IBM Still Loves Engenio

Will still OEM midrange systems, saying they don't compete with its own newer offering

October 14, 2004

2 Min Read
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Despite giving birth to their own midrange storage baby, IBM Corp. (NYSE: IBM) executives say they will not make orphans of the systems manufactured by Engenio Information Technologies Inc.

"The Engenio systems have been very good business for us," says IBM storage VP Leslie Swanson. "We'll refresh the entire line next year."

That's certainly a relief to Engenio, which would have its IPO plans blown to pieces if it lost any significant part of its IBM OEM business. Engenio counted on IBM for 51 percent of its revenue last year, generating roughly $218 million from sales through Big Blue. Its reliance on IBM sales rose to 54 percent for the second quarter of this year.

Engenio, formerly LSI Logic Storage, was scheduled for an IPO in July as part of its plan to spin off from LSI Logic Corp. (NYSE: LSI). (See LSI CFO Eyes IPO and LSI Storage Becomes Engenio.) It postponed the IPO when preliminary bids fell far below the target range and has yet to reschedule (see Engenio Gets Cold Feet). Financial analysts blame poor market conditions rather than problems with Engenio for the low pricing, but few expect Engenio to go public without its IBM relationship.

Engenio supplies the IBM storage systems formerly known as FastT, now rebranded as the DS4000 family. IBM's decision to manufacture its own midrange system the DS6000 – prompted industry speculation that it might drop the Engenio line (see IBM's New Shark Tale).Among the enhancements IBM and Engenio anticipate are systems that allow customers to mix Fibre Channel and SATA drives in the same array. Unlike the DS6000, Engenio's midrange systems already support SATA (see Engenio Unveils SATA System).

But won't IBM eventually tire of seeing those hundreds of millions in annual revenue go to Engenio? Maybe, but IBM has shown no interest in developing its own lower-end storage. It moved into the entry-level Fibre Channel and IP SAN market last month by signing an OEM deal with Adaptec Inc. (Nasdaq: ADPT). (See IBM Slips iSCSI Into SAN and Adaptec Unveils OEM, Revs Guidance.)

"Frankly, IBM doesn't want to build generic products of their own," says The Clipper Group Inc. analyst Mike Kahn. "They like to build products with personality. But there's a large market for those generic products."

The current arrangement with Engenio lets IBM tap into that market without getting generic.

— Dave Raffo, Senior Editor, Byte and Switch0

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