On the hunt for storage

IBM is in talks to acquire two more Israeli data storage companies, and NetApp and EMC are eyeing the rest.

Tom Mendoza, the deputy chairman of Network Appliance Inc. (Nasdaq: NTAP), and until recently president of the company, is a plain speaking man. Or at least that is how he'd like people to think of him; someone who says what he thinks in a forthright and businesslike manner, without sounding too smug about it. The aggressiveness with which he expressed his views to "Globes" about start-ups specializing in data storage, Network Appliance's line of business, during an interview in Israel earlier this month, was extremely overt and blunt.

"We'll hit these companies when they're small," he said when asked what changes he sees in the storage world. "We won't let them grow in our field, like EMC allowed us to do. We'd rather fight."

Mendoza did not claim that there was no need for new start-ups in the field, but merely that they would now find it hard to succeed without the strong backing of a large company behind them. He even found time during his visit to Israel to meet a few companies like these, and exchange a few words with a research team from IDC, which is mapping out potential acquisition targets in Israel.

These comments came against the backdrop of the changes the storage world has been undergoing for some time. The new generation of technologies has sent not only Network Appliance in search of start-ups in Israel, but other giants too, such as IBM Corp. (NYSE: IBM), and EMC Corp. (NYSE: EMC). IBM, it is believed, is in talks to acquire two more Israeli storage start-ups, and Network Appliance and EMC are also interested in a number of local companies.

New Wave

Whether by coincidence or not, a few days after the interview with Mendoza, Network Appliance found itself with a direct Israeli-grown competitor. Exanet Ltd., an Israeli storage start-up, decided to change strategy and focus on Network Appliance's market segment - sales of storage systems to the mid-range market.

Exanet operates in a field known as "Clustered Storage", the new wave that has been sweeping through the storage world over the past year. The term refers principally to systems based on a lot of software that enable better and more efficient use of hardware at databases, on platforms composed principally of virtual mechanisms.

A further indication that the field is warming up can be found at XIV, acquired by IBM three months ago, which is doing something similar - smart software for managing low cost storage systems on virtual platforms, with a simple option to increase stored data volumes. Exanet is doing more or less the same as XIV, only for smaller capacity storage environments. The outcome of this is that Exanet is in fact supplying a kind of ideal complementary solution for IBM, a natural outcome considering that the two companies have been collaborating for some time.

At the same time as the acquisition of XIV, IBM also announced it would spend a matching sum (estimated at around $300 million) on the expansion of its R&D center in Israel. This expansion is due to commence soon. Could Exanet be an acquisition target? It's hard to tell, but it has undoubtedly been for sale for some time, alongside other Israeli companies specializing in storage and virtualization. Any negotiations over an acquisition of Exanet will probably include some tough bargaining over the price tag. After all, backing Exanet are a number of big names, such as chairman Giora Yaron, Eitan Wertheimer, Intel Capital, Eastman Kodak Co. (NYSE: EK), and others, who will be all looking to upgrade the deal, after investing $60 million. The company is currently raising $10 million.

Proof of efficiency

One of the more interesting and promising storage companies in Israel is Storwize Inc., which came third in the "Globes" list of ten most promising start-ups for 2007. Storwize, which has developed a technology for data compression, significantly reducing the volume of space needed in storage systems, has a solution for network attached storage (NAS) environments, meaning enterprise storage networks based on cheap and relatively simple infrastructures. Network Appliance controls the lion's share of this market.

Storewize could certainly be of interest to Network Appliance, and the talks the two companies recently held are thought to have gone beyond technological collaboration. Storwize previously claimed that it would also attempt to provide a solution for Storage Area Network (SAN) environments, which are designed to handle larger storage volumes and more demanding applications. Storewize's focus on the SAN market makes sense. This market is expected to reach $15 billion this year, compared with $4.5 billion for the NAS market.

Targeting the SAN market is a more appropriate direction for Network Appliance as well. The US company has driven growth in recent years by demonstrating its capabilities in the storage market. It holds 4% of this market only (while EMC which dominates it), and its recent acquisition of Boston-based start-up Onaro was designed to strengthen it in this market as well.

As for Storewize, it still has to demonstrate its product can be adapted for SAN environments where the communications are far more complex, and adding another technology to the heavy systems powering this work environment is no trivial matter.

Another company which could interest the storage giant is Axxana Inc., which specializes in Disaster Recovery Programs (DRP). It is still operating in stealth mode, meaning that it is keeping quiet about its technology, as indicated by the lack of any detailed information on its website.

What is known is that Axxana provides a sort of black box for the immediate back-up of critical enterprise transactions, thereby saving the need for a communications link to a remote back-up site, which in any case constitutes an acute problem from the point of view of performance and costs.

Axxana could also be a successful acquisition target for IBM, not least because one of the company's directors and advisers is none other than Moshe Yanai, who headed XIV and now leads IBM's strategy in data storage.

Axxana's solution - should it be a success -will change the perception about remote back-up options, and it is suited to storage companies seeking created solutions in this field, as well as companies providing storage communications equipment.

Alongside the Israeli companies listed above are several more, such as Diligent Technologies Corp.. It was produced from EMC in 2002 in a spin-off led by Doron Kempel and Moshe Yanai (yes, the same one), both of whom still hold executive positions at the company (Kempel is CEO, and Yanai is a board member).

Diligent's solution is focused on de-duplication technology, meaning a technology which allows changes to be stored on one single file, thereby generating significant savings in space. Diligent has already come a long way, which included four funding rounds, which raised a total of $50 million, and according to IVC Online data, it is only just beginning to have sales.

Axxana and Storewize at least, because of their position as companies that supply solutions which "sit" on the storage system chain, could also be of interest to storage communications equipment suppliers such as Brocade Communications Systems Inc. (Nasdaq: BRCD). Brocade, and the other companies mentioned in this article, might also take an interest in companies such as CloverLeaf Communications Inc., which provides solutions for communications and information infrastructure management on storage networks. Things are heating up in the local and global storage world.

Published by Globes [online], Israel business news - www.globes-online.com - on March 16, 2008

© Copyright of Globes Publisher Itonut (1983) Ltd. 2008

Twitter Facebook Linkedin RSS Newsletters גלובס Israel Business Conference 2018