Quantum next up in de-dup battle?

by Robin Harris on Monday, 6 July, 2009

Since the DoJ gave EMC an OK on the Data Domain acquisition, what’s next for NetApp? How about Quantum?

Through the Quantum->ADIC->Rocksoft dedup patents – cross-licensed to DD in return for 390,000 DDUP shares – Quantum owns core deduplication technology and sells a range of competitive D2D backup systems. With a current market cap of ~$200 million – and a 52 week high market cap of ~$400 million, they would be an excellent consolation prize should EMC win Data Domain.

Should NetApp buy Quantum?
With EMC officially over-paying for DD, this could be very smart for NetApp.

The Gets:

  • Dedup appliance product line – ripe for the cost improvement that NetApp’s buying power would give them.
  • Dedup patent portfolio – to help keep EMC honest.
  • Good market positioning: “Buy the technology that EMC has licensed from us!”
  • Way lower cost. Anti-trust concerns would keep EMC from bidding on Quantum, so unless another spoiler comes along – IBM, HP, Dell, HDS – a deal could be much closer to QTM’s 52 week high.
  • A happy Silicon Valley home for ex-Data Domain staffers. No non-competes in California and most of the tech is already cross-licensed, which is about as clean as these things get.

The Don’t Gets:

  • A strong brand that has recently benefited from lots of free publicity.
  • Current market momentum.
  • A strong team.

The StorageMojo take
Getting Quantum for a quarter the price that EMC is paying for DD would be worth it. NetApp will sell the stuff to current customers. They’ll certainly have better than a quarter the traction.

Nor have NetApp’s original business reasons for seeking the Data Domain changed. They are sucking wind with the never ending story of the Spinnaker integration and have done a good job training their customers on the benefits of dedup.

I’d be surprised if the Valley ibankers haven’t already set up a few meetings to suss out the potential. And I wouldn’t rule out a hostile bid, either. While some Quantum execs might not like it, the rank and file wouldn’t mind one bit.

Courteous comments welcome, of course. I worked for Quantum about 10 years ago while they were in the process of eviscerating the DLT franchise. I couldn’t watch, since I’d introduced DLT with DEC’s StorageWorks team in the early 90′s.

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About Restore » Blog Archive » NetApp and Quantum: Why an acquisition would be difficult
Tuesday, 21 July, 2009 at 12:01 pm

{ 33 comments… read them below or add one }

observer Monday, 6 July, 2009 at 11:31 pm

What about the massive debt that Quantum holds?

Just A Storage Guy Tuesday, 7 July, 2009 at 4:50 am

Robin-
I agree completely. As a Partner of all 4 companies mentioned, we currently recommend the Quantum VTL for backup deduplication. Why? DataDomain is too slow and not scalable, Netpp VTL can’t replicate deduplicated, and EMC’s EDL is Quantum. That highlights the one sticky bit in your scenario- EMC (and Dell) OEMs a ton of QTM gear. I would assume that relationship would stop with the DDUP acquisition by EMC, but stranger things could happen.

logicrules Tuesday, 7 July, 2009 at 8:56 am

Sorry, I don’t see it, even though I’m wrong half the time.
I think if Quantum was that valuable then they could have been bought quite some time ago. EMC was interested in DD long before NetApp came in with their first offer. EMC had actually agreed to loan Quantum money before NetApp’s first offer for DD, if I remember correctly. So it looks to me that EMC could have had Quantum without gov’t interference if that was desirable. But EMC had a more sinister plan. Loan Quantum money in two large installments and charge 12% interest for each. Keeps Quantum in compliance with the Feb. 2010 loan and discourage NetApp, or anyone else, from buying Quantum and be in the position of paying EMC almost half the amount of money as Quantum’s market value.

Just an investor Tuesday, 7 July, 2009 at 10:10 am

Robin, I also agree. Why pay 40x forward EBITDA for DDUP when you can QTM for 10 -15x and have the opportunity to rationalize even more costs than you could with DDUP. In an 8K last week QTM “fast-forwarded” a grant of warrants to EMC in case of a change of control of QTM. No reason to do that unless they believed the acquisition of DDUP by EMC would make QTM a target or so it seems?

