Storage Forum)

The Top 5 array vendors: HP #4, Dell #5

September 9, 2010 -- Against the backdrop of the HP-Dell-3PAR drama (which, in case you were in a coma, ended with HP victorious in its $2.4 billion buyout of 3PAR), IDC recently released its quarterly report on the disk systems market.

For the second quarter of this year, EMC retained its #1 ranking in the external disk systems space with almost twice the market share of #2 IBM. On Q2 revenue of almost $1.3 billion, EMC held a 25.7% market share compared to IBM's 13.6% slice on revenue of $680 million.

NetApp was #3 with an 11.4% share on revenue of $571 million, followed very closely by HP with an 11.3% share on revenue of $567 million (which is essentially a dead heat between the two vendors).

Rounding out the Top 5 was Dell, with a 9.4% share and revenue of $472 million.

Liz Conner, IDC's senior research analyst, storage systems, estimates 3PAR's share of the market at 0.58%.

Depending on how quickly HP can ramp the 3PAR revenue stream, it won't be long before HP is firmly in the #3 spot, followed by NetApp at #4.

Or maybe not. In terms of revenue growth in 2Q10 vs. 2Q09, NetApp was the big gainer, with an impressive 55.3% revenue growth rate, followed by EMC with a 40.6% growth rate. HP only had 20.9% growth year-over-year, and Dell posted a 17% increase. IBM was the laggard at 10.9%.

The "others" category in the external disk array market continues to decline. In 2Q09, "others" accounted for 33.5% of the market ($1.6 billion in revenue), but in 2Q10 that share slipped to 28.6% ($1.4 billion). So the "others" market share is approximately the same as EMC's share.

That stat will no doubt throw more fuel on the speculation fire regarding which disk array vendor(s) will be acquired next (e.g., Compellent, Isilon, Pillar, Xiotech, etc.).

If you add up all (external + internal) storage systems revenue, the market share rankings shift: HP (19.3%), EMC (19%), IBM (15.8%), Dell (12.3%), NetApp (8.4%).

The NAS and iSCSI SAN sectors continue to rack up impressive growth figures. The combined NAS+iSCSI market grew 29.2% year-over-year in the second quarter, to $4.2 billion. EMC had a 28.9% share, followed by NetApp at 13.6%.

The NAS market posted 51.1% growth year-over-year, with EMC taking a 45.6% share followed by NetApp with 25.2%.

And the iSCSI SAN market grew 49%, with Dell in the lead with a 32.9% slice, followed by HP, NetApp and EMC in a statistical tie for second place.

Overall, the external disk storage market grew 20.4%, topping $5 billion in the second quarter.

For more details, see IDC's press release: "Disk Storage Systems Market Sustains Strong Double-Digit Growth Across All Sectors in Second Quarter."

HP to get 3PAR for $2.4 billion

September 2, 2010 -- The fat lady seems to have sung. Dell exited the 3PAR acquisition stage with the following statement by Dave Johnson, Dell's senior vice president, corporate strategy: "We took a measured approach throughout the process and have decided to end these discussions."

After what appears to be a lot of under-the-covers negotiations, HP ended the drama with a $33-per-share, $2.4-billion acquisition offer (see "Dell Ends 3PAR Talks After HP's $2.4 Billion Bid" on Enterprise Storage Forum).

After what we've seen over the past couple weeks, I'm hesitant to call this a done deal, but that appears to be the case.

So HP gets 3PAR's crown jewels of virtualization, cloud computing capabilities, storage/data tiering and thin provisioning (not to mention ASIC technology). The question now is: How will HP fold 3PAR's systems into its existing disk array lineup? 3PAR overlaps big time with HP's venerable EVA line, and to a lesser degree with the high-end systems that HP OEMs from Hitachi Data Systems. Something has to give, although it will probably be awhile until HP provides details.

For Dell, the question is: Now what? Many observers have speculated that Dell will go after another disk array vendor (Compellent, Isilon, Xiotech?), but none of those companies are a replacement for what Dell had in mind with the 3PAR bid. Maybe Dell will turn to networking (Brocade?). Or software (CommVault?).

Dell put its cards on the table, and finally folded. For now. Which table will it sit down to next?

In a side show next to the three-ring HP-Dell-3PAR circus, litigious Crossroads Systems yesterday filed a patent infringement lawsuit against 3PAR and, according to an article on PC World, D-Link, Rorke Data, Chelsio Communications, DataCore Software, iStor Networks and American Megatrends. According to that article (see "3Par Faces Lawsuit as Bidding War Continues"), the suit involves a patent for a storage router that provides virtual local storage on remote storage devices.

HP, Dell, 3PAR: Bidding war or done deal?

August 24, 2010 – We should probably just let this drama play out and then comment on it, but who can resist? As the storage world waits for Dell’s response to HP’s $1.6 billion counter-offer for 3PAR, I thought I’d take a stab at some of the questions that are being bandied about.

Will Dell counter? At first, I thought this was a done deal for HP. In an acquisition context, a 33% raise leads to an opponent folding. Then again, maybe this “I’ll see your $1.15 billion and raise you $450 million” is just these guys anteing up. This pot could get close to, or exceed, $2 billion.

Yes, I think Dell will counter, but I don’t think it would be wise. And the reason for that leads me to the next question.

Is 3PAR better for HP or Dell? I think it’s better for HP, but this is highly arguable.

HP has a solid high-end lineup with the HDS OEM deal, but I doubt that HP’s Dave Donatelli (formerly with EMC) is a reseller type of guy. 3PAR gives HP its own technology, and possibly a better weapon against EMC. The question would then be: What would HP do with the HDS line? And if HP follows Oracle’s suit on that, What becomes of HDS? (HP execs said that they would continue with the HDS partnership, business as usual.)

HP knows how to sell really high-end gear, which can’t be said about Dell. Plus, if Dell winds up acquiring 3PAR it would have to then follow up with a string of risky, blockbuster acquisitions to really own the IT stack. And even Dell’s war chest would be seriously depleted after a long series of billion dollar acquisitions.

If this deal pushes upward of $2 billion, there would be a lot of pressure on Dell to prove that it can play in the IT stratosphere, which is questionable. Dell obviously had a lot of success with the EqualLogic acquisition, but instead of going right to the very high end with 3PAR (and thus going head-to-head with EMC), it seems like a stepping-stone approach might have made better sense (e.g., acquiring BlueArc or Compellent or Isilon or Xiotech, etc.)

Will other suitors jump in? Doubtful. The only possibilities are IBM, EMC, NetApp or Oracle, and of those only Oracle is rich enough and nuts enough (see “Who will Oracle acquire next?” ). If Oracle wants another storage product line, my money is on (and Larry’s money is in) Pillar Data.

If IBM or EMC made a move for 3PAR it would (a) be admitting that their existing high-end arrays aren’t up to snuff and (b) create too much confusion among customers and overlap in product lines. For $1.6 billion+, there are much better acquisitions for IBM or EMC to make.

NetApp could probably afford 3PAR, but does NetApp really want to get into another big-time bidding war? Been there, done that.

I think we’re in for a bidding war, but there will only be two players at the table.

Related blog post:
HP’s bid for 3PAR not its first

Recommended blog: Stephen Foskett’s “Everyone Loves 3Par: Here’s Why”

SNW, day 1

April 6, 2009 – Granted, it’s only the first day of the Storage Networking World show, and there’s a storm, and the economy’s in the tank, and the exhibits don’t open until tomorrow, but things are sloooow here in Orlando.

No waiting in line to register, no background noise (or people) in the press room, only a spattering of product announcements in my inbox, and even the bar was empty at 5:00 (a sure sign that the show isn’t what it used to be). The only outfit doing brisk business here is Starbuck’s.

The biggest product announcements today were 3PAR’s mid-range disk arrays (see “3PAR ships quad-controller array”) and FalconStor’s Backup Accelerator option for its VTLs (see “FalconStor speeds up backups”), which is only major because FalconStor is the leader in VTLs and VTLs are hot (but don’t solve all the problems associated with tape-based backup environments).

Oh, yes, and you can add yet another cloud-based storage services vendor to the rapidly growing list of players in this space (see "Zetta launches cloud storage service").

You know that a technology is hot when the Storage Industry Networking Association (SNIA, which co-sponsors SNW) forms a group dedicated to it. SNIA today announced the Cloud Storage Technical Work Group.

In other announcements today . . .

Xiotech, which a year ago at SNW launched its Intelligent Storage Element (ISE) technology with great fanfare, today announced an energy-efficient feature -- dubbed PowerNAP – for its Emprise 5000 disk arrays. As its name implies, PowerNAP powers down drives so that they consume less than 24 watts (compared to 500 to 600 watts in power-up mode). The technology is based on Wake-On-LAN (WOL) technology, and company officials are quick to point out that it’s not massive array of idle disk (MAID) technology.

STORServer used SNW to showcase its STORServer Agent for VMware Consolidated Backup (VCB), which integrates VCB with IBM’s Tivoli Storage Manager (the engine behind STORServer’s Business Continuity Appliances). The agent provides centralized management, reporting and scheduling of virtual machine (VM) backups. STORServer also sells an appliance-based approach for integrating VCB and TSM.

I also sat down with Rob Stevenson, director of storage research at TheInfoPro, which recently completed Wave 12 of its ongoing surveys of Fortune 1000 storage professionals. Although it’s no surprise that data de-duplication (in a disk-to-disk backup context) topped the charts in TIP’s Technology Heat Index, it’s a little surprising that data de-duplication for primary storage was so high on users’ implementation plans.