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Networking provider Brocade Communications Systems made some headlines and subsequently saw its stock price jump Oct. 5 when it was leaked that it might be up for sale.
That got some people in the data center business thinking again about NetApp, a highly successful storage appliance company that endured a body blow when EMC outbid it to land deduplication specialist Data Domain for $2.3 billion back in July.
Because of its respected products, services and talent pool, NetApp has been rumored as an acquisition target for one of the large systems vendors for more than a decade. Nonetheless, it has managed to remain steadfast and independent (led mostly by longtime CEO and President Dan Warmenhoven) through a plethora of market and industry changes since its debut in 1992.
However, the picture finally may be changing. When its new CEO, Tom Georgens, decided not to offer financial guidance to industry analysts a few weeks ago for the current quarter, red flags went up. Uncertainty at the top levels of a company tends to make folks nervous.
It turns out that NetApp really, really wanted to annex Data Domain. That the opportunity was lost weighed a lot on NetApp; it was left hanging unsatisfactorily after that huge corporate effort. That the company changed CEOs shortly thereafter (Georgens for 14-year incumbent Warmenhoven) was another noteworthy move, even though it had been planned for a while.
NetApp still needs an acquisition in a complementary storage sector to help accelerate its growth. The deduplication space-the hottest in the storage business-would still be ideal. A dedupe company that complements NetApp’s own brand can attract new business.
eWEEK queried several storage analysts about their takes on NetApp’s situation.
“Almost any company can be acquired, and NetApp is no exception,” David Hill, principal of The Mesabi Group, said. “Hewlett-Packard might be one company that has an eye on NetApp, but Cisco Systems and Oracle [if the Sun acquisition becomes complete and Oracle has the appetite to expand more broadly into information management] also might be interested.
“However, I don’t think that the loss of Data Domain was critical to NetApp. While [it would have been] nice to have had the capabilities that Data Domain brings, Data Domain would have been additive to the bottom line more than a technology that would permeate all that NetApp does.”
Stephanie Balaouras of Forrester Research told eWEEK she thinks NetApp is a definite takeover target.
“To be considered a true ‘systems’ vendor today, you really have to offer the entire IT infrastructure stack and the software to manage it all,” Balaouras said. “I’m not sure, however, that it would be HP. HP has made a number of acquisitions recently, including Lefthand Networks, for modular, scale-out iSCSI storage and IBRIX for high-performance computing storage, cloud storage and fixed content archiving-workloads typically satisfied by scale-out NAS or object-oriented storage [which NetApp provides].”
NetApp Better for IBM or Cisco than HP?
Balaouras said she thought it would make more sense for IBM or Cisco Systems to acquire NetApp.
“IBM is a major NetApp reseller. Cisco is transforming itself into a systems vendor,” Balaouras said. “Barring those acquisitions, I think NetApp will continue to compete as an independent data storage and management company.”
Charles King, principal analyst with Pund-IT, told eWEEK that Data Domain seemed to be a company that NetApp was very serious about acquiring.
“But any time a company goes after an acquisition and loses out to a key competitor, the company loses face,” King said. “Plus, we saw how much money it took to make NetApp blink. It [the loss of the deal] did damage NetApp, but not seriously. A subsequent acquisition isn’t the most important thing for them right now.”
HP is making a sizable move into the enterprise space under Mark Hurd, King said.
“NetApp’s products map well with HP’s products. It could be a good deal for HP,” King said. “The big question I have is this: If HP were to buy NetApp, where will IBM get all the gateways for its storage that NetApp now supplies it? Will HP continue to OEM those to IBM, or will IBM have to look elsewhere? Would HP continue to sell them to IBM? Seems like a stretch to me.”
Brian Babineau of Enterprise Strategy Group agreed that NetApp is an ideal takeover candidate. But it isn’t the end of the world if it isn’t acquired, he said.
“They really needed Data Domain to accelerate growth. They didn’t need Data Domain to continue to grow,” Babineau said.
“They are still expanding their addressable market with a focus on bigger storage buyers and maintaining their branding and advertising campaign,” he said. “There is a definite opportunity for NetApp to recapture their innovation heritage to spur growth-this could come from an acquisition or from helping customers leverage their entire portfolio-a concept that many vendors talk about but few rarely execute on.”
David Vellante of Wikibon pointed out another possible argument for NetApp being acquired: that it won’t be able to continue to compete as an independent.
“It lost out on Data Domain, and while it is a large company, it’s not a giant like EMC, IBM, HP and Oracle [assuming it gets Sun],” Vellante said. “The other fundamental is that the data center ‘stack’ is reintegrating, and a storage-only player will continue to be squeezed as customers want more one-stop shopping for servers/storage/software/services-and maybe networking. So the thinking goes that NetApp management will see this squeeze play and bail.”
“[However] I don’t see any company willing to step up and buy NetApp for $12 billion to $15 billion-at least in the near term,” Vellante said.
Zeus Kerravala of The Yankee Group told eWEEK: “Would HP or somebody else buy NetApp? Well, everybody needs storage, and everybody needs more storage. The IT-based storage seems to have the potential for better growth, more than Fibre Channel. What better company for HP or Cisco to buy for IP-based storage than NetApp?
“For Cisco, it would be good to own a storage division like NetApp; in the Unified Computing System, Cisco could then control an end-to-end solution. But it’s tricky. The thing about Cisco buying NetApp is this: Cisco already has a close friend in storage in EMC, and buying NetApp would anger EMC. Cisco doesn’t have a lot of friends [in storage]. It’s like the kid in high school that has one good friend: You do what you can to keep him, especially if he’s a rich friend.”