Just an investor Tuesday, 7 July, 2009 at 10:18 am

Also, per the observer above: QTM doesn’t have massive debt. They have about $300 mill of net debt. They reported over $100 mill of EBITDA. Debt of 3x EBITDA, particularly when the company pays little or no taxes, has low cap-ex and interest expense is below market due to a favorable senior loan agreement. Also, Quantums tax-loss carry forwards and nearly $300 mill of tax credits would provide great value to NTAP

Just my take Tuesday, 7 July, 2009 at 10:38 am

I think Dell may be the one to buy Quantum, thus sheltering EMC from Netapp buying them. With EMC’s warrants, they will make money off that deal too. This also stops Netapp from gaining the customers that EMC had built up from the Quantum deal. EMC will need some transition time to fold Data Domain into the mix and get rid of Quantum.

Although, Data Domain could help EMC in the long run, this is really not sending their customers a warm an fuzzy about future direction of dedup. First they were creating their own dedup, then Quantum was better, and now it looks like Data Domain is better in their eyes. Not exactly a roadmap for the future that customers could hang their hat on. What happens when EMC gets bored with Data Domain? Or is this just a play to cripple Netapp, and they really don’t want Data Domain at all, and just want to jack up the price to Netapp, to a point where they can’t afford it, but don’t want to let EMC get it. Maybe Quantum is EMC’s direction, and they will just back off, if Netapp raises their offer. Should be fun to watch the fireworks either way.

Joe Tuesday, 7 July, 2009 at 10:54 am

QTM actually has reduced its debt to about $350 million and it has about 50m in cash. And only $25m is due in 2011 ith rest due as far out as 2014. And $125m of the debt is held by EMC so no biggie.

How about Dell acquires QTM?

Joe Kraska Tuesday, 7 July, 2009 at 12:32 pm

“Since the DoJ gave EMC an OK on the Data Domain acquisition, what’s next for NetApp? How about Quantum?”

I am confused by this. The latest at the WSJ says that no one is accepting EMC’s tender. Do you believe the the DDUP board will change its mind?

Joe.

Joe Tuesday, 7 July, 2009 at 6:03 pm

DDUP board will definitely change its mind, absent NTAP pulling a significantly stronger bid out of its hat. EMC bid is superior as it stands

Just my take Wednesday, 8 July, 2009 at 11:40 am

hey Joe, your last name wouldn’t happen to be Tucci would it? lol

Just an investor Wednesday, 8 July, 2009 at 2:14 pm

Netapp just dropped out…DDUP Board accepted the revised EMC offer. Next moves from NTAP will be interesting.

logicrules Wednesday, 8 July, 2009 at 5:57 pm

Good comment about the QTM filing and warrants for EMC. I forgot that. As for the QTM debt, don’t forget that EMC has loaned QTM about $130M in two sums and both loans are 12% interest. It would be another bitter pill for NTAP to swallow to buy QTM and pay that money to EMC and then still have EMC as the main OEM customer. Ouch.

As for Dell, remember that Dell announced that they would partner with QTM. That was quite a while ago and nothing has come of it. I don’t think Dell has any idea what they want to do in dedupe storage.

W. Curtis Preston Wednesday, 8 July, 2009 at 7:50 pm

EMC were already using Quantum and could have had them for a song ($350M including debt before they loaned them money). They chose instead to buy DDUP.

Dell said a year ago they were going to incorporate QTM into everything. A year later they are doing CommVault and are only reselling EMC’s version of QTM.

Are you sure that QTM is the one for NTAP to buy?

BTW, Data Domain did not license their technology from Quantum. They developed their technology independently, then Quantum sued them for alleged patent infringement just prior to the DDUP IPO. Due to the timing, DDUP had no alternative but to settle the suit and pay them a “licensing fee” so they could continue business as usual. That’s what happened, and it’s a long way from what people portray it as.

Joe Wednesday, 8 July, 2009 at 9:14 pm

It all begs the question: Is QTM for sale? I say the company believes that there is more value to be realized and that de-dupe is in the early innings. Morever it has been a tough economy so who knows what their legacy biz actually looks like in a more stable environment.

The company has gone from the brink of BK to solvency and will find a base to grow from. It could be a huge stock with or without a buyout.

