In a push to expand its external storage business, Adaptec yesterday announced its intention to acquire Snap Appliance,...
whose Snap Server line of storage is, at least at the low end, practically synonymous with NAS.
Adaptec paid $100 million for Snap, or $91 million in cash and $9 million in stock options. Adaptec has stated that it expects to earn an additional $40 million over the next year thanks to the deal, and that it will be accretive by the end of 2004. The deal is expected to close at the end of the month. Snap Appliance will run as a division, headed by existing CEO Eric Kelly.
The company also announced a tier-one systems (OEM ) for external storage, which it expects to be able to name in the fall, when they begin shipping product. IBM would be a logical choice, since it sells a midrange NAS based on its own AIX operating system, but has no low-end product. Hewlett-Packard Co. currently resells its own line of NAS running Microsoft Windows Storage Server; Dell Inc. partners with both Microsoft and EMC Corp.; and Sun Microsystems Inc. recently announced a deal with Procom Technology.
Snap Appliance, which is a spinoff of Quantum Corp., is one of the leaders in NAS unit shipments, having shipped over 150,000 systems, for over 30 petabytes of total storage capacity. Its current product line runs from the Snap Server 1100 running SnapOS, which can come with little as a single 80 GB disk drive, to the Snap Server 15000 running GuardianOS, which supports iSCSI and can scale from 5 to 29 terabytes.
Adaptec's external storage business, meanwhile, has consisted largely of the business it picked up when it acquired EuroLogic in March of 2003. Through Eurologic, Adaptec sells both DAS and Fibre Channel based RAID and JBOD units. In February, Adaptec introduced the iSA1500, an iSCSI target equipped with Serial ATA disk drives, as well as a sister product, the Adaptec File Saver, which is a file-based device targeted at desktop and laptop backup.
Adaptec also makes a variety of RAID and networking products, which it sells through the channel and through OEMs. OEM sales made up 64% of its revenue last year.
Integration of the two product lines will have to be carefully thought out, and "Adaptec has to do a better job with Snap than they did with EuroLogic," said Brian Babineau, an analyst with the Enterprise Strategy Group in Milford, Mass.
Snap's strong brand in the NAS space makes it the natural choice to lead up that market, but their plans for joint iSCSI storage is less obvious. "If they sell it as iSCSI components, it should go Adaptec, but if they are trying to sell complete solutions, then Snap should do it," Babineau said.
Adaptec is not at liberty to discuss future product plans until the acquisition in finalized, but those are precisely the kinds of questions its leadership are pondering. "It's safe to say that we're looking closely at synergies across the product lines," said Mark Delsman, Adaptec vice president of business development.
How will this deal affect storage pricing? In general, "consolidation never bodes well for storage pricing," said ESG's Babineau, but this particular case may be different. The low-end NAS market is in flux, he said, and "the low-end Linux and Microsoft-based NAS vendors are really going to have to sharpen their pencils when it comes to pricing."
Adaptec said it can be very price competitive. "One thing we've learned about making money is that you need to own a lot of your own IP [intellectual property] to make a solution that is value-priced," said Adaptec's Delsman. Now, with IP that spans the RAID controllers to the file serving software, "we have a comprehensive set of technologies to put together a competitive solution."
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