HP Making Virtual Progress

Sources say virtualization product could emerge from HP's relationship with FalconStor

January 12, 2005

4 Min Read
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Hewlett-Packard Co. (NYSE: HPQ) may be developing a new virtualization product, one based on its relationship with FalconStor Software Inc. (Nasdaq: FALC).

Sources say HP and Falconstor have reached a tentative agreement for HP to use FalconStor software for a virtualization product. One source, who asked not to be named, says the product would be an in-band appliance that competes with IBM Corp.'s (NYSE: IBM) SAN Volume Controller, Hitachi Data Systems' TagmaStore virtualization capabilities, and the coming Storage Router from EMC Corp. (NYSE: EMC).

HP's new product would compete head to head with IBM's and HDS's, which also take an in-band approach to virtualization. EMC is developing an out-of-band appliance due in the first half of the year. (See IBM Revs Virtualization Engine, Hitachi Struts Mr. Universal, and EMC Takes Storage Router for a Spin.)

The new HP offering would ostensibly replace the embattled HP OpenView Continuous Access Storage Appliance (CASA), which the company recently lost the right to sell after a drawn-out legal battle with EMC.

Let's start at the top. The pressing need for a new virtualization product follows the apparent downward spiral of CASA, originally named the SV3000. HP picked up the product with its stock-based $350 million acquisition of StorageApps in 2001 (see HP Acquires StorageApps). In that purchase, HP also inherited EMC's lawsuit against StorageApps for patent infringement. EMC won the case in May 2004 and an injunction in October, which prohibits HP from selling the product with the disputed functionality.HP continues to assert its commitment to the product while it appeals the case. "HP disagrees with the court's decision of infringement of the EMC patents asserted against HP," a company spokesperson writes in an email to Byte and Switch. "Technical support and services will continue without disruption and we are working to assure that any remedy to EMC will not impact our customers' continued use of the product."

But by most accounts, CASA customers are few and far between. "CASA has not made much of a [impact] in the market," says analyst Arun Taneja of Taneja Group. "I have not seen many strong implementation stories on that."

Moreover, EMC has shown little desire to compromise in its action against HP. The company is now seeking damages related to the case.

While all this goes on, sources say HP has a narrowing window of opportunity for a virtualization appliance. "They absolutely need a virtualization product," says Taneja. "Customers have started to buy [competing] products, and once you have a competitor in your account, it takes two years to get them out. The stickiness of solutions is quite high."

Speculation around HP's attempt to create a CASA replacment centers on the company's partnership with FalconStor, mainly because the two currently have an OEM arrangement, the parameters of which are fuzzy and seemingly open to a range of possibilities. The impression is intensified by an aura of caginess and secrecy on the part of both players. For instance, FalconStor technology is offered in the HP ProLiant Storage Server iSCSI Feature Pack, though neither company has announced the deal (see FalconStor's Flyin'). And in public presentations, FalconStor routinely displays the words "Tier 1 OEM" on the list of partners with whom it plans to produce new technology this year. By nearly all accounts, that's a placeholder for HP.Some question whether speculation about HP and FalconStor is misplaced. They say FalconStor's technology isn't necessary for HP to produce a new virtualization appliance. At least one industry analyst says HP already has the capability to deliver a new virtualization product by mid year. "It's within the realm of possibility that they could do it within six months," says John Webster, senior analyst at Data Mobility Group.

Some question whether FalconStor meets HP's particular needs. "I don't think the FalconStor technology has enough complexity that it could go head to head with those other virtualization schemes like TagmaStore," says Steve Berg, senior analyst at Punk Ziegel & Co. "It seems like a bit of a long shot."

While he disagrees with the assertion that FalconStor's capabilities don't stack up, Taneja sees other problems. "HP needs to own the fundamental virtualization product themselves because there's so much riding on top of it," he says. "If they OEM virtualization, long term that could be a problem."

HP and FalconStor would not comment on any aspect of an OEM relationship.

Brett Mendel, Senior Analyst, Byte and Switch Insider0

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