Wednesday, 3 June 2009

The Price of Storage – a Software Love Triangle

(By Philip Carnelley – Tuesday 3rd June 2009 9:30am). A US story that caught our eye yesterday was a counter-bid by storage giant EMC for a specialist software provider, Data Domain (DDI), which had already agreed a bid from network storage software company NetApp (formerly Network Appliances), which valued DDI at $1.5b (net of cash). EMC has offered 20% more – all in cash. Not bad for a company with $270m of revenues in the last year.

Why so much?

DDI has some neat technology to minimize storage requirements in the data centre. By “de-duplicating” records, identifying redundant files and data as they are being stored, it reckons that the storage required is 10x-30x smaller on average than the original dataset. (If you want to understand it better, we recommend Clive Longbottom’s blog.

As a result, Data Domain is expanding fast – it more than doubled in size last year, and is profitable. And it’s a reasonable view that this is technology that will increase in its desirability. There is a statistic doing the rounds (which we believe originated from Cisco) that by 2012, the amount of data being stored will double every 11 hours. Whether or not that’s true, there’s no doubt that file sizes – PowerPoint files, images, video files and the rest, in both the corporate and home environment are growing like topsy. Although Moore’s Law – or something like it – means that data storage continues to tumble in price/performance, it’s not halving every 11 hours, or anything like that. This is looking like a technology that CIOs would kill for. And how many killer apps are out there, today?

Whether EMC’s suit will trump that of NetApp remains to be seen. This could turn into a long, protracted battle (which would rather suit EMC, we think). EMC has the competitive streak, and the economic muscle, to outbid NetApp – it’s over 3 times the size, and has cash. NetApp shares have fallen on Wall Street while DDI’s have risen: the Street anticipates a higher price, a battle and quite likely an EMC victory. EMC doesn’t need the technology – it has its own, and is working with another de-dup company, Quantum. Indeed, EMC has claimed market leadership (funnily enough, so does Data Domain). So this is a spoiling move. NetApp, on the other hand, needs it badly enough to pay a high price. We wonder if the anti-trust authorities would get involved if EMC’s bid were to succeed – in this country, they probably would.

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