Like Cisco, Brocade Falls Short

Cisco’s Q4 sales fell short last week and Brocade followed suit with its Q3 earnings, missing analyst forecasts and lowering its revenue expectations for its fiscal year. But why?

Some industry insiders think customers are biding their time as they watch how the whole converged networking/unified fabric push plays out.

In a statement regarding Brocade’s (NASDAQ: BRCD) earnings, CEO Michael Klayko said, “Q3 was another solid quarter for Brocade in which we achieved better-than-expected results from our storage area networking business and continued to make progress in our Ethernet go-to-market initiatives. As we look to Q4, we expect a strong finish to our fiscal 2010. Despite operating in a challenging global economy with variable IT spending patterns, we are confident that our sales and marketing strategies as well as our product portfolio are aligned well with customer imperatives.”

Cisco’s (NASDAQ: CSCO) CEO John Chambers also cited uncertainty in the economy as well asmixed signals in the market and customer expectations as the reason for Cisco’s Q4 sales miss. However, Chambers