Joe Wednesday, 8 July, 2009 at 9:16 pm

and Tucci isn’t my last name :)

dedup guy Thursday, 9 July, 2009 at 6:36 am

Everyone seems t0 forget that EMC’s strategy with DeDup is FAR broader than a single threaded product line. EMC has a host of deduplication technologies spread throughout their product line… this just adds one more segment (mid market target based) t0 the portfolio… they have storage based dedup (broadening), source based dedup with Avamar, SIS and enterprise archiving with Centera, data elimination / replication with Recoverpoint, Enterprise target based VTL with EDL (QTM) and now mid-market target based dedup and archive with Data Domain…

Its the strongest dedup lineup in the market…. any one company acquiring QTM or another point product doesnt dent that strategy….

my 3 cents….

Just A Storage Guy Thursday, 9 July, 2009 at 8:18 am

@dedup guy-

I would challenge that ‘strongest lineup’ connotation- Maybe largest collection of customer-confusing, overlapping technologies. Its much like their replication portfolio and why netapp is due to catch them (according to IDC) soon there as well.

Just my take Thursday, 9 July, 2009 at 9:13 am

Just a Storage Guy, I would tend to agree with you on too much overlapping. EMC has a habbit of buying companies that overlap with their other products, then not integrating them very well. I can see the purchase of Data Domain as a great opportunity for the competition. IBM will probably benefit the most, since they purchased Diligent some time ago. It is a perfect time for them to steal business away from Data Domain, since no one knows how EMC is going to use it. Uncertainty, is a great opportunity for the competition. Now with Quantum’s possible demise at EMC, all those customers have to be wondering if they wasted a lot of money, which again is a great opportunity for the competition.

I think EMC needs to pick a strategy and stick to it, but that is just my take on it.

Jean Thursday, 9 July, 2009 at 12:42 pm

From my point of view all VTL and Dedup hardware gears will be history soon or later. They cost way to much for what they try to solve…backup storage on spinning disk.

I think software like Pure Disk and others will simply kill them all. They work on just about any cheap hardware like the ones they bundle in their solutions at 5x the price.

We might see other VTL and dedup software for 5x less using open source stack soon or later. Some are working on it and they’ve successfully done it (Greenbyte). Sun ZFS file system with dedup capability should be around soon or later according Sun Open Storage conference…and for free.

I think EMC just got one competitor out of the race and try to kill Netapp strategy on the way. That’s all and nothing more. EMC dedup strategy is probably the worst one we can find. They bought companies and have OEM agreement with FalconStor and Quantum…wow!

If that continue soon or later this strategy of virtual tape and dedup will fail because customers will be confused and lost confidence.

How you will move your 5 years backup life cycle if corporation keep been acquired and drop products? How long it will take to move your PB dedup capacity from one platform the the next…if they cannot interop? Months if not a year at the pace these appliance are running.

I think tape continue to shine again compare to this dedup war era…

Johnny B. Friday, 10 July, 2009 at 7:05 am

In reaction to a number of comments, the reality is that different companies have very different requirements for retention and require different type of dedupe technologies. For customers that have 5 years of retention policies they typically don’t utilize dedupe technologies for all retention. These companies are continuing to move to tape for these policies. Typically this is a recycling of dedupe data over 30, 60 or 90 day (with some exceptions)m so at worst you have a previous generation or different technology on your floor for 90 days. There are companies that are keeping certain jobs over longer periods (ie financials) on disk but these are relatively small amount of data relative to the entire datacenter. The migration and restore of data from these types of appliances is far easier than going from one tape technology to another.

Additionally the challenges of a software based dedupe in the example of the open source licensing is that most small to mid market companies don’t have the internal expertise or the man hours to “white box” a VTL. While customer may pay less initially if you have to employ “professional services” to make it work correctly what value has it created. Meanwhile you have lost implementation time and the cost savings are about a “wash” and who are you going to call for support. Customers are looking more toward manufacturers with a vertical stack “appliance like” to provide end to end solutions. Look at the Oracle acquisition of Sun toward getting of the vertical stack to be able to give pre-configured out of the box database solutions.

