NetApp Acquiring SolidFire for $870 Million to Boost Flash

20 Jan 2016 | Author: | No comments yet »

NetApp Acquiring SolidFire for $870 Million to Boost Flash.

NetApp Inc. agreed to buy SolidFire Inc. for $870 million in cash to boost its presence in the growing market for systems that can retrieve and store vast amounts of data at rapid speeds.

NetApp was the No. 4 player in the market for flash-storage devices, which use the same fast computer memory that’s found in smartphones and tablets, according to Gartner Inc. The company said SolidFire will add to existing offerings in solid-state, giving the company products that span three segments: enterprise infrastructure, “application owners,” and “next-generation infrastructure buyers.” NetApp plans to close the deal in the fiscal Q4, which ends in April. SolidFire, based in Boulder, Colorado, had sales of about $50 million in 2014, while NetApp had more than double that amount in the flash category, Gartner said. NetApp Chief Executive Officer George Kurian is seeking to trim costs while focusing on areas such as flash storage and software to help companies manage and organize data that is stored both on internal networks and in public cloud systems. The acquisition comes following a decline in growth for NetApp and several disappointing quarters, as competitors such as Nimble Storage (NMBL) and Pure Storage (PSTG) have taken some business from both NetApp and EMC (EMC), the two incumbents of the industry.

However, the thrilling ride for Nimble investors came to a screeching halt on November 19th, when the company missed fiscal Q3 expectations for revenue and profit, and also missed badly with its quarterly outlook. Update: Amit Daryanani with RBC Capital Markets, who has an Outperform rating on NetApp stock, this afternoon offers up an instant analysis that is positive: We think the deal is attractive from an EV/Sales perspective; assuming SolidFire is doing around $100M in sales (RBC estimate) it would imply the takeout is around >8x FTM Sales. Furthermore, the deal should be minimally cannibalistic as it would enable NTAP to target the high-end / All flash market that they have been unable to gain traction in. In the near term it will be dilutive to earnings because we need to invest to make it succeed.” Projections for the flash market keep growing as sales for the systems, which stash information on chips instead of hard drives with spinning magnetic disks, almost reached $1.6 billion last year, two years earlier than IDC had predicted. Unclear to us how investors react to the deal at this point – but clearly this will reduce the “take-out” story around NTAP and makes this much more of a turnaround story – though potentially with a better product portfolio as we move forward.

Some companies have resisted adopting all-flash arrays because of their price relative to more traditional gear packed with hard disk drives, and the rise of hybrid storage supports the notion of having both flash and disk on hand for different use cases as the price of flash per gigabyte gets closer to disk. Notes Daryanani, “SolidFire has raised $150M since inception (last round was $82M in Oct-14).” He adds that the company “also sells a software only version of their OS (Element X) targeted for hyper-scale customers.” Flash is “one of the bright spots in a very dark storage market,” said Daniel Ives, an analyst at FBR Capital Markets & Co. “With EMC busy dealing with the Dell acquisition, we view this as a smart strategic acquisition that should further help its brand and expand its product wings on the flash front.” Solidfire has raised $150 million in funding from backers such as New Enterprise Associates, Valhalla Partners and Samsung Ventures. SolidFire isn’t directly competitive with hybrid storage products from the likes of Tintri or publicly traded Nimble Storage, but nonetheless a NetApp acquisition of this scale will still have an impact for them.

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