NetApp Chief: 'We`re Not for Sale'By Lawrence Walsh | Posted 2009-05-21 Email Print
In an impromptu Q&A with business and channel partners, NetApp CEO Dan Warmenhoven and Vice Chairman Tom Mendoza assert the storage company’s new strength following the announced acquisition of DataDomain and intentions to grow with the support of integrators and hosted service providers.
Ever since Cisco Systems unveiled its blade server strategy and Sun Microsystems revealed its desires to be bought, analysts and industry observers have questioned the viability of storage area network pioneer NetApp and speculated that it would be the next victim of industry consolidation.
The day after announcing intentions to acquire deduplication vendor DataDomain, CEO Dan Warmenhoven took on the issue of NetApp’s viability, stating that the company planned to remain independent and growing its capabilities in storage technologies.
"We see no reason to change from our current course," Warmenhoven told a group of business and channel partners gathered at NetApp’s campus for the company’s annual Innovation Awards. "We could still build a sizable business and solve storage and data management issues. "Every time I meet a customer of size, I get a question about who might buy us."
NetApp, which reported earnings yesterday that beat Wall Street expectations but were still down 6 percent year over year, holds a 12 percent storage market share and is one of the last pure-play storage vendors left standing. Warmenhoven, flanked by the company’s vice chairman Tom Mendoza, stated that the market conditions weren’t right for anyone to buy NetApp and that the company is positioned to achieve its ultimate revenue goal of $10 billion.
"We believe we can do more in the data center and DataDomain is a part of that," Mendoza said.
NetApp executives reiterated the strategic benefits of acquiring DataDomain, which specializes in deduplication technology and tertiary storage systems. Warmenhoven said that DataDomain competes more against EMC and complements NetApp’s NAS and SAN storage technologies. Additionally, he said, the two companies have a healthy overlap in channel partners and not a lot of overlap in customers.
Once the acquisition closes, NetApp plans to operate DataDomain as a separate product line with separate product and development management.
NetApp is a consistent mention in the Silicon Valley sport of acquisition-and-consolidation speculation. Likely suitors for the $4 billion storage company include Cisco, Hewlett-Packard, IBM, EMC and Dell. Rumors have persisted for years that Cisco and NetApp engaged in acquisition talks, but nothing leading to a serious offer.
Warmenhoven addressed each potential suitor:
- EMC: Least likely acquirer, Warmenhoven says, since any deal would likely not survive challenges by rival vendors or antitrust regulator review.
- Dell: While Dell is doing well with products acquired through EqualLogic, Warmenhoven says the struggling PC manufacturer’s "market cap doesn’t have the firepower to make an acquisition" of NetApp size.
- IBM: IBM and NetApp have enjoyed a strong alliance for
several years, and IBM has access to NetApp technology and researchers.
While IBM's overall storage business is down 20 percent versus last year, Big Blue's sales of NetApp's products are up, Warmenhoven said. That
business is sound and an acquisition would simply disrupt a good
relationship, he added.
- HP: Warmenhoven says HP CEO Mark Hurd is on record stating that he’s satisfied with the current state of HP’s storage business and believes that he can grow the business organically, if needed.
- Cisco: The networking giant is making no secret of its desires to do more in the data center, and storage is a big gap in its portfolio. Cisco is partnering with both EMC and NetApp in its data center strategy, and Cisco is a big NetApp reselling partner. Warmenhoven says the more likely Cisco target is EMC, which also comes with virtualization leader VMware.
"I doubt EMC will get bought because of the [big] number," Mendoza said. "We don’t want to get bought, and our stock isn’t performing well because the overall market isn’t performing well. We think it can perform better."
NetApp and DataDomain executives are mum on the $1.5 billion deal, since it’s just beginning to go through regulatory review. Warmenhoven said the acquisition deal took just two weeks to settle since both companies recognized the strategic value of integrating their product lines and the benefits for positioning NetApp to compete against rival EMC.
Critical to the success of NetApp’s current and future success is its channel and business partners, particularly large integrators that are able to design, implement and service complex storage systems. Warmenhoven credited the company’s channel partners with delivering a record number of net-new accounts over the past year and believes they will continue to drive growth.
Part of the reason channel partners will take on greater importance to NetApp is a trend Warmenhoven is seeing in which end users—particularly midsized companies—are moving away from direct deals and engaging more with solution providers that can deliver hosted storage infrastructure.
"If you look around the globe, [enterprises] don’t want to deal with the data center and the storage infrastructure," Warmenhoven said. "They just want the service and have storage as an expense."
Warmenhoven praised the work done by NetApp’s European partner, T-Systems, which won a five-year, 1 billion euro engagement to take over the IT operations of Royal Dutch Shell. T-Systems is in the process of migrating Shell’s data and applications to its infrastructure, which is standardized on NetApp appliances. Warmenhoven believes infrastructure as a service, such as the model being pioneered by T-Systems, will eventually dominate the storage marketplace.