Dedupe doesn’t in many cases eliminate tape but it does mitigate the reliance on operational restore of tape. While tape is not dead is it just being shoved off to Iron Mountain for a very rainy day.

anon Friday, 10 July, 2009 at 7:06 am

Has anyone given thought to the fact that the majority of Quantum’s business is tape? I’m sure that would do wonder’s for NetApp’s growth trajectory….or valuation multiple. Why don’t they take their shareholders money, form a pile in the parking lot, and set a match to it?

Jean Friday, 10 July, 2009 at 8:22 am

I agree partially on your comments Johhny B.

The problem I see is the fact that many VTLs and depup installations do not have tape at all because they believed their dedup or VTL vendors and some analyst who clams tape is dead. These guys are in trouble now with PB on the floor.

I also partially agree on your appliance like. One storage vendors tried that several years ago with backup and archive and it didn’t work well. The problem is we have geeks that think they can do better and cheaper. So their bosses believe them…wrong!… You can’t beat years of R&D in this area. So I agree this is a challenge for large enterprise who want supported environment. But if the SMB are not jumping into appliances like, vendors R&D dollar will not be spent on the few enterprise one. It is all about revenue, margins etc. Not technology. Believe me I have 20+ years into this market alone and SMB are the worst evil you can deal with. They kill R&D and jobs because all vendors would like to have their iPod or iPhone moment with millions of units sold in this market. SMB works much different than enterprise with open source and the cheapest gears they can find on eBay.

Strangely the biggest backup and archive vendors (Sun/STK and IBM) have the weakest strategy on dedup. They probably know more about backup and recovery technologies than any other vendors combined. This is probably why they have very limited dedup and VTL offering. They might consider tape the best avenue until future and better technology comes in to replace tape. I don’t think it will be soon too.

Oracle might not have the strongest strategy in these area. Unless they give “carte blanche” and millions $ for R&D to Sun/STK once acquired. That is the weakest point for them now. I can’t wait to see what will happen in few months.

Platnum Player - BD Friday, 10 July, 2009 at 10:49 am

At the end of the day, EMC offers customers subject matter experts, free assessments to determine the best de-dupe to use, and scalability.
Support from one phone number for SAN, NAS, Backup, Replication, no other one company can deliver this.

Avamar, or NetWorker with dedupe will always be the “best” option depending on data type and size, where other companies have one product, brainwashing customers to think it will solve all problems. Target won’t solve MosT issues in the data center around backup and DR, just add another console to manage with your backup app.

The EMC quantum oem vtl uses completly different code than the Dxi product line, EMC has also found major performance issues with the product and fixed them its latest edl code, 1.2.

My .02.

I can keep going on and on… Backups take 50 hours with target based and 1.1 with source based dedupe.
I’m not a math scholar, but I’d say source is better ;)

Dennis Forsman Friday, 10 July, 2009 at 10:39 pm

I’m looking for an appliance that can act as an iSCSI SAN (files and folder usage) and also double as my backup target with Dedup. I also use Exchange, SQL, and Sharepoint in my environment. I also want to replicate my date to a DR site and eventually use vSphere 4.
Any suggestions welcome and thanks.
Dennis

Just A Storage Guy Tuesday, 14 July, 2009 at 4:11 am

@ Platinum Player

The OEM QTM VTL code is completely different? LOL. That should be laughed at as much as HP trying to sell you on their “millions of lines of code changes” to the USP when they OEM it as the XP.

Richard B Tuesday, 14 July, 2009 at 7:00 am

@Dennis – NetApp will do everything you want – *if* you can afford it. Otherwise, buy a cheap iSCSI array (Westek have been recommended to me, although I’ve never used their products) and take a look at CommVault. Disclosure – I have never worked for NetApp or CommVault, but do resell their products.

