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Is Isilon the next acquistion target?

Nobody knows if Isilon Systems will be the next storage vendor to get acquired, but it’s clear that Isilon executives want to be the next. The scale-out NAS vendor has hired a firm to explore a sale, and has been linked with just about every large storage vendor since Hewlett-Packard gobbled up 3PAR last month.

The New York Post last Friday reported EMC is in exclusive talks to buy Isilon for more than $2 billion. I don’t know about the exclusive and $2 billion parts, but it’s likely that EMC is interested in Isilon. So are other storage vendors, mainly because EMC and others have failed to either develop their own clustered NAS or successfully integrate the technology after acquiring it from others.

EMC took a shot with its Hulk and Maui projects, which turned into its Atmos cloud platform but not the type of scale-out NAS system that media and Web companies crave for their storage needs. NetApp acquired Spinnaker in 2003 and still hasn’t fully integrated its clustered IP into the DataOntap operating system. IBM created its own, brining out SONAS last February. It’s too early to say if that product is a success, but it figures prominently whenever IBM presents its storage roadmap. HP acquired PolyServe in 2007and when that didn’t work out, it bought Ibrix last year. HP also talks up its XP9000 platform based on Ibrix a lot these days. Dell acquired the IP of Exanet earlier this year, and plans to use it for clustered NAS and multiprotocol storage in combination with EqualLogic but has yet to bring it to market.

In a research note today, RBC Capital Markets analyst Amit Daryanani, suggested that much of the interest in Isilon could be defensive. In other words, vendors want to keep their rivals from buying it.

“We suspect EMC would be the most likely acquirer, as it lacks a storage platform with a single management platform and its Celerra-NAS platform doesn’t scale as efficiently as Isilon,” Daryanani wrote. “Plus, the harm this could do to NetApp would make the deal even more appealing.”

As for NetApp, he wrote: “We would not be shocked to see NetApp interested in acquiring Isilon as a defensive move to keep its unified storage advantage versus EMC. Also, an Isilon acquisition by any of the other suitors would harm NetApp’s revenue stream.”

Daryanani also mentioned Cisco, Dell, HP, IBM, and Oracle as possibilities but admitted Cisco and Oracle were unlikely to make a bid.

The feeling here is that HP and IBM are willing to go with their relatively new scale-out products rather than throw money at another option. NetApp probably won’t get into another bidding war with EMC after losing out for Data Domain last year. Dell might find integrating Exanet more difficult than originally anticipated, but Isilon’s technology is proprietary and does not work with other vendors’ storage. That would make it even tougher to integrate with EqualLogic.

That leaves EMC, which could position Isilon at its clustered NAS for high performance, rich media and web customers while clearing the way to consolidate its current Celerra NAS with its Clariion SAN platform.

One thing is clear: Whoever buys Isilon will be overpaying. That’s because any large vendor could have picked it up for a lot less money a couple of years ago instead of exploring other options.

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