The storage industry continued to consolidate this year, highlighted by the Dell-EMC mega-merger.
There was a time when computer storage M&A activity ran at a fierce rate. EMC had deep pockets and the industry was ripe for consolidation, mainly in iSCSI arrays. That’s not so much the case today. Both acquirers and targets have thinned out, a trend that accelerated with the Dell-EMC deal. Just completed, Dell’s purchase of EMC is of course the blockbuster M&A story of the year, but with its high-debt leverage it effectively takes both companies out of M&A activity for the near future.
Still, we saw a number of noteworthy deals this year that illustrate ongoing trends in the data storage industry. Western Digital closed its acquisition of SanDisk in May in what looks like a wise move based on industry hard-disk drive shipment declines. The entire vendor base for Fibre-Channel technology that's used in SANs was acquired in 2016, reflecting its long term weakness in the face of Ethernet technology. Meanwhile, NetApp completed its acquisition of hot startup SolidFire to boost its position in the rapidly growing all-flash storage market.
The future profile of storage M&A is likely to be focused on software companies, as the impact of open APIs with software-defined storage begins to bite into the market. With substantially lower capital requirements, the current level of VC investment can sustain a dynamic crop of startups, while the flow of white-box appliances will provide the vehicles for the software to be integrated. We likely will see a spate of smaller deals as these startups find exits.
There will be further consolidation on the existing platform provider base. There are too many all-flash array vendors and some will die off or be acquired. Violin is a recent example, with exchange listing issues.
There's a good chance Hewlett Packard Enterprise will do some shopping in 2017. Rumored deals include all-flash array startup Pure Storage, top hyperconverged infrastructure provider Nutanix, and Scality, in which HPE already is an investor. Nutanix competitor SimpliVity could be another HPE target.
There has also been a spate of Chinese explorations into acquisitions, especially in flash, including Tsinghua exploring acquisition of Micron. Likely, these will fail due to US government oversight. Still, China is keen to build up its intellectual property, and has made inroads in flash technology with Japanese and Taiwanese acquisitions.
Dell and EMC merger completed
Two giants of the IT industry completed their merger in September, and now the hard work really begins. The new entity has too many overlapping storage families, so clearly shakeouts will occur. The debt burden of Dell’s acquisition is large enough that any serious M&A activity is unlikely. This could impact the whole storage M&A spectrum, with lower valuations and VC investment harder to find.
The motivation for EMC to be acquired appears to be focused on the realization that hardware is commoditizing rapidly, which made EMC uniquely vulnerable. When Dell Technologies begins to look again for storage acquisitions, it likely will target software-defined storage companies.
(Image: Dell Technologies)
Western Digital buys SanDisk
Completed in May, WD appears to have pulled off a coup by buying SanDisk. It boosted market share and IP in the flash space just as the market is turning very sour for its mainstay hard-drive products. With the deal, WD entered the all-flash array market, too, though it's a minor player in that space.
It’s not clear if WD can offset the sales decline of hard drives. Seagate just released its last 15K RPM drives and it’s probable WD also will stop further 10K RPM drive development. Meanwhile, the bulk high-capacity 3.5 inch drive market is challenged by 100 TB 2.5 inch SSDs planned for 2017 shipment. Even so, WD is now a major player in the flash market.
(Image: Western Digital)
Broadcom acquires Brocade
The SAN industry segment is struggling as flash/SSD and Ethernet-based products change the profile of the storage market. This has caused a major amount of M&A and the three smaller companies at the heart of Fibre Channel have all been bought out, two of them this year.
Broadcom recently announced its intent to purchase Brocade, the major switch player in the SAN market. This follows on Broadcom’s 2015 purchase of Emulex (via the Avago merger), a maker of adapter cards and chips, and will give Broadcom a complete portfolio of Fibre Channel network products.
Cavium buys QLogic
Chipmaker Cavium bought QLogic, another Fibre-Channel centric company selling primarily NIC cards, in June for $1 billion, so the whole Fibre-Channel infrastructure vendor base -- other than Cisco’s routers -- has changed ownership.
NetApp snaps up SolidFire
Having essentially been in denial of the importance of all-flash solutions for several years, NetApp figured it needed an all-flash product to stay relevant in the storage market. The company had placed its solid-state drive bets on hybrid SSD/HDD solutions, which underperformed both in IOPS and sales.
NetApp announced its intent to acquire all-flash startup SolidFire last December, and completed the deal in 2016. This deal gives NetApp a performance boost comparable with the products in use with block storage on SANs, and re-leveled the industry playing field for them. Still, NetApp's delays in supporting the all-flash format hurt.
SolidFire is available as a software-only solution, which suggests that NetApp’s management has had the same awakening as EMC regarding storage hardware commoditization.
Carbonite acquires EVault DR business
Carbonite acquired Evault's business continuity and disaster recovery assets at the start of the year, and the remaining assets were later picked up by Datacastle. Notably, j2 Global swept up eight other small companies in the backup segment.
The backup software space is ripe for consolidation with too many companies trying to save your data to the nearest cloud. This year has seen 12 M&A events in this segment, mainly of small companies with some useful bits of IP.
We can expect more consolidation, probably within the larger players, as this market begins to shake itself out.
Pivot3 acquires NexGen
Hyperconverged appliances, where servers and storage blend together, are hot items in today’s IT. Pivot3 bought NexGen to add all-flash capability, among other things, to its HCI platform. Much of Pivot3’s competition, however, comes from software stacks such as Nutanix and SimpliVity, Scality, and Ceph that OEMs and integrators can load onto standard COTS platforms, so the NexGen AFA will need to provide a dramatic performance boost to make this deal work and offer compelling differentiation.
Samsung buys Joyent
Samsung's acquisition of Joyent gets it into the cloud business, with a focus on mobile and IoT applications. Joyent’s Manta object store appears to have the scale Samsung wants.
In the bigger picture, it looks like boutique clouds aren’t immune to normal M&A pressures, though the presence of a Korean company brings into focus the multinational nature of today’s market.