Posted by: Peter Burrows on May 20, 2009
A new grand unified theory of tech industry consolidation has taken firm hold in recent months. You know the one: that as cloud computing takes over, big tech companies won’t be able to stick to their niches but will have to acquire what they need to be truly one-stop shops—armed with all the servers, storage, networking, software and services capabilities a chief information officer could possibly want. From this perspective, it seems every mid-sized non-behemoth is likely to be snapped up. And no company has been the subject of more rumors than NetApp, which has emerged as a strong no. 2 in storage gear in recent years.
But NetApp CEO Dan Warmenhoven thinks such talk is bunk. “I know the rumors are out there, but I think they are totally without merit. I honestly don’t think anybody is interested,” he says.
Is he just being coy? Well, for one, the outspoken Warmenhoven is not the coy type. And second, he gave me his strategic analysis for why the five likely suitors would not be interested. Here they are, starting with the ones he thinks are least likely and ending with the most plausible (in theory, that is).
EMC — Simply put, he says the anti-trust issues are too great. “There would be all kinds of Hart-Scott-Rodino issues,” related to the anti-trust regulations by that name.
Dell — NetApp, with a market cap of $5.7 billion, would be too expensive, given Dell’s market cap of just $21.8 billion. Especially since Dell just bought another storage company, EqualLogic, for $1.5 billion in Jan, 2008.
HP — He says Mark Hurd made it plainly clear that he was happy with his own storage business, and would seek to grow organically rather than acquire a storage pure-play. If anything, Warmenhoven thinks HP would be better served trying to buy the old StorageTek tape drive business Oracle inherited with its Sun Microsystems acquistion. “IBM has tape in its portfolio. HP doesn’t.”
IBM — He says IBM already has a lucrative reseller agreement that lets it sell NetApp’s gear. “They are already selling our product, and they’re having a grand time doing it. Why pay the billions of dollars?” Also, he points out that any computer company that bought NetApp would see some of its revenue quickly evaporate—as other NetApp partners such as Fujitsu would no longer want to sell products owned by a rival. “They’d see our revenue decline in a hurry.”
Cisco — Personally, I think this is the most likely scenario. NetApp is in many ways modelled on Cisco, and Cisco is already a player in storage networking—and NetApp would be far cheaper than buying EMC. Also, an investment banker tells me that a few years ago Cisco took a hard look and came close. In fact, venture capitalist Don Valentine of Sequoia Capital fame sat on both boards at the time, and pushed hard for Cisco John Chambers to pull the trigger (not hard enough, evidently. Soon thereafter he left Cisco’s board.) Warmenhoven, who I am told has opposed all serious merger proposals in the past, says he has not received any official overtures from Cisco or anyone else. And he notes that EMC—not NetApp—was part of Cisco’s launch of its new foray into the server business in March. “I think they have a much closer affinity with EMC than with us,” he says.
So that leaves NetApp on its lonesome, which is fine with him, he claims. Indeed, at least today, it seems NetApp is going to be the acquirer, rather than the acquiree. On a day when it handily beat earnings expectations, it also announced a $1.5 billion acquisition of Data Domain, which makes data backup, archiving and disaster recovery gear. “I know the bankers want a big transaction, but I just dont see it. The theories are intellectually stimulating, and people have fun with the game. But this isn’t Monopoly. It’s the real world.”
EDITOR’S NOTE: I was one of the reporters whose private phone records were sought by investigators for Hewlett-Packard in 2006.