Data-driven

The Data Domain thrill ride ended this week when EMC upped its offer for DDUP to $33 per share (a whopping $2.1 billion dollars, or 111 times Data Domain's earnings), after which NetApp bailed out and went home.

Then came another surprise. Broadcom dropped its hostile takeover bid for Emulex--a prize it had been chasing for months. Hostile is almost an understatement for Emulex's reaction to Broadcom's entreaties. Harsh words and lawsuits were flying back and forth. But that one ended too when Emulex's board of directors unanimously rejected Broadcom's sweetened bid of $11 per share. Not even close to what we're worth, said Emulex. For Broadcom, this rejection was the final act.

Think we're done now for 2009? I think not. Stay tuned, because the storage industry has become a cauldron of acquisition activity. Yes NetApp lost its bid for Data Domain, but is likely not out of the hunt, if it wants to try again--for instance, other dedupe technology sources include ExaGrid, FalconStor, Quantum, and Sepaton. Nor can we say that Broadcom has suddenly lost interest in getting to the Fibre Channel over Ethernet "Go" square sooner rather than later just because they were stiff-armed by Emulex. There are other FCoE processing stacks out there to be had--via an acquisition of QLogic, for example. In other words, those were just warm-up events.

EMC's Joe Tucci: whatever he's watching, I'm watching.

(Credit: EMC)

Joe Tucci, chairman, president, and CEO of EMC, has proven over the years to be a master of the technology acquisition, so whatever he's watching, I'm watching. More than a year ago I was at an EMC World event at which Tucci spent some quiet time with a gathering of industry analysts like me. He can be surprisingly candid in these sessions. During this one he disclosed that he was closely watching four technology areas he thought would produce significant heat within the next few years: virtualization, data deduplication, solid-state disk, and cloud computing. Now it looks like he was right on all four out of four.

The first one, virtualization, was no real surprise. He'd already acquired VMware, by far the brightest star in the virtualization firmament, and he bought it for what now appears to be a $635 million song. So EMC now owns the big server virtualization franchise, but what about storage virtualization? EMC really doesn't have that square covered yet, and rivals like HDS, IBM, and NetApp are pecking away at EMC's potential clout in this space. Will Tucci turn up the heat on internal development, or get out the checkbook? Hard to say, but FalconStor for example is potentially available; it should be remembered that FalconStor was once a storage virtualization play before it found a secure niche in data deduplication.

Speaking of which, the second area, data deduplication, was a bit of a surprise in that dedupe feels more like a feature than a product. Furthermore, EMC makes big money on storage, and deduplication makes big storage smaller. Why would EMC want to go there? No matter. EMC is about to pay billions of dollars for a company that sells disk-based data protection appliances competitively against EMC. Dedupe is the prize inside because, as a feature, data duplication can go just about anywhere--it's applicable to primary, backup, and archive storage--and it actually induces buyers to take on more disk and less tape. Clearly, Tucci wants EMC to own the dedupe opportunity (and DDUP for that matter) wherever it goes. Competitors will take note and respond. Given the current economy, storage efficiency is now the rage, and M&A activity around dedupe is far from over.

Solid-state disk was a big surprise at the time. SSD arrays once kicked around big data centers years ago, but never got a firm foothold. Moreover, in those bygone days of the early 1990s, EMC actually had an SSD array that it killed off when its Symmetrix disk array sales took off. Now solid state is back on EMC's radar screen because finally, and as a result of the ubiquity of NAND flash memory, it can be bought at a price point that compares favorably with rotating disk for applications that demand performance. Finally, SSD is hot. The companies potentially in play here are not the makers of NAND flash (like Intel and Samsung). The hot start-ups to watch are the developers of SSD controller technologies ( Fusion-io and WhipTail Technologies for example)--that is, the people who take the NAND flash and actually do something with it. The real work of managing NAND flash and presenting it as disk to an operating system gets done at the SSD controller level, and if Tucci is watching this space closely, he's not alone.

Seeing cloud storage on the list was once again a big surprise. That's another place the storage industry has once before gone and failed. We remember from the Web 1.0 era the meteoric rise and fall of many Internet-based storage service providers like Storage Networks and StorageWay. Even Enron had a horse in this race. But that, as it turns out, was cloud storage 1.0. Cloud storage 2.0 is big and growing, and again Tucci has proven himself to be on the mark. Indeed, EMC has already made an acquisition here--Mozy, once a cloud-based data backup service that now anchors EMC's Decho. EMC is also actively developing and marketing a cloud storage platform called Atmos, and has recently introduced Atmos onLine. Does EMC need more cloud storage? Only time will tell. And even if Tucci doesn't see a need, his competitors will. The potential cloud storage acquisition targets are many and varied, from cloud storage service plays like Nirvanix to cloud storage software plays like ParaScale.

With Broadcom's shadow away from its doorstep, Emulex now gets to prove that it really can spin FCoE chips into gold on its own. And while Data Domain didn't wind up with the suitor it wanted, Tucci is working hard at making DDUPers welcome in Hopkinton, Mass. Is that all for storage industry M&A activity this year? Not by a long shot.