Howard Marks

Network Computing Blogger


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Seagate Inks Deal To Acquire Xyratex

While we were all busy buying toys and ugly sweaters at the mall, disk drive giant Seagate was busy with a different form of shopping, buying storage arms merchant Xyratex for approximately $374 million. Xyratex has three primary product lines: hard disk test equipment, for which Seagate is of course a major customer; OEM storage enclosures; and clustered storage systems.

Dell and IBM remain big customers for Xyratex’s enclosures, which range from simple JBODs to dual controller storage bridge bay enclosures and custom manufacturing of products such as EqualLogic arrays. However, Xyratex’s biggest customer, NetApp, has been shifting from Xyratex enclosures to similar units from the Enginio division it bought from LSI in 2011.

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In addition, consolidation in the disk drive market has reduced the number of customers for Xyratex’s hard disk test equipment. The good news for Seagate is that there are essentially no competing vendors for many of Xyratex’s test products, so HGST, WD and Toshiba will have to remain customers, at least until the other players in the market broaden their product lines.

Clearly, this is a move by Seagate to move from the low-margin commodity world of disk drives into the more profitable systems market. Since Seagate has relationships with all the storage OEMs -- with the possible exception of Hitachi Data Systems since HDS and HGST were siblings in the Hitachi family until recently -- it has an opportunity to sell JBODs and enclosures for software-defined storage platforms that smaller OEMs such as Supermicro or Dot Hill might not be able to reach.

The clustered storage systems, many based on Sun’s Luster file system that Xyratex bought from Oracle in February, are sold directly to large end users in the high performance computing and big data markets. While this opens a new, higher margin market for Seagate, it also presents the possibility of storage OEMs shifting their drive purchases to the competition rather than sending money to a more direct competitor.

Seagate head honcho Steve Luczo has flirted with diversification into higher margin markets before. Back in 1995, I was a consultant to Seagate Software, which bought Backup Exec along with a series of network and server management vendors before being sold to Veritas in the financial engineering that took Seagate private for a time.

[Read about Seagate's Kinetic Open Storage platform, an architecture that creates smart disk drives with Ethernet interfaces in "Seagate Boosts Disk Drive Intelligence."]

Seagate has also had an on-again, off-again relationship with storage array vendor XIO. Seagate bought the then Xiotech in 1999, spinning it off in 2002 and finally selling the Advanced Storage Architecture group led by Steve Sicola along with the ISE (Intelligent Storage Element) architecture that is the core of XIO’s current product line.

ISE was Seagate's previous effort at moving up the stack with a value-added OEM product. Ultimately, none of the big server or storage players wanted to buy self-healing RAID arrays from Seagate and the technology was shuffled off to Xiotech; Xiotech's Magnitudes were getting long in the tooth anyway.

Ultimately, Xyratex was suffering from the contraction of its customer bases for both test gear and enclosures. Seagate offered a 27% premium and that seemed like a good exit to the investors. Only time will tell if the deal turns out to be a good thing for Seagate over the long run.


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