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Hitachi Data Systems gobbles BlueArc

The end of stand-alone NAS supply

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At last. Hitachi Data Systems is buying hardware-accelerated filer supplier BlueArc for an undisclosed cash sum, leaving NetApp as the last significant man standing from the filer side of the industry and giving HDS a powerful file storage capability.

An OEM relationship has been in place between HDS and BlueArc since 2006, and HDS has been viewed as a likely BlueArc acquirer for over a year, it being BlueArc's largest strategic partner and lacking its own network-attached storage (NAS) technology. At one time, it was thought that HDS has sold more BlueArc product than BlueArc.

The storage industry is seeing ever more demand for file storage, as opposed to block storage, with IDC predicting more than 83 percent of shipped storage system capacity in 2014 will be for file-based data. HDS says sales of its content and file-based products have been growing faster than those of its block-based products.

NAS suppliers have been moving to unifying block and file storage by adding iSCSI SAN access and block storage suppliers have been adding NAS heads to their SAN arrays – a role HDS has used BlueArc for. NAS market leaders EMC and NetApp both have unified storage offerings, and HDS can now more closely integrate its VSP and AMS block array technology with BlueArc's Titan and Mercury NAS systems.

BlueArc makes hardware-accelerated filers using field-programable gate arrays (FPGA) to speed up filer operations. It has two products in its line-up: the high-end Titan and the entry-level Mercury. More than 2,000 of these arrays have been bought by almost 1,000 customers worldwide, operating in the media, life sciences, energy, and hosted services market.

Gartner has BlueArc noted as one of the top vendors in its 2011 NAS Magic Quadrant’s “Visionaries” quadrant.

Financial angle

BlueArc had filed for an IPO, looking for $100 million. This was its second IPO attempt. A previous one had failed in 2007. The company noted in its IPO filing that it had been loss-making for eight years, with revenues of $85.6 million in the year to 29 January 2011 and a loss of $9.4 million, which compared to a $15.7 million loss in the prior year.

In the fourth quarter of that financial year, it made a profit (its first one) and recorded record revenues. HDS is buying a company on the cusp of becoming profitable, and one which may have decided that the certainty of HDS' cash offer is preferable to the uncertain outcome of an IPO given the prevailing economic situation. On the other hand, HDS could have offered much more than an IPO could.

How much did HDS pay for BlueArc?

It's buying a firm with a $90 million a year or so sales run rate and an ambition for a $100 million IPO, so a hundred million bucks doesn't look unreasonable as a minimum. BlueArc funding was in excess of $200 million, so the payment could be as high as $400 million if all the investors in BlueArc made big bucks, and possibly higher still.

HDS acquires a set of BlueArc channel relationships through which it can continue to sell BlueArc kit and into which it may introduce its other storage products. Similarly HDS' own channel can continue to sell the HDS NAS platform with HDS retaining the revenue from this instead of paying BlueArc.

There ought to be some opportunities for BlueArc and HDS back-office functions to be combined, and for some sales and marketing rationalisation to save costs. This may involve some job losses and probably, regrettably, will. HDS revenues get an immediate $90 million a year increase.

BlueArc was founded by Geoff Barrall, who went on to found Data Robotics, now Drobo, and he is now at Overland Storage. It's likely he still had shares in BlueArc and has just had an early Christmas.

Technology thoughts

BlueArc has a data tiering capability, and its products offer file storage virtualisation across an up to 8-node cluster, scaling up to a 16PB capacity. The software running them is the SiliconFS file system, which provides NFS and CIFS file access as well as iSCSI SAN access.

It is known to be a licensee of Permabit's Albireo primary data deduplication technology. XIO is another licensee, with NetApp thought to have gained a license through its Engenio acquisition. HDS has no deduplication technology of its own. Potentially, this acquisition is good news for Permabit.

HDS offers BlueArc technology as its Hitachi NAS system, and this has a role in its content storage cloud infrastructure plans for 2012 and beyond.

It now owns this NAS technology and can use it to satisfy so-called big data requirements in its customer base. HDS already has an archiving capability, through its Archivas acquisition, and there is an opportunity to use this to interrogate data in BlueArc arrays and deliver a fuller file storage, information repository, and analysis functionality set to customers.

In a canned statement, Jack Domme, HDS' CEO, said: “Over the past 5 years, BlueArc has been an integral part of our strategy to help customers store and manage unstructured data of all types, such as video, email, medical imaging, scientific data and more. Bringing BlueArc into the Hitachi family will enable us to better serve customers with more tightly integrated technologies, broader capabilities and deeper expertise globally."

We can expect to see tighter integration between HDS' VSP and AMS arrays and the BlueArc technology. It's entirely feasible that HDS parent Hitachi will get access to BlueArc technology and use it in future products as well. HDS bought cloud storage technology assets from ParaScale in August last year, and these look to be a good fit with BlueArc.

HDS is now a more rounded competitor for Dell, EMC, HP, IBM, and NetApp in the storage world, and one of the top three stand-alone storage suppliers. In theory, it can move into selling converged IT stacks, as it has access to Hitachi servers and networking. Whether it will do this – and, like the others in the group, distance itself from NetApp in this way – is something to watch out for.

Storage industry consolidation matters

Across the board storage industry consolidation has been a feature of the past few years, with the main suppliers – EMC, Dell, HDS, HP, IBM and NetApp – being responsible for the bulk of shipped capacity sales. Every one of of these companies has been buying storage technology startups and players in product sectors that are growing. Like NetApp, HDS has been a seemingly reluctant acquirer, contrasting with EMC, Dell, HP, and IBM.

Industry names which have been acquired include Compellent, EqualLogic, the Exanet assets, and Ocarina, all bought by Dell. EMC has bought Data Domain, Isilon and others. HP has bought 3PAR, IBRIX and LeftHand Networks. IBM has bought XIV, Diligent, and Storwize. NetApp has bought LSI's Engenio business and Bycast. Oracle has bought Sun, partly for its storage assets, and Pillar Data.

There has been massive buying of innovative storage technology startups as the industry matures into fewer and larger players. Much of the basic hardware and technology innovation is now taking place with solid state storage and it's likely the acquisitive impulses of the storage majors will turn to this area in the next few years.

The Engenio and Isilon acquisitions strengthened NetApp and EMC's hands in the big data market. Dell is rolling out its Exanet scale-out filer technology across its various storage platforms. IBM has its SONAS (Scale-Out NAS) technology and HDS' BlueArc purchase can be seen as part of this great expansion into unstructured, scale-out data storage that has been going on for a while.

With the acquisition the era of the stand-alone filer supplier comes to a close. Out of all the NAS start-ups, only NetApp has become an independent mature company. All the others have been acquired or crashed.

BlueArc will operate as an HDS business unit, retaining its current management. CEO Mike Gustafson will run it, reporting to Domme. ®

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