Ingenious NetApp buys Engenio
Boss gets sweet revenge on ex-employer
NetApp is buying LSI's Engenio storage business. In other words, NetApp CEO Tom Georgens is buying the business he used to run.
Georgens must feel particularly good. With Engenio, he was going to lead the company into independence from LSI, but the deal was pulled, Georgens quit and went to NetApp, reporting to then-CEO Dan Warmenhoven, and eventually replacing him when Warmenhoven went upstairs to the board.
Now Georgens gets his sweet revenge, a dish best served cold, and ends up running Engenio again and taking it out of LSI's clutches. NetApp will pay almost half a billion dollars, $480m in cash, for the operation, and the deal is expected to close in 60 days. The purchase "is expected to be accretive to NetApp’s… earnings per share by the end of the second quarter of its 2012 fiscal year."
Engenio is the external storage division of LSI Corporation, a company which, led by CEO Abhi Talwarkar, is concentrating more on chips and components for networking and storage than storage systems.
NetApop's statement said:
Engenio will enable NetApp to address emerging and fast-growing market segments such as video, including full-motion video capture and digital video surveillance, as well as high performance computing applications, such as genomics sequencing and scientific research. … These segments are expected to collectively represent a $5 billion incremental market opportunity by 2014. The Engenio acquisition will also enable NetApp to expand its market reach with a mature OEM business that will further diversify its channels to market, especially in markets it currently doesn’t address, such as server-attached and embedded storage.
This is NetApp's first major foray into storage arrays that do not run its ONTAP operating system, which all its FAS arrays do.
"With Engenio we will have a strategic storage platform to capitalise on new, high growth opportunities that we don't currently reach with our FAS platform," Georgens said. "NetApp also gains a proven OEM-based revenue stream that is run by a talented Engenio team."
Talwarkar said: "The [NetApp Engenio] combination should further advance the Engenio storage platform, as well as augment the OEM channels that have been the foundation of its longstanding success."
For LSI the $480m will be welcome. Its latest results for its fourth fiscal 2010 quarter, ending January 31 this year, showed a loss due to restructuring charges, probably related to LSI closing down its SVM storage virtualisation software business that had HP as its sole customer.
In the results earnings call Talwarkar compared Engenio arrays to those from 3PAR and Isilon:
What I can say relative to the businesses and how they're different, first of all, we will serve the same end market, which is data storage and data protection. However, we serve a lot of different segments.
3PAR is more higher end, Isilon is more clustered to large scale-out file. We're more of general-purpose block storage. Now our business models vary dramatically. We are a OEM business. In that way, we sell our building blocks to many, many OEMs around the world that are unbranded. And as a result, our margins are in the 30s, as we've talked about before. And we don't have a direct sales force that touches on customers. So they are different in many ways. We solve some of the same problem for end customers, but very different in terms of business model."
At first glance the Engenio OEM business is the deal. But can NetApp keep Engenio's existing customers? For example, will Oracle, that disliker of OEM supply deals, continue to use Engenio 7900 arrays as the source for its 6580 product, now they are being supplied by Oracle storage competitor NetApp? Will IBM continue to base its DS5000 arrays on Engenio hardware? That's probably okay as IBM sources its N Series arrays from NetApp. Will Dell keep on taking Engenio storage?
OEM deal or no OEM deal?
There must be a suspicion that OEM deals with storage companies competing with NetApp will not or may not be renewed, and NetApp will have to sell Engenio arrays to end-user customers. If that is the case it will have to do that before the current OEM deals run out.
NetApp will have a positioning problem as the Engenio arrays are pure block access and will probably/possibly/maybe perform better in storage area network (SAN) applications than NetApp's FAS arrays which are primarily filers with block access added on. The Engenio arrays have a straightforward tiering scheme with STEC flash drives top-ending it and this is different from NetApp's Flash Cache-based FAS controller flash usage and its reluctant-seeming use of flash drives in the FAS arrays.
LSI bought the filer assets of ONStor in September, 2009 to put a NAS head on its block access arrays. We don't know if that technology is included in the Engenio purchase. If it is then NetAp has a potential ready-made NAS head for the Engenio 2600, 4900 and 7900 arrays and would probably integrate that with ONTAP somehow. Alternatively it may provide some kind of V-Series-based NAS functionality to the Engenio gear and dump the ONSTor technology.
NetApp also gets the StoreAge SVM technology which LSI acquired a year or few ago, and may do something with that.
An additional irony is that, as EMC becomes a little more like NetApp with its unified VNX storage line, NetApp becomes a little more like EMC by adding a substantial alternative product line to its previous one group of tricks product pony FAS line. It already has the Bycast object storage business but that is not substantial in the way Engenio is.
HP StorageWorks head David Scott offered his thoughts on the acquisition: "Looks like NetApp is finally going to drop WAFL and adopt ONStor/LSI as their next gen architecture... ...unless of course they're reversing their single architecture dogma. :)"
As far as the basic mechanics of the acquisition are concerned "the Engenio business unit will be integrated into NetApp’s business functions and will be responsible for product development under Manish Goel, EVP of NetApp Product Operations. The NetApp and Engenio sales teams will be combined to maximise opportunities for the Engenio platform." Is that a hint that non-OEM sales of Engenio arrays will be sought? There's no point otherwise as the Engenio team sells to OEMs and NetApp's don't, apart from IBM that is.
For NetApp, this looks a very good deal indeed, so long as any anticipated OEM sales fall-off for Engenio arrays can be compensated for by winning end-user sales. That market is where NetApp has built its business and, El Reg hazards a guess, that market is where NetApp is going to push Engenio SAN storage heavily. ®