Adaptec's $100M Snap Decision

Acquisition-hungry Adaptec Inc. (Nasdaq: ADPT) has plunked down $100 million to fill the biggest hole in its storage portfolio by snapping up NAS vendor Snap Appliance Inc.

Adaptec said Tuesday night it will pay $91 million in cash and assume $9 million in stock options for the NAS company that Quantum Corp. (NYSE: DSS) spun off 21 months ago (see Quantum Evicts NAS Unit). The companies expect the deal to be completed by the end of the month.

Snap, a company that focuses on a low-price, high-volume market, claims it is the NAS volume leader with more than 150,000 systems sold. Snap survived by avoiding the high-end NAS segment dominated by Network Appliance Inc. (Nasdaq: NTAP) and EMC Corp. (NYSE: EMC). Snap sells mostly to departments and workgroups. Its competition in that space, primarily Dell Computer Corp. (Nasdaq: DELL) and Hewlett-Packard Co. (NYSE: HPQ), sell NAS systems based on Windows, while Snap uses a proprietary GuardianOS operating system (see Snap Plans Poor Man's SAN and Snap Tackles Blocks).

The Adaptec product line already includes Fibre Channel and iSCSI SANs and SATA and SCSI drive controllers, sold primarily through OEMs (see Adaptec Delivers SAS ASIC, SATA Suppliers Ready for Onslaught, and Panel Prompts iSCSI Love-In).

"Its part of our aggressive strategy moving into external storage," Adaptec CTO Mark Delsman says of the Snap acquisition. "We’ve got block storage, Fibre Channel storage, and iSCSI storage. But we didn’t have anything to say about the NAS portion."At a price of $100 million, Adaptec will have a lot to say about NAS now. Its been putting its money where its mouth is over the last 15 months. In that span it spent at least $20 million on virtualization software provider Elipsan, $30 million on storage subsystem manufacturer Eurologic Systems, and picked up German-based RAID component vendor ICP Vortex Computersysteme GmbH for an undisclosed sum (see Adaptec Gets Virtual With Elipsan and Adaptec RAIDs Old Europe). Last month Adaptec also acquired a RAID controller business unit from IBM Corp. (NYSE: IBM). (See Adaptec, IBM Get Cozier.)

The price tag was far steeper for Snap than those previous acquisitions. The sum represents a nice return on the original investment of $11.3 million that Snap paid Quantum for its NAS assets. Snap VP of business development Mark Pollard won’t say if the company was profitable, but Adaptec says it expects the deal to generate $40 million in revenue over the next year.

Adaptec will run Snap as a division, headed by Snap CEO Eric Kelly (see Snap Names Chief). Delsman says Snap’s approximately 100 employees will be offered positions with Adaptec, which has about 1,500 employees before the deal. Snap will maintain its San Jose, Calif., office, which is close to Adaptec’s Milpitas headquarters.

Pollard says the NAS focus will remain on low-end systems, but joining Adaptec should provide OEM NAS opportunities while possibly giving Adaptec a channel presence. Snap sells mostly through the channel, while Adaptec generates just over 60 percent of its revenue through OEMs. IBM, Adaptec's biggest customer, would make a possible OEM partner, should Big Blue decide to give lower-end NAS another try. IBM abandoned its Windows-based NAS system last year and launched a high-end gateway in January (see IBM Swings New NAS Gateway).

Snap’s Pollard says he thinks the NAS landscape could see more changes. Although startups such as BlueArc Corp., Isilon Systems, and Panasas Inc. are still around, it’s a tough market to crack with NetApp and EMC on the high end plus Dell, HP, EMC, and Iomega Corp. (NYSE: IOM) selling low-end systems based on Windows. Sun Microsystems Inc. (Nasdaq: SUNW) also recently announced plans to reenter the NAS picture (see Sun Sings New Storage Song).“We believe there is going to be more consolidation in this business,” Pollard says.

— Dave Raffo, Senior Editor, Byte and Switch