EMC Acquires Scale-Out NAS Maker Isilon for $2.25 Billion

By Chris Preimesberger  |  Posted 2010-11-15

EMC Acquires Scale-Out NAS Maker Isilon for $2.25 Billion

EMC is preparing to launch yet another potential $1 billion-per-year business inside its already expansive corporate kingdom.

In a deal that was hardly a secret within the industry, the world's largest independent storage hardware/software maker on Nov. 15 announced it is acquiring Seattle-based network-attached storage (NAS) provider Isilon Systems for $2.25 billion, or $33.85 per stock share, in cash.

EMC, which brings in $14 billion per year and has $7 billion in cash on hand, said the transaction is expected to be completed late this year and "is not expected to have a material impact" on its 2010 net worth. 

The company's stock price was flat at about $21.50 per share on Nov. 15.
Isilon made its early reputation by making storage arrays that can easily be clustered to multiply data storage processing power for large-scale workloads. In the last two years, however, the company has increased its market scope by selling smaller, iSCSI-based systems that can be used by corporate remote offices and midrange-size companies.

EMC plans to pair up Isilon's NAS file system with its object-oriented storage division, EMC Atmos, to provide a new, high-level platform for companies planning to build private cloud systems to process globally distributed workloads.

EMC claimed that the combination of Isilon and Atmos will provide its customers with "a complete storage infrastructure solution for managing 'Big Data' in private or public cloud environments."

The pairing of the two approaches to storage technology into one package will offer new options for IT managers to handle scale-out workloads that contain both structured (database) and unstructured (object-oriented) data sets.

The Hopkinton, Mass.-based corporation said its expects the combined revenue of these two highly complementary storage offerings to reach a $1 billion run rate during the second half of 2012. 

EMC has reached the $1 billion-or-more-in-new-business level with several of its acquisitions during the last decade, including RSA Security, VMware, Avamar and Data Domain.

Isilon systems can start small, grow incrementally

Isilon's scale-out NAS storage racks can begin as small (less than 100TB) installations and scale up to 10PB yet maintain all their high-availability features without being disruptive to the rest of the system.

"EMC brings unique value to Isilon through our highly complementary portfolio, engineering depth, financial strength and global sales reach," EMC President and COO Pat Gelsinger said.

"Isilon will enable EMC to accelerate our storage revenue growth and serve our customers across a broader range of the storage systems market. EMC will invest in all aspects of Isilon's business to accelerate growth and take advantage of the fast-growing market opportunity ahead."

Technology Business Research storage analyst Greg Richardson wrote in an advisory to eWEEK that the acquisition will "open new doors to expansion in high-growth vertical markets" for EMC.

"We believe this will ... better position EMC against competitors that maintain large, vertical-centric solutions businesses, such as IBM, Fujitsu and, increasingly, Dell," Richardson said. "Additionally, Isilon's ability to scale up and down enables the company to continuously align storage capabilities with changing demand, making the solution a strong component of the cloud.

"As a result, EMC will add another arrow in its quiver to drive the adoption of public and private cloud infrastructures."

Isilon Went Through Some Pain to Get Here

Like many startups-even in the fast-growing storage sector-Isilon had to go through some financial pain before finally getting into the black this year.

Isilon, which went public in 2007, had reported that its revenue for the third quarter ended Sept. 30 was $53.8 million, up 19 percent sequentially over $45.1 million in Q2 2010. More significantly, revenue was up a whopping 77 percent from $30.5 million in the third quarter of 2009.

Isilon's margins have been excellent at 60 percent and above, but R&D and operating expenses have been high, and the company had trouble getting out of the red for a couple of years.

However, the good news for Isilon in Q3 2010 was that its net income was $4 million, compared with a net loss a year ago of $4.9 million. This undoubtedly was a major factor that led to the eventual acquisition.

Pund-IT storage analyst Charles King told eWEEK he believes there are important synergies between EMC and Isilon.

"There are also obvious synergies between Isilon and EMC's Atmos cloud platform/service. In fact, we expect the company believes the pair will provide the 'glue' for seamlessly binding together customers' private cloud storage assets and those secured by public cloud service providers, and also complement the cloud strategies of EMC partners such as Cisco and VMware," King said.

"Isilon's NAS expertise and innovative technologies should prove to be valuable resources for the development of next-generation EMC NAS solutions, thus allowing the company to compete more effectively against NetApp and other NAS players," he said. 

Overall, King said he considers EMC and Isilon to be an "excellent fit."

"The pair appears well-suited strategically, and both companies' individual products and broader strategies offer multiple leverage points," King said. "EMC's size, experience, resources market penetration and industry leadership will offer the dynamic yet still immature Isilon what it needs to get to the next level."

NetApp, EMC's largest independent storage competitor, had a few things to say about the acquisition.

"NetApp is already capitalizing on the trend towards virtualized environments, cloud services and big data with nearly a decade of investment fueling its continued market share gains," Chris Cummings, NetApp Vice President of Product and Solutions Marketing, wrote in an email to eWEEK.

"Today's multi-billion dollar acquisition of Isilon is further proof that EMC is still searching for ways to catch up to the critical changes shaping the IT industry."

Editor's note: This story was updated at 2:38 p.m. Pacific time to add reaction from an analyst and from NetApp.

Rocket Fuel