March 10, 2011

NetApp Moves Into HPC Storage with Engenio Acquisition

Michael Feldman

On Wednesday, NetApp announced an agreement to buy the Engenio storage business from LSI. Engenio makes high bandwidth storage gear for the HPC and multimedia markets, two areas that NetApp has largely been excluded from with their current enterprise-focused portfolio. The price tag for the deal is $480 million, making it the largest acquisition in NetApp’s 19-year history.

During an analyst conference call, NetApp CEO Tom Georgens explained the deal would enable his company to add a total addressable market of $2 billion per year ($1 billion each for HPC and video storage/distribution/surveillance), a number he expected to grow to $5 billion by 2014. On the HPC side, he mentioned immediate opportunities in the federal government, entertainment, and oil & gas.

Georgens characterized the acquisition as a clean fit for NetApp, since there is little overlap between the two product lines. Today the NetApp portfolio is geared toward the enterprise. The company’s Fabric-Attached Storage (FAS) running NetApp’s proprietary Data ONTAP OS allows users to consolidate disparate file systems (NFS and CIFS) under a single platform. By contrast, Engenio offers stripped-down storage arrays optimized for high bandwidth and scalable capacity, which makes it a particularly apt fit for performance-challenged environments in technical computing and multimedia.

Although there’s little conflict between the storage lines, there’s not much synergy either — at least from the technology point of view. There are no plans (or reasons) to port ONTAP to Engenio gear, and nothing on the roadmap to build a more full-featured, integrated software-hardware offering. For HPC use, most Engenio storage ends up running parallel file systems like Lustre or GPFS (and to a lesser extent Panasas’ PanFS or BlueArc’s SiliconFS), supplied by OEMs.

Rather the synergy comes on the sales side. Although not in the HPC space, NetApp has accounts with many customers that run performance-hungry workloads, including national labs, EDA firms, banks, entertainment companies, and so on. Up until now they could only provide storage for general data management, leaving the HPC money on the table for someone else. But through direct sales and channel parters, NetApp has a much wider reach that LSI. That regime relied heavily on OEM partners like IBM, Cray, Panasas, BlueArc, SGI, Teradata and T-Platforms to sell Engenio gear into the HPC market.

How the OEM-centric sales model plays out under NetApp remains to be seen. In the conference call, Georgens extolled the virtues of direct sales and channel partners, but realized there’s going to be some sort of balance to be struck. For the time being, he expects to keep a large share of the OEM business, but “not every single dollar that we have today.”

Certainly in HPC, storage infrastructure tends to be rather application-specific, so ends up getting sold by server and storage OEMs as part of a system deployment (as opposed to a centralized data repository). With no plans to offer a more turnkey Engenio-based storage product, I’m not sure how that OEM-heavy sales model changes significantly. In any case, NetApp is not going to dissolve partnerships on its own if it can sell products through Engenio’s existing OEM buddies. As Georgens said, those deals are like “found money.”

The complication here is that some Engenio partners like Panasas, BlueArc and RAID Inc. are storage OEMs that compete more generally with NetApp. Keeping those relationships is still possible — lots of companies compete in one market and cooperate in another — but some of these vendors may end up looking elsewhere for their storage arrays. Even some of the server OEMs with independent storage lines may decide that NetApp is too strange a bedfellow to stick with long term.

From NetApp’s point of view, though, it looks like all upside. With the additional Engenio revenue stream, they expect to tack on another $750 million in sales for FY2012, with that number increasing in concert with future market growth in HPC and multimedia. And with their own global sales force and partners, they think they can generate a good deal more revenue than would have been possible under LSI. “We can exploit this technology in a way the seller could not,” said Georgens.