EMC Corp. today acquired clustered network-attached storage (NAS) vendor Isilon for $2.25 billion in a deal EMC executives said will bring the vendor into high-performance computing (HPC) markets where it's not a major player.
EMC CEO Joe Tucci used the phrase "big data" to describe the market he sees Isilon playing in combination with EMC's Atmos object-based storage system. EMC executives forecasted that Isilon and Atmos combined will triple revenue over the next two years, hitting a $1 billion run rate by the second half of 2012. Tucci said Isilon and Atmos complement each other in HPC and cloud storage as Data Domain and Avamar do in backup. EMC acquired data deduplication specialist Data Domain for $2.1 billion last year.
Tucci also admitted that EMC did not have a scale-out NAS product that could compete with Isilon, which increasingly won deals in verticals such as media and entertainment, life sciences, and Web content creation over traditional NAS products such as NetApp's FAS and EMC Celerra.
"We're extending the reach of our midrange storage family," Tucci said during a conference call to discuss the acquisition, adding the deal put EMC "at the intersection of cloud computing and big data. Given what's going on in the IT world today, I can't think of a better place to be."
EMC began talking about big data when it acquired data warehousing vendor Greenplum earlier this year to move into data analytics. EMC executives define "big data applications" as massive, and more serially based than transaction-based.
"This was an area EMC acknowledged it wasn't competing effectively in," IDC analyst Rick Villars said. "It didn't have a product line targeting this. It gives EMC a good sound product, and a company that proved itself in the market. The technology is good, and Isilon is well respected in specific verticals.
Villars said Greenplum fits squarely into the big data category, but Isilon is more accurately part of an adjacent "big content" market.
"Isilon is about streaming lots of videos, X-rays or gene sequences," he said. "Big data is about digging into content and extracting meta data. Big content is about storing everybody's photos, while big data is about scanning that data to identify a trend."
Clustered NAS landscape
Traditional storage vendors have moved to add clustered NAS to their portfolios in recent years. Hewlett-Packard (HP) Co. acquired Ibrix last year; Dell picked up the assets of Exanet this year; and IBM Corp. launched its SONAS product in February. Hitachi Data Systems sells BlueArc products under an OEM deal. DataDirect Networks also sells scale-out NAS, as well as object-based storage.
EMC is also looking to beat its traditional NAS rival NetApp in the clustered space. NetApp acquired Spinnaker Networks in 2003 for scale-out technology and has incorporated that technology into its Data Ontap GX operating system, but has not fully integrated it into its product line. NetApp also acquired object storage vendor Bycast this year to compete with Atmos.
Isilon CEO Sujal Patel, who will become part of EMC's information infrastructure products division under Pat Gelsinger, said NetApp has been Isilon's biggest competitor with EMC second.
In his blog today, Wikibon analyst David Vellante identified NetApp as EMC's biggest target with the Isilon acquisition.
"Once again, EMC is using all its weapons to compete with the smaller NetApp," Vellante wrote. "NetApp is growing faster, gaining more share, has great momentum and EMC just keeps changing the game in an effort to stay ahead of NetApp."
Vellante also wrote: "A deal with Isilon will give EMC a new flagship in scale-out NAS that will instantly push EMC to the top of the heap. Isilon is probably the best scale-out NAS in the market..."
Is another bidder out there?
EMC said both companies' boards have approved the deal, and it expects the acquisition to close by the end of the year.
EMC will pay $33.85 per share for Isilon stock, which is a 29% premium to Isilon's Friday closing price of $26.29. That's a high price, considering Isilon was barely profitable. Isilon reported $4 million in net income on $53.8 million in revenue last quarter, its most profitable ever. The $2.25 billion price tag suggests there may have been another suitor for Isilon, as was the case when Hewlett-Packard acquired 3PAR in September for $2.35 billion after winning a bidding war with Dell. Cisco, Dell, HP, IBM, NetApp and Oracle have all been mentioned in analyst reports as possible suitors for Isilon.
There is still a chance another bidder will emerge for Isilon, bringing about the kind of bidding war that HP and Dell waged for 3PAR, and EMC and NetApp fought for Data Domain. EMC would receive a $100 million fee if Isilon were to accept a higher offer from another company.
Tucci refused to say if there were other bids for Isilon, but defended EMC's acquisition track record by pointing to deals such as VMware and Data Domain. He described Isilon as a "tuck-in" that fits EMC's string-of-pearls acquisition strategy. He said EMC's primary acquisition targets are "small companies that have done innovative things."
Tucci said he would consider to purse tuck-ins, but admitted "Obviously there's a limit to how many $2 billion tuck-ins you can do in a short timeframe."
The Isilon acquisition increases competition between EMC and its storage partner Dell. Dell sells EMC's Clariion SAN, Celerra unified storage and Data Domain systems, but the relationship has suffered in recent years after Dell acquired EMC SAN rival EqualLogic and tried to buy 3PAR. During EMC's most recent earnings call last month, Tucci admitted the Dell partnership had cooled and said the vendors were working on strengthening it. Today he said, "Right now, our partnership is more tactical than either Michael Dell or I would like it to be. We have discussions going on, with some good ideals to make it more strategic and more complementary. We have to see how they progress, but obviously there are areas like Exanet and other storage offerings where we compete."