Engenio Lowers Its Sights

Engenio is jumping into the low-end of the storage pool.

For the first time, LSI Logic Corp.s (NYSE: LSI) revamped Engenio storage systems division is planning entry-level networked storage products, in an attempt to leverage the company’s serial-attached SCSI (SAS) technology and server OEM partnerships.

Engenio came under new leadership when new LSI CEO Abhi Talwalkar reorganized the company last month (see LSI Logic Reshuffles and LSI Logic Changes CEO). Talwalkar dropped plans to spin Engenio public, and he merged the RAID Storage Adapter (RSA) group into Engenio.

Former Engenio CEO Tom Georgens disagreed with the decision and left the company, and former RSA head Phil Bullinger took over as Engenio general manager.

At LSI’s analyst day Wednesday, company executives laid out plans for the new Engenio, which remains a wholly-owned subsidiary. The biggest change is that Engenio will develop systems in the sub-$14,000 price range, marking the first time it has manufactured a system outside of the midrange.Bullinger says Engenio will continue to expand its midrange platform, which is sold through OEM partners IBM Corp. (NYSE: IBM), Silicon Graphics Inc. (SGI) (NYSE: SGI), Sun Microsystems Inc. (Nasdaq: SUNW), and others. But LSI sees the entry-level space as a potential $2 billion market that is largely untapped.

Bullinger didn’t go into product specifics, but he referred to entry-level systems as “server-led storage.” He says the target isn't limited to SMBs. He sees the systems appealing to large companies that want to network direct attached storage.

“The entry level is a segment Engenio is very interested in,” he said. “Much of it is sold through servers, and many of our closest partners are server companies.”

Engenio hopes LSI’s early SAS products will give it an edge in low-end storage (see LSI Logic Samples SAS, SAS Shows Its Face, and HP Integrates LSI Logic SAS). The SCSI hard drives that SAS will replace are used more for servers than networked storage, and Bollinger thinks the improved performance of SAS over SCSI will help turn servers into low-cost networked storage.

Bollinger says Engenio will announce its first entry-level system early next year. That means it probably has at least one customer lined up, given that its model is to win an OEM deal before developing a system. “I can’t comment on unannounced products,” Bullinger said.He won’t comment on OEM partners, either. But considering his reference to "server-led storage" and LSI’s RSA OEM partners are server companies, it sounds like Engenio is courting server vendors for its new systems. Of course, there are companies that sell both servers and storage -- most notably Dell Inc. (Nasdaq: DELL), Hewlett-Packard Co. (NYSE: HPQ), IBM, and Sun. Conceivably, any of them might swing a deal with Engenio for entry-level systems.

IBM and Sun already sell Engenio midrange storage, and both have discussed expanding their relationships with Engenio. HP has outsourced much of its storage recently, and is a big player in the entry-level server space. Engenio has been courting HP for a while (see Tom Georgens, CEO, Engenio).

Then there’s Dell, the most intriguing possibility as an Engenio partner. Dell successfully got into storage four years ago through a partnership with EMC Corp. (NYSE: EMC) (see Storage Sales Up, Says Gartner and Dell and EMC Do a Deal). Dell sells EMC’s midrange Clariion and low-end AX100 systems, but industry sources say it is looking for an OEM partner for another entry-level system.

“We believe Dell is out with an RFQ (request for quotation) for an entry-level storage product,” analyst Kaushik Roy of Susquehanna Financial Group

wrote today in a note to clients about LSI. “Winning this business is complicated by Dell’s partnership with EMC. Specifically, Dell could be reluctant to antagonize EMC, which provides the midrange Clariion line and the entry-level AX100, even though traction of the AX 100 has been disappointing.”

Engenio’s move into entry-level storage also changes the competitive landscape for storage vendors who rely on OEM deals. Engenio will now compete directly with Adaptec Inc. (Nasdaq: ADPT), Dot Hill Systems Corp. (Nasdaq: HILL), and Xyratex Ltd. (Nasdaq: XRTX) for OEM business. Engenio has successfully competed with those companies for low-end midrange deals, but now it is moving directly onto the competitors’ turf.There’s probably not enough business to keep all four afloat. If so, expect to see consolidation through a merger or acquisition. Talwalkar thinks that’s a possibility, but he's optimistic. “I think we’re going to benefit from any consolidation,” he says.

As for the IPO that Engenio was hours away from 14 months ago before backing off, LSI executives say the intention to go public might have hurt its chances of acquisitions or new partnerships (see Engenio Gets Cold Feet). “The energy and investment Engenio put into the IPO was distracting,” Bullinger says. “It prevented a number of things, business synergies, things like that.”

— Dave Raffo, Senior Editor, Byte and Switch