EMC acquires Isilon for $2.25 billion in cash.
The StorageMojo take
In one acquisition EMC gets:
- A high-growth scale out storage company.
- A replacement for the aging and unloved Centera/Celerra lines.
- A worthy competitor to NetApp’s NAS boxes.
- Scale out storage expertise.
- And last but not least, a workable substitute for the much delayed Atmos.
First, EMC has now replenished its storage product larder. The company is now on course for a decade’s worth of market share leadership.
The DMX is reaching an inflection point to no or negative growth. Big iron storage arrays will never go away – neither have mainframes – but that is not where the future growth lies. EMC has done an artful job of concealing weakness in the DMX business, but expensive new features can only go so far driving DMX revenue growth.
The Isilon product line frees EMC from total reliance on the aging DMX/Clariion RAID paradigm. With added block storage and iSCSI support, the Isilon line is competitive with NetApp.
Make vs buy
Second, there is the larger dynamic of make versus buy. As Atmos demonstrated EMC is not very good at making. Their cutthroat internal politics do not make for an easy long-term investment/development environment.
EMC’s acquisition model
What Tucci has done, and what competitors could learn from, is a simple model for successful large acquisitions. The successful acquisition has several key features:
- The company has begun successfully selling into the enterprise.
- The company is the leader in its market niche.
- The management team is willing to stay for a couple of years or more.
- The target company’s gross margins must be in line with EMCs business model.
- EMC’s sales force can leverage the products or mind share.
Given these conditions and the current low cost of capital, EMC can quickly integrate and grow the business. Absent any of these conditions the product would need lengthy reengineering or rebranding before EMC could monetize it.
Joe Tucci has done EMC proud. He not only pulled EMC out of the dot bomb crater, but he’s positioned it for market share growth in a trying economy driven by long-term global deleveraging.
But his work is not done. Some two thirds of EMCs market cap is tied to its 90% share of VMware. That means the value of what Tucci has done with EMC proper is not yet reflected in their capitalization. VMware’s long-term position in the market is at risk with Microsoft gunning for it with Hyper-V.
Now the company must execute. The new businesses will take 3 to 5 years of engineering, marketing and sales investment to mature.
EMC’s future is not yet secure. But it is hard to see how Tucci could have done better with acquisitions.
Courteous comments welcome, of course. Congrats to Sujal and his team for pulling Isilon back from the brink several years ago to this excellent exit.
Update: The first couple of commenters noted that Centera was not being replaced by Isilon. I updated the comment to Centera/Celerra as Isilon’s architecture can be used for both. I expect some will not agree. End update.