LSI buys struggling ONStor
ONStor investors curse their own prescience
Storage array, software and silicon vendor LSI Corporation has bought struggling clustered filer supplier ONStor for $25m, giving ONStor's venture capital backers at least a $105m loss on their investment.
The transaction is expected to close within thirty days and is subject to satisfaction of customary closing conditions.
ONStor makes clustered NAS (network-attached storage) Bobcat arrays and Cougar NAS gateway and EverON software. Latterly it moved into iSCSI block and unfified block/file storage with its Pantera products. The company was founded by Brian Stark, currently VP of platform systems, and others in October, 2000. It's long-time CEO, also chairman, is Bob Miller.
Unlike Isilon, and NAS cluster SW vendors like Ibrix, ONStor never carved out a big role for its products in the supercomputing, high-performance computing or movie rendering markets, instead choosing to sell its products to the generality of SME and enterprise storage buyers. It did this through distribution, reseller deals, front-ending complementary suppliers' block storage arrays, or OEM-type deals: Xiotech and Texas Memory Systems in October, 2005; SGI Japan in December, 2006; 3PAR in August, 2005; Compellent in March, 2006; and Fujitsu Computer Systems in May, 2008.
Up until early 2008 it was growing and growing well. In early 2006 it announced its 100th NAS gateway installation. In October that year, it announced its customer base had doubled. The first half of 2007 saw record world-wide sales. The third quarter was described as having strong world-wide sales. In February 2008 the company said it had recorded its third consecutive year of 100 per cent revenue growth and seen the largest fourth quarter sales in its history.
This progress convinced its venture capital backers to pour money into the business. June, 2005, saw its fourth round with $24m added to bring total investment up to $79m. It was followed by a fifth or mezzanine round of $27m in August, 2007, and a sixth round in April, 2008, with another $25m taking the total to $131m. Then we all know what happened - recession. Eight months later there was a seventh round as the backers stumped up an undisclosed amount to fund business operations, product development and so forth - keeping the company going really - with a goal of achieving profitability in 2009.
That seems almost laughable now, akin to being in a state of denial. But Miller, his board and the executives maybe felt they were so close to winning through that just another cash push was needed and the revenues would come. They didn't, and somebody pulled the plug. Nine years and, let's say, $140m dollars down the plug hole, with just $25m left to show for it.
ONStor's investors have taken a bath. That they accepted less than a quarter of the cash they'd invested as a price for ONStor indicates the depths of the hole ONStor was in. HP has got Ibrix to add to its ExDS9100 line. NetApp has its well-telegraphed ONTAP 8 coming. Their view of the environment ahead, encompassing these sorts of competitive pressures, must have been a dreadful one.
LSI is putting ONStor into its Engenio storage division. There is an irony here: Engenio is now an NAS vendor, a clustered NAS, NAS gateway and iSCSI storage vendor, and will compete with NetApp. Tom Georgens, who used to run Engenio and almost took it to independence until LSI pulled its IPO, is NetApp's president and chief operating officer.
LSI gets a recession-distressed business with reputable products, channels, technology and development assets. It can integrate the ONStor technology into its Engenio arrays, as well as selling it on an OEM basis if it wishes.
Abhi Talwalkar, LSI's CEO and president, said nothing exceptional about the acquisition, merely pointing out that: "The rapid growth of unstructured data is creating significant challenges for enterprises in provisioning, protecting and managing their storage in an efficient and cost-effective manner. With the addition of ONStor products and technology, LSI will be well-positioned to offer a comprehensive set of storage solutions to help enterprise customers effectively manage both their unstructured and structured data with ease."
LSI is possibly poised to expand ONStor's OEM relationships, in the wake of HP buying Ibrix and thereby risking Ibrix deals with companies such as IBM. LSI might now seem like a neutral alternative, as noted here.
The purchase indicates that LSI, like HP, sees a good possibility of clustered and scale-out NAS becoming more general in appeal, at last. If that is the case, then the ONStor founders and backers were right. There is a need for scale-out and clustered NAS technology: they were just nine years and $140m too early. ®
Sponsored: Network DDoS protection