NetApp Throws a Few Punches at EMC over Data Domain

NetApp and EMC are in the middle of a bidding war of sorts in pursuit of fast-growing midrange storage system provider Data Domain. NetApp Chief Marketing Officer Jay Kidd tells eWEEK what the letter fails to say.

NetApp had a few things to say about EMC's June 9 open letter to Data Domain employees, a letter that extolled Data Domain's virtues and compared it to-you've guessed it-EMC itself.
NetApp and EMC are in the middle of a bidding war of sorts in pursuit of fast-growing midrange storage system provider Data Domain.
"Make no mistake: This letter was written to the Data Domain shareholders," NetApp Chief Marketing Officer Jay Kidd told eWEEK.
"It's interesting that EMC is concerned enough about the perception of the Data Domain employees [of the impending deal] that they find it necessary to write this letter. And they should be concerned, [based on] all the commentary we've heard from Data Domain employees who dread the idea of being part of EMC," Kidd said.
Legally, Data Domain cannot respond publicly about EMC's June 1 unsolicited all-cash offer of $1.8 billion or the letter sent by EMC President, CEO and Chairman Joe Tucci on June 9. On June 3, Data Domain's board of directors voted unanimously to accept NetApp's $1.9 billion cash-and-stock bid, and stockholders are expected to vote on the deal in the next few weeks.
If its agreement with Data Domain does become final, NetApp will acquire all of the outstanding shares of Data Domain's common stock for $30 per share in cash and stock.
But EMC hardly sees this as a done deal.
In his letter, Tucci pointed out that EMC has acquired 11 Silicon Valley-based companies in the last six years and said they are all running smoothly and profitably. He argued that with the ownership and resources of EMC, Data Domain has a much better opportunity to grow and be more profitable than it would with NetApp.
Kidd said there is important information missing from the EMC letter that the company does not want to discuss.
"EMC says it plans to keep Data Domain intact and operate the company as a product division. But what are they going to do with the Avamar [deduplication] product that competes directly with it? What are they going to do with the enterprise disk library-either the FalconStor or the Quantum versions-that compete[s] directly with it?" Kidd asked.
"EMC has a lot of products in this exact area. They're going to have to rationalize, and clearly that is going to affect employees-EMC employees," Kidd said.
EMC's shareholders should be concerned that EMC wants to spend $1.8 billion on products that the company already has, he said.
"There's going to be cannibalization of revenue," Kidd said. "It's hard for EMC to argue that there's going to be much incremental revenue from this acquisition. It's much easier for NetApp, which doesn't have a product that competes in this space."
Will antitrust questions become an issue?
What's also missing is that EMC is likely to encounter antitrust scrutiny if it acquires Data Domain, Kidd said, due to the number of products it has in the VTL (virtual tape library) and deduplication markets.
"In deduplicating VTLs, we believe they have over 50 percent market share," Kidd said. "That includes mainframes-to-open-systems deduplication, where Data Domain also competes.
"Customers now have a choice between EMC and Data Domain for this products, but if EMC wins this bid, they'll be buying from one company-which clearly reduces competition," Kidd said. "You won't hear anything about this from EMC."

Chris Preimesberger

Chris J. Preimesberger

Chris J. Preimesberger is Editor-in-Chief of eWEEK and responsible for all the publication's coverage. In his 15 years and more than 4,000 articles at eWEEK, he has distinguished himself in reporting...