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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.