EMC chases Iomega for consumer storage

EMC was rebuffed when it made an unsolicited offer to acquire Iomega, but it's a sign that the storage giant has its eye on the consumer storage marketplace.

EMC Corp. has its sights set on another target in the consumer space and apparently isn't yet ready to take no for an answer.

Low-end storage maker Iomega Corp. Monday revealed it rejected an unsolicited $178.1 million acquisition offer from EMC.

However, Michael Gallant, an EMC spokesperson, hinted that negotiations are not over. "We believe we extended a compelling offer, and we are disappointed with this decision on the part of Iomega's board," he said. "We look forward to more discussion with Iomega and Iomega's board."

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Iomega's directors didn't consider the offer compelling. "Iomega Corp. announced today the receipt of an unsolicited nonbinding indication of interest from EMC Corp. in which EMC indicated that it is prepared to offer to acquire the outstanding common stock of Iomega for $3.25 per share, assuming a total of approximately 54.8 million outstanding shares," Iomega said in a statement. Iomega said its board rejected the offer "based upon valuation and the board's view that the proposed due diligence contingencies were overly broad."

The valuation aspect of the proposed acquisition is complicated because Iomega is trying to work out a merger with a Chinese company, ExcelStor Technology. Iomega disclosed a tentative agreement to issue approximately 84 million shares of common stock in exchange for all outstanding ExcelStor common shares last December. Iomega said its directors "determined that the proposal from EMC would not reasonably constitute a superior proposal within the meaning of the share purchase agreement." Iomega officials declined further comment.

The same day Iomega turned down EMC, EMC did successfully acquire data center automation software maker Infra Corp. Pty Ltd. The acquisition of Infra for an undisclosed amount will complement EMC's IT Operations Centre offering, which was launched in September. Infra's software provides a Web-based, cross-domain portal for IT resource management based on ITIL. The company's infraEnterprise software suite includes a service desk with incident, problem, change, configuration, release, service level and availability management processes. Infra will report into EMC's Resource Management Software business unit.

EMC could be a victim of the current global economy when it comes to buying companies, such as Iomega, according to Evaluator Group analyst Tom Trainer.

"What you're seeing now is that the global economy is having a bit of an issue," he said. "Other nations, like China, haven't felt the sting as hard yet." This puts EMC in "a quandary," Trainer said. The valuation of companies is falling because of declining stock prices, but the buying opportunity might be better seized by foreign competitors.

Enterprise Strategy Group analyst Bob Laliberte said Iomega is the choicest prospect for EMC as it continues its move into the consumer market. Iomega already distributes EMC's low-end Retrospect data backup software and distributes EMC's Lifeline home NAS whitebox. Iomega also offers its own NAS products, external hard drives and the REV removable backup drive.

EMC launched Lifeline with its first partner Intel Corp. Nov. 7. Lifeline, a $500 SOHO NAS appliance, supports up to four SATA disk drives in capacities from 80 GB to 500 GB for a maximum capacity of 4 TB. It is available in a hardware-only version that integrators can customize and one with integrated software.

At its Innovation Day Nov. 14, EMC demonstrated how the Lifeline consumer storage product can be used to control video streaming through Wii and Xbox gaming consoles, and declared that EMC sees the consumer space as "where the bits [that need to be stored] are going." More recently, EMC launched its Mozy online backup services for consumers, small and medium-sized businesses (SMB) and enterprise workstations, and it acquired Pi Corp., a startup whose stealth technology promises to deliver connectivity to centrally stored files from portable devices.

If the Iomega deal falls through, the pickings are slim for Plan B, analysts said. Imation Corp. also makes removable disk storage, but it doesn't have the kind of diversified business that Iomega has. Western Digital Corp. has some consumer success with its MyBook external hard drives, but it doesn't offer its own backup software. Seagate Technology LLC subsidiary Maxtor could also be a potential partner.

"There really aren't that many choices out there," Trainer said. "You need more than just a drive, you need a backup solution." If EMC can't find a suitable replacement for Iomega, Trainer said it may partner to get a foot in the door in the consumer space or bite the bullet and repackage the existing brand for the consumer space -- a more difficult and costly proposition.

Laliberte said the general decline in valuations will probably make for more hostile or unsolicited offers, such as Microsoft's attempts to take over Yahoo, hedge fund Elliott Associates L.P. attempt to take controlling interest in Packeteer Inc. last week and EMC's run at Iomega. "A lot of companies are cheaper than they were six months ago," he said.

LSI trades businesses with Infineon and cozies up to Hitachi

LSI Corp. did complete an acquisition Monday when it bought the hard drive semiconductor business from Infineon Technologies AG. According to LSI vice president of corporate communications Mitch Seigle, the deal was done primarily to get closer with Infineon's chief customer, Hitachi Global Storage Technologies (Hitachi GST) and probably won't result in integration with LSI's other storage products.

"This isn't a pure technology play for us," Seigle said. "This allows us to get closer to one of the top disk drive manufacturers." Currently, LSI's business is concentrated with its top customer, Seagate.

Infineon and LSI previously exchanged intellectual property in October when Infineon took over LSI's mobile device business. Like Infineon's semiconductor business, LSI's mobile device business was primarily focused around one customer.

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