@Platnum – if you believe there’s one support team behind the one EMC number, you’ve obviously never called it as a customer. Unless EMC support has dramatically improved in the last year or so, you might as well buy products from different vendors. There’s no co-operation between different teams, and from their plans for DD, there won’t be as EMC have already said they will be run as a separate division. And “free assessments”??? Please! :-o

Thom Tuesday, 14 July, 2009 at 3:55 pm

http://wikibon.org/blog/falconstor-%E2%80%93-the-other-de-dup-option/
…On Monday, June 1st, 2009, FalconStor Software announced some pretty compelling data reduction numbers. Depending on whose numbers you believe FalconStor’s single-node performance is 20-30% faster than Data Domain’s single node performance. What’s more, in its reference environment discussed here on Wikibon and in a press release here FalconStor’s Single Instance Repository (SIR) was able to achieve a 40:1 data reduction ratio – 20:1 using SHA-1 deduplication at a block level and then 2:1 using hardware compression cards from HiFN. FalconStor also has file level data reduction using pretty much the same code.

So, it is not obvious why EMC and NetApp should be in a bidding war for Data Domain. Indeed, since SUN, EMC, IBM and Spectra Logic to name just a few all OEM FalconStor technology, EMC could deliver another hay-maker punch to its competitors just by buying FalconStor. FalconStor is smaller than Data Domain with $80M in revenues for 2008 versus $274M for DDUP, but FalconStor has many more products, technologies and a much longer track record.

Just ran across this – thought it would be interesting to those who are watching this closely. – Thom

logicrules Wednesday, 15 July, 2009 at 1:48 pm

Oh oh. This isn’t going to lead to a VTL vs. NAS discussion, is it? :)

Just an investor Thursday, 16 July, 2009 at 8:21 am

Dell says they are going to make a storage acquistion at their annual meeting. Who would that be?

W. Curtis Preston Tuesday, 21 July, 2009 at 3:37 pm

@Jean

You asked about how long would it take to move a PB between non-interoperable target dedupe systems. How long do you think it would take to do that with source dedupe systems? They’re incompatible as well. The answer is NEVER, because there is NO way to move data between two source dedupe systems. Now, as to your question, here’s an answer (or four answers, actually):

If I assume at least a 15:1 dedupe ratio (which you shouldn’t but math for this discussion gets difficult if I don’t). So I’m not cheating, I’m quoting numbers where the dedupe engine can keep up with the ingest. For example, the DXi can ingest faster than 500 MB/s, but not if it’s going to be deduping concurrently (what it calls adaptive mode). It can only do that at 500 MB/s. The SEPATON box can ingest at 600 MB/s per node, but can only dedupe at 300 MB/s per node, so I’m using that. Same with Falconstor. It can do 1500 MB/s per node ingest, but only 500 MB/s per node dedupe. So those are the numbers I’m using. I then divide a PB by their ingest speed in MB/s, then by 3600 seconds, then by 24 hours to arrive at the number of days it would take. And, as is my usual practice, I’m using multi-node numbers for vendors that have global dedupe (SEP, FALC, IBM) and single node numbers for those that don’t (QTM, EMC/DD).

QTM (DXi 7500 running in adaptive mode).
1 PB/ 500 MB/s 3600 / 24 = 23 days
EMC/Dd (DD 880 using NFS inline):
1 PB / 900 MB/s / 3600 / 24 = 13 days
IBM w/2 nodes (TS7650 in inline mode):
1 PB / 450 MB/s / 2 nodes / 3600 / 24 = 13 days
SEPATON w/ 6 nodes (DS2100 in concurrent mode):
1 PB / 300 MB/s / 6 nodes / 3600 / 24 = 7 days
FALC w/6nodes (4 node system in concurrent mode):
1 PB / 500 MB/s / 4 nodes / 3600 / 24 = 6 days

None of those numbers sound bad to me. Some of them sound pretty awesome.

@Platnum Player:

50 hour backup with target dedupe vs 1.1. hours with source. Remember that backups are one thing; restores are everything. Except for remote offices and relatively small datacenters, the restore speeds offered by today’s source dedupe systems pale in comparison to the restore speeds offered by the fastest target dedupe systems. (I’m talking like 100 times faster or more.)

That is currently what the target guys have over the source guys: seriously fast restore speed. And restore speed matters.

W. Curtis Preston Wednesday, 22 July, 2009 at 8:18 am

Robin, I just don’t get why you think this is what NetApp’s next move should be. Let me list your “gets:”

“Dedup appliance product line – ripe for the cost improvement that NetApp’s buying power would give them.”

A product line that multiple inside sources confirm has significant problems. There are REASONs that EMC made the move they did. The emperor wasn’t naked, but he sure wasn’t fully clothed.

“Dedup patent portfolio – to help keep EMC honest.”

No honesty required. EMC’s acquisition of DDUP absolves them of any future patent lawsuits from QTM. That was the whole point of the DDUP/QTM settlement, and IMHO a small part of the reason EMC wanted DDUP.

“Good market positioning: “Buy the technology that EMC has licensed from us!””

Except that would be a lie. See my previous comment. It was a patent-infringement lawsuit settlement that took the form of a “license.” DDUP might have been able to fight it had QTM not timed the lawsuit so well (right after DDUP’s S-1 filing).

“Way lower cost. Anti-trust concerns would keep EMC from bidding on Quantum, so unless another spoiler comes along – IBM, HP, Dell, HDS – a deal could be much closer to QTM’s 52 week high.”

PLUS $300M of debt. So they pay $800M+ for a company who only had $88M of disk revenue last year, most of which came from EMC? Unless they find another EMC (and let’s face it; there is no one like EMC) that $88M is going down quickly and sharply.

“A happy Silicon Valley home for ex-Data Domain staffers. No non-competes in California and most of the tech is already cross-licensed, which is about as clean as these things get.”

This one I agree with. Except that they can do that right now with their own technology.

Robin Harris Wednesday, 22 July, 2009 at 11:54 am

Curtis,

Great points. Let me respond to each in turn:

“Dedup appliance product line” – I’ll grant that QTM’s product line doesn’t have the range of DDUPs – having more of an enterprise focus – but that can be fixed. Dedupe isn’t rocket science. Despite the holes EMC has somehow been selling a lot of it to enterprises.

“Dedupe patent portfolio” – the importance of QTM’s portfolio is not that EMC is protected from lawsuits – it is that QTM’s licensees have a defense again EMC lawsuits. That helps keep innovation rolling.

“Buy the technology that EMC has licensed from us” – But it isn’t a lie: DDUP DID license QTM’s IP as part of their settlement. DDUP argues, correctly, that they developed their technology independently, but the fact is that there was significant, though unintentional, infringement on QTM’s IP. Parallel development – happens all the time – and it takes nothing away from what they’ve achieved. QTM’s timing for their suit was just standard operating procedure, Art of War and all that. But they had the goods.

“Way lower cost” – These deals usually get done around the seller’s 52-week high, which is currently $1.95, but will slip to ~$1.35 in early October. So they can buy an $800M revenue company today for an out-of-pocket $400M vs EMC’s $2.4B. Or wait a couple of months and maybe get it for less. I stand by the “way lower cost” comment.

Where you lose me is the “unless they find another EMC” comment. That’s the whole point: NetApp will be QTM’s customer and distributor. And EMC won’t suddenly slam the door: they’ve been selling QTM for a while – QTM’s disk-based product sales have been growing at 50%+ a year – and enterprise customers won’t suddenly switch to DDUP’s more mid-range oriented boxes – especially if they can get them from NetApp.

NetApp bid for DDUP with the idea that they could grow their business faster than DDUP could by itself. The same holds for QTM.

But QTM isn’t the only option for NetApp – who is reportedly meeting with its investment bankers this week. Exagrid and Commvault are two other options. But QTM is a Valley company, Rick Belluzzo, the CEO, is a sharp guy and they’ve got the IP that EMC licensed. . . .

Robin

Dale Underwood Wednesday, 2 December, 2009 at 4:08 pm

What about Dell and stealthy newcomer GreenBytes? While everyone seems focused on dedup as a backup target, GreenBytes (http://www.getgreenbytes.com) is shipping what they call “Inline Deduplication Appliances for Primary Storage”. No post processing required.

If the technology is real (the founder, Robert Petrocelli has deep experience in digital imaging technology; http://www.getgreenbytes.com/leadership/robert-petrocelli ) and could be offered in a disk-less head unit, we could be looking at a 1PB unit in a 4u rack space using a Dell EqualLogic PS6500 (assuming a very generous, yet advertised by the “big guys”, 20:1 dedup ratio).

Lots of ifs, I know, but disruption is bound to happen in the dedup market and I don’t think the established players are up for it.

Dale

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