Red Hat Acquires Storage Firm Gluster

Gluster has been acquired by the open source vendor Red Hat, forming the core of a storage unit that is being created around the acquisition and that will be headed by both Gluster and Red Hat staff. With the acquisition, users will be able to use open source software to create a storage cluster for unstructured data based on commodity hardware from a variety of vendors.

October 10, 2011

3 Min Read
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Gluster, a company that once aspired to be the Red Hat of storage, has achieved its goal by being acquired by the open source vendor, forming the core of a storage unit that is being created around the acquisition and that will be headed by both Gluster and Red Hat staff. With the acquisition, users will be able to use open source software to create a storage cluster for unstructured data based on commodity hardware from a variety of vendors. Gluster's close to 70 employees, the majority of whom are located in Bangalore, India, are expected to join Red Hat.

Gluster’s focus has been on unstructured data, files and folders, with content such as videos, audio, medical imagery and virtual machine imagery, says CEO Ben Golub. Currently, the company has about 150 commercial customers and up to 20,000 downloads a month for open source community users. Golub expects this number to increase because users will feel reassured that the company is going to continue and support opensource. The companies expect to announce within 30 to 60 days a more detailed product plan, but the software is likely to be sold on an annual subscription basis that dovetails with the way other Red Hat software is sold, says Ranga Rangachari, general manager of the storage unit for the Raleigh, N.C.-based Red Hat. The strategic rationale for the acquisition is that it gives Red Hat better access to unstructured data and big data, the cloud and virtualization he says.

"I thought it was an interesting deal with good potential," says Henry Baltazar, senior analyst for storage and systems for The 451 Group. "Storage continues to be a major pain point for virtualization and cloudenvironments, and Gluster's technology should make Red Hat's platform stronger in that area."

Red Hat acquired Gluster for approximately $136 million in cash in a deal that is expected to close later this month. Red Hat also said it would assume unvested Gluster equity and issue equity retention incentives (which the companies did not talk about, but presumably would be Red Hat stock issued to encourage Gluster employees to stay with Red Hat). The acquisition is expected to have no material impact to Red Hat’s revenue either this quarter or this fiscal year, but is expected to grow next year based on a subscription revenue model. The company also says it expects to increase its stock-based compensation charges by up to $1 million and amortization expenses of acquisition-related intangibles by up to US $2 million. In addition, Red Hat’s operating margin for fiscal year 2013 could be up to 1.5% lower than that of fiscal year 2012 because of investments made in Gluster, the company says.

On the day of the acquisition, Red Hat stock dropped $1.87, or 4.6%, to $38.59, but has since recovered, closing at $42.88 on Friday. An analyst for UBS Securities lowered predictions for 2013 earnings per share by 10 cents, to $1.19, and for 2014 by 11 cents, due to the planned investments.

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