EMC plays catchup
Long known for picking up useful assets at fire sale prices EMC is making a $2B move to pick up Data Domain at a premium price. That’s less than 2 weeks after NetApp put DD in play with a friendly $1.5B cash + stock offer.
With Donatelli’s unexpected departure that makes 2 times in a month that EMC has had a major surprise. Is EMC off its game?
EMC stress test
It’s always fun to see how a company reacts to sudden events since it reveals top management thinking. When forced to react your values and priorities are evident in every move.
What can we learn from EMC’s offer?
EMC really wants to win.
Not only is their offer 1/3rd larger than NetApp’s, but it is all cash. And there’s no financing or due diligence contingency.
EMC wants DD – no questions asked.
NetApp will be hard pressed to match EMC’s offer. They simply don’t have $2B in cash, so they’d have to borrow – doable, but not pretty.
EMC is ignoring DD’s Q1 sales shortfall
Data Domain was showing double digit revenue growth quarter to quarter – Q108 $53M; Q208 $61M; Q308 $75M; Q408 $85M – until Q109 $79M. EMC is betting they can fix that problem – but if it is temporary, why is DD selling now?
He makes an unintentionally revealing statement:
From a storage perspective, the real action is at both ends of the storage media spectrum: making storage capacity go really fast (think enterprise flash drives) â€“ and making storage capacity really cheap (think data deduplication, spin down, etc.).
Fast, cheap and where’s scalable? EMC has been focused on scale with Atmos and V-Max. It’s more than odd that those initiatives got left out. Market feedback, perhaps?
Thereâ€™s no single â€œbest approachâ€ simply because there are so many places where dedupe can be intelligently used.
Like â€œsecurityâ€ or â€œvirtualizationâ€ or â€œencryptionâ€ or â€œmanagementâ€ â€“ itâ€™s just one of those concepts that â€“ sooner or later â€“ is going to show up just about everywhere in the infrastructure stack with dozens and dozens of interesting use cases.
“Infrastructure stack” is singular and sounds unified, but “dozens of interesting use cases” implies something quite different.
Deduplicated data is inextricably linked to an index that enables all the King’s men to put the Humpty-Dumpty of data back together again. In other words, each deduplicated storage system is a silo.
And EMC – like many others – loves silos. Centerra, Symmetrix, Celerra. And now – Data Domain.
There’s very good money to be made selling integration as Symms have shown for years. And the more silos, the more integration to sell.
What should you think?
So, one way of thinking of this proposed acquisition is nothing more than EMC building out our data dedupe portfolio — and associated orchestation layers — in much the way as weâ€™ve done before.
Only this time EMC is reacting, not driving. If this is a good idea today it was a good idea 2 months ago. Perhaps EMC’s EVP of Corporate Strategy and Development, Louise O’Brien, left too soon.
Third, Iâ€™d encourage everyone to not only focus on the individual storage technologies (e.g. flash, dedupe, spin down, etc.) but the orchestrating layers that put the right information on the right service level at the right time.
Translation: just give us an open PO number and we’ll take good care of you.
The StorageMojo take
DD makes a good backup appliance with some advanced features in deduplicated data protection, something that isn’t easy. They’ve got a nifty growth rate, but $2B cash in a de-leveraging economy seems rich.
On the other hand this is a company that Dell could put to very good use. Willing to make that $2.5B Michael?
It will take a couple more major surprises at EMC before we’ll know if they really are in disarray. They are clearly paying a price for being late on Data Domain.
Courteous comments welcome, of course. For grins, check out Chuck’s initial take on the NetApp/DD deal
Single-purpose dedupe products seem to be on an inevitable death spiral from a business model perspective.
But if EMC is selling it. . . .
Update: The Wall Street Journal had some more details:
EMC has about $10 billion in cash, but its move surprised analysts, some of whom questioned the price the maker of data-storage machines was willing to pay for Data Domain, which had sales of $275 million in 2008. . . .
EMC is offering to pay about 60 times the annual earnings of Data Domain, calculated Toni Sacconaghi of Sanford C. Bernstein & Co. “A lot of tech companies have healthy cash balances,” he said. “They’re not earning any [interest], so an acquisition even at a very high multiple” appeals to them.
EMC Chief Executive Joseph Tucci defended the proposed price, saying EMC thinks the storage market will grow rapidly. He said EMC had been looking at Data Domain for some time, but “someone moved before we did.”
Om Malik at GigaOm has another take on the story.