NetApp to buy LSI’s Engenio for $480 million

March 9, 2011 – Following Monday’s announcement of Western Digital’s plan to acquire Hitachi GST for $4.3 billion, consolidation in the storage industry continued today with NetApp’s surprise announcement that it will buy LSI’s Engenio business for $480 million in cash – the largest transaction in NetApp’s history. The deal is expected to close within 60 days.

NetApp officials expect the acquisition to add $750 million to its revenue stream in fiscal 2012, and to add $5 billion to its total addressable market (TAM) by 2014.

LSI’s Engenio division had revenues of $705 million in 2010. (LSI’s entire storage portfolio generated revenues of $954 million in 2010.)

The new unit will be run by Manish Goel, executive vice president of NetApp’s product operations.

It’s important to note that NetApp is buying only the Engenio product line (external disk arrays), not LSI’s other storage lines (e.g., the ONStor and MegaRAID and 3ware controller/adapter families).

In acquisitions such as this, it’s customary to examine product overlap between the two companies’ product lines. However, NetApp officials didn’t really address that during their conference call. Instead, they focused on new workloads (vertical markets) that the company can penetrate better with Engenio’s technology than with NetApp's FAS technology. NetApp officials cited video (including full-motion and surveillance) and high performance computing (HPC), as well as multimedia, oil and gas, semiconductor simulation, weather simulation, medical imaging, and content distribution.

In addition to those new fast-growth verticals, NetApp officials noted that the Engenio acquisition will significantly expand NetApp’s channel strategy.

Fine, but the interesting question is what will happen to Engenio’s OEMs partnerships. Engenio’s OEMs include IBM (Engenio’s largest customer, and already a NetApp partner), Oracle/Sun, Dell, SGI and Teradata.

In today’s conference call, NetApp CEO Tom Georgens (who was formerly with Engenio) subtly danced around this issue, and downplayed the OEM side of the deal. Here are some clips from Georgens:

“Clearly, we have to have dialogue [with Engenio’s OEMs ]. . . Our objective is not to undermine the OEM business; our objective is work hand-in-hand with them . . . [but] if things change and a relationship becomes less friendly, I think we have the tools to compete that the previous owner of this business did not.”

More clips: “We expect [the OEM business] to roll off a bit. It’s certainly not going to be a growth element. The growth will come from the new business . . . and expanded TAM . . . At the price we’re paying . . . and the potential return, I think we would have justified this transaction with no OEM business.”

And in response to a question about whether NetApp would be able to keep all of Engenio’s OEMs: “I think that we’ll keep a number of them, or a large portion of the OEMs, but I don’t think we’ll keep every dollar of OEM revenue . . . I’m not saying that OEMs don’t matter, but the growth is elsewhere [in the new vertical markets].”

I’d guess that the OEM relationships with Oracle/Sun and Dell will be on shaky ground, but if the storage opportunities in areas such as video and HPC grow as rapidly as expected, and NetApp can gain significant market share in those verticals with the Engenio technology, then the OEM side of this equation may not matter.

As for LSI: The company’s press release said that “The strategic decision to divest the external storage systems business was based on the company’s expectation that long-term shareholder value can be maximized by becoming a pure-play semiconductor company.” In conjunction with the acquisition announcement, LSI said that its board of directors has authorized a new stock repurchase program of up to $750 million.

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”

SNW, day 2

April 7, 2009 – At a show where it wasn’t hard to headline, Brocade topped today’s new product announcements with its Fibre Channel over Ethernet (FCoE) and Converged Enhanced Ethernet (CEE) switch and an accompanying set of FCoE-based converged network adapters (CNAs). See Kevin Komiega’s news post here.

Brocade’s announcement officially set off the FCoE wars. Or not. I’ll blog about that tomorrow.

In other news at the Storage Networking World show today, LSI announced that it has signed a definitive agreement to acquire the assets and intellectual property of AMCC’s 3ware RAID adapter business for approximately $20 million in cash. 3ware products include SAS and SATA RAID adapters. Upon closing, the 3ware business will be integrated into LSI’s Engenio Storage Group.

Also at the show, LSI demonstrated performance of more than one million I/Os per second (IOPS) in a server with three of the company’s 6Gb/s SAS chips (LSISAS2108 RAID-On-Chip, or ROC, ICs) connected to 12 6Gb/s SAS disk drives. LSI officials predict that 6Gb/s SAS servers and storage systems will hit the streets late this year, with end-user adoption commencing early next year.

We’ll wrap up our SNW product coverage tomorrow on InfoStor’s home page.