Hewlett-Packard drops $360M on iSCSI SAN player LeftHand Networks

HP follows rival Dell into the iSCSI market with a $360 million acquisition of LeftHand Networks, paying one-quarter of what Dell dropped on EqualLogic earlier this year.

Hewlett-Packard Co. today said it will pay $360 million for privately held iSCSI SAN vendor LeftHand Networks Inc., following its rival Dell Inc. into the IP SAN arena.

A year ago, EqualLogic Inc. and LeftHand were the two largest independent iSCSI SAN vendors. Dell paid $1.4 billion in January for EqualLogic and has since passed EMC and NetApp to become the iSCSI SAN market leader, according to IDC's market research.

Paul Perez, chief technology officer of HP's StorageWorks division, said he expects the LeftHand deal to close within 60 days. Perez didn't want to get too much into product roadmap details yet, but he said the sweet spot for LeftHand SANs is the $15,000 to $50,000 price range that would put the systems between HP's entry-level MSA and midrange EVA storage products.

"We see iSCSI moving from SMBs up to the midmarket," he said. "We're also seeing sweet spots in the enterprise in remote and branch offices."

Perez expects LeftHand to become a line of business inside StorageWorks alongside the EVA and MSA teams. LeftHand CEO Bill Chambers will run the group and report to StorageWorks general manager Dave Roberson. LeftHand claims 3,000 customers, 11,000 systems and 215 employees.

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There is a fundamental difference in the EqualLogic and LeftHand products. Dell/EqualLogic systems are based on proprietary hardware and are not compatible with other storage arrays. LeftHand's SAN/iQ software runs on any x86 hardware, and resellers have packaged it with HP ProLiant servers since 2006.

In February, LeftHand launched a Virtual SAN Appliance (VSA) that turns an iSCSI SAN into a virtual machine running on the same physical server as virtualized applications. And LeftHand's most recent version of its SAN/iQ software was optimized for VMware with features, such as SmartCline for creating clones of virtual machine and desktop images, and an Integrated Performance Manager, to map connections between virtual machines, iSCSI host bus adapters (HBA), physical machines and SAN volumes.

The VSA can be integrated into other hypervisor environments besides VMware, Perez said.

Analyst Arun Taneja of the Taneja Group said the deal filled a gap in HP's product line and fits in with HP's overall market strategy.

"HP needed a strong iSCSI product line and didn't have one of its own," he said. "HP has a strong presence in the small and medium-sized business (SMB) space, and iSCSI is the right answer for SMBs. They should be able to do about five times the annual revenue LeftHand did over the next 12 months just by being HP."

Storage and financial analysts wondered about the gap in price between the EqualLogic and LeftHand acquisitions. Market conditions likely played a big part. EqualLogic was set to complete an IPO when Dell bought it, and the IPO market has dried up leaving LeftHand with less leverage.

"The price is probably a better reflection of revenue streams and market conditions than what Dell paid for EqualLogic," Taneja said. "I thought Dell paying $1.4 billion was way too generous. But EqualLogic had such a buzz about it, I think about half of that $1.4 billion was buzz factor. And it was a different climate then."

Financial analyst Jayson Noland of Robert W. Baird & Co. agreed with Taneja that the deal makes sense for HP. "While immaterial to HP's model, we view the acquisition as a strategically important investment in HP's lagging storage portfolio and a strong step in the right direction," he wrote in a note to clients.

Another financial analyst, Kaushik Roy of Pacific Growth Equities LLC, agrees that LeftHand fills a gap in HP's product line, but he questioned the purchase price.

"Most of us on 'The Street' agree that Dell overpaid for EqualLogic, and even though market conditions are depressed right now, I believe HP may have overpaid," he said. "But HP needs an iSCSI box because that market is growing rapidly, and it needs to do something about Dell gaining traction in iSCSI storage."

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