On December 21, 2015, NetApp announced a definitive agreement to acquire SolidFire for $870M in cash. Apart from my initial surprise that NetApp actually had that amount of money sitting in its bank account, what does this mean?
Now, NetApp is late to the party regarding all-flash array (AFA) purchases, as expected from a company that at first denied AFAs as a niche product and said that flash as a device was “useful” as a caching technology. It has been no secret that NetApp has been struggling to break into the AFA world. Its first foray into the space was fraught with issues, not least the fact that the performance of that array was actually worse than its traditional spinning rust–based FAS filers.
It is obvious that NetApp is playing catch-up. The major storage vendors woke up early to the fact that the upstart storage startups had radical answers to the question of how to deal with flash technology as a tier—EMC and IBM had acquired and successfully integrated XtremIO and Texas Memory Systems, and Cisco had obtained Whiptail (however, the less said about what happened later to that acquisition, the better).
So, what exactly are the ramifications for NetApp and SolidFire?
The first thing that surprised me was the price. $870 million seems remarkably well priced for one of the poster children of all-flash arrays. Personally, I would have expected a price of around $1–$1.2 billion. That said, it does mean that SolidFire will not have to go down the IPO route and experience the pain that brings to a company, both pre- and post-IPO. As Pure Storage has found out, not all is rosy on the floated market. It also gives a healthy return on VC-injected cash ($150M, after its last round of $82M), so a win for SolidFire.
On the face of it, there are little to no obvious synergies. So, is this a technology grab by NetApp to bolster its obvious lack of a decent AFA? Yes, but that is not all SolidFire brings to the party. Its product set is highly admired in the service provider space, an area in which NetApp would love to be able to play and win. Further, its management software caters well to multitenanted cloud-based environments, where it can deal well with the “noisy neighbor issue,” in which a single tenant attempts to consume more resources than is equitable, to the detriment of other tenants on the array.
There are, however, obvious issues here. ONTAP is old and tired, and even ONTAP 8 is just an evolution. It needs to be retired. At the same time, there is considerable investment in ONTAP and WAFL, and that blinkers NetApp’s ability to replace it. That said, the SolidFire purchase is not really an ONTAP replacement enabler. Elements OS was designed from the ground up to make use of flash functionality, and it will not play nicely with spinning rust. This was not an issue for SolidFire, as it obviously only produced AFAs, but it does mean that NetApp will need to keep a spinning rust–based OS running. So, no real chance of research and development savings there, and thus no operational savings.
NetApp makes a good play of stating that SolidFire’s products will be incorporated into NetApp’s data fabric strategy to deliver “seamless data management across flash, disk, and cloud resources.” This is interesting, because it does seem to show that for the medium to short term, SolidFire will be left to run itself as a division of NetApp. This is evidenced by the fact that SolidFire’s current CEO, Dave Wright, will be the head of the “SolidFire product line within NetApp’s product operations.”
This is a smart move on NetApp’s part, as it enables SolidFire to keep its organization and go-to-market structures. It also allows legacy NetApp to cleanly exit those deals in which the requirements demand a solid AFA solution, but retain the revenue for earnings reports.
Do I think this will be a success?
It is too early to say. NetApp’s problems are many and deep. What will be interesting to follow is what will happen to SolidFire’s deal with Dell now that SolidFire is owned by NetApp, bearing in mind Dell’s proposed purchase of EMC. One thing it does go to show is “beware of the wounded animal,” and NetApp was wounded. It was losing deals left, right, and center to disruptive technologies like Tegile and Pure, and although not directly competitive, Nutanix, Tintri, and SimpliVity. This purchase does shake things up for NetApp, and once again it is being talked about. And that is no mean feat for NetApp.
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