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Hard drive vendor Seagate continued to diversify its business this week with its $694 million acquisition of Dot Hill Systems, the second storage systems company it has picked up in the last two years.
Seagate moved into the systems business in 2013 with a $374 million acquisition of Xyratex. Dot Hill and Xyratex sell their systems mostly through OEM partners, as Seagate does with its hard drives.
While Xyratex specializes in enclosures for high-performance computing, Dot Hill storage controllers and arrays are used mostly in mid-range and low-end SANs, such as Hewlett-Packard's (HP's) Modular Smart Array (MSA) platform. HP is Dot Hill's biggest customer. Lenovo, Quantum and Teradata also re-brand Dot Hill storage systems. Dot Hill has other OEM and channel partners who build systems tailored for vertical industries, including telecom, gas and oil, data analytics, media and entertainment and high performance computing.
Other Seagate acquisitions include Avago's LSI flash business for $450 million in May, 2014 and EVault's online data protection business for $185 million in 2007.
Dot Hill will become part of Seagate's Cloud Systems and Electronics Solutions division, along with Xyratex and the LSI flash products. The Dot Hill deal is expected to close by the end of this year.
Dot Hill was on a high note before the acquisitions. While the vendor has had its share of struggles over the years, its $60 million in revenue last quarter grew 25% from last year while most of the large storage vendors saw their revenues decline.
Phil Brace, president of Seagate's cloud systems and electronic solutions, said Dot Hill technologies can be shared across the Xyratex platform down the road.
"We are looking at trying to build more IP and more capabilities, specifically in new system areas," Brace said. "New products, new IP, great engineers with storage experience and new customers make Dot Hill a natural fit for where we want to go."
Brace did not identify any specific Dot Hill storage products, but Dot Hill CEO Dana Kammersgard has pointed to his company's RealStor software as a disruptive technology. RealStor tiers data automatically and in real time across Dot Hill's AssuredSAN arrays, and is valuable in hybrid storage systems using solid-state drives along with hard drives. Dot Hill has added other software applications in recent years, including AssuredCopy for volume copy, AssuredSnap, AssuredRemote replication and AssuredVRA to build host-based RAID adapters.
Brace said it is too early to discuss whether Kammersgard and other Dot Hill executives will join Seagate, but the goal is to keep as many Dot Hill employees as possible.
''I've been impressed with the Dot Hill leadership team," he said. "Keeping their employees is a key part of the deal, and that includes the leadership team."
As with the Xyratex deal, the Dot Hill acquisition raises the question of whether Seagate will alienate its disk drive customers who may compete in deals with Seagate's new systems. Most of the large storage vendors buy drives from Seagate and also compete with Dot Hill storage arrays.
Seagate's Brace said the vendor will not sell systems directly, and some of Dot Hill's customers are also Seagate's customers.
"We're not changing our business model," he said. "We're not going direct. We're selling to OEMs, and this gives us more tools in our toolbox as we work with new customers. Dot Hill's customers, such as HP and Lenovo, today are huge Seagate customers."
One Seagate SAN customer also sells systems through OEMs. NetApp's E-Series arrays have historically competed against Dot Hill for OEM partners, going back to when LSI owned the E-Series. But NetApp CEO George Kurian said his company is more focused on building the E-Series as a branded business rather than through OEMs. Asked about the Seagate-Dot Hill deal during NetApp's earnings call this week, Kurian said it did not bother him.
"The focus for our E-Series business is on the branded customer business and it is about building pathways to market through our more traditional routes to market, resellers, system integrators and service providers," Kurian said. "We think we feel good about the relationships that we have with enterprise and service provider customers who look to buy directly from us or through our reseller model. So we feel that the acquisition does not materially affect that business."
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