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NetApp's backup plan examined again

NetApp’s failed attempt to buy Data Domain in 2009 brought a lot of speculation that the storage systems vendor would shift its attention to another backup vendor.

NetApp executives played down the speculation. They said they didn’t need a backup platform, but they wanted Data Domain because its leading position in data deduplication for backup was disruptive and driving strong revenue growth. EMC, which paid $2.1 billion to outbid NetApp for Data Domain, has continued to grow that business despite a plethora of competitors.

NetApp has since made several smaller acquisitions – the largest was LSI’s Engenio systems division – but stayed away from backup. But a few rough quarters have caused NetApp’s stock price to shrink, and now the rumors have returned that it is hunting for backup.

A Bloomberg story today pegged backup software vendor CommVault and disk and tape backup vendor Quantum as the main targets. The story was based more on speculation from Wall Street analysts than sources who said any deals were in the works, but such an acquisition wouldn’t surprise many in the industry.

“I think NetApp needs to acquire companies and technologies, and bring in talent from the outside,” Kaushik Roy, managing director of Wall Street firm Merriman Capital, told Storage Soup.

CommVault and Quantum were among the companies believed to be on NetApp’s shopping list in 2009. A few things have changed. NetApp signed an OEM deal to sell CommVault’s SnapProtect array-based snapshot software earlier this year. That deal is in its early stages. NetApp hasn’t sold much CommVault software yet, but perhaps the partnership is a test run for how much demand there is and could lead to an acquisition.

Quantum was EMC’s dedupe partner before it bought Data Domain. If NetApp bought Quantum in 2009, it could’ve been taken as NetApp picking up EMC’s leftovers. But Quantum has revamped its entire DXi dedupe platform since then, expanded its StorNext archiving platform and acquired virtual server backup startup Pancetera. Those developments could prompt NetApp to take another look.

There are also smaller dedupe vendors out there, most notably Sepaton in the enterprise virtual tape library (VTL) space and ExaGrid in the midrange NAS target market.

However, people who suspect NetApp will make a move expect it will be a big one. CommVault would be the most expensive with a market cap of $1.9 billion and strong enough revenue growth to stand on its own without getting bought. Quantum, which finally showed signs of life in its disk backup business last quarter, has a $524 million market cap but most of its revenue still comes from the low-growth tape business.

Storage technology analyst Arun Taneja of the Taneja Group said buying CommVault would make the most sense if NetApp wants to take on its arch rival EMC in backup. While NetApp was the first vendor to sell deduplication for primary data, it is missing out on the lucrative backup dedupe market.

“NetApp needs to get something going in the data protection side,” Tanjea said. “They’ve missed millions of dollars in the last two years [since EMC bought Data Domain].

“If they want to be full competitors against EMC – and what choice do they have -– CommVault would be better for NetApp to buy. In one fell swoop, CommVault covers a lot of ground against EMC — backup software, dedupe technology at the target and source, and archiving, too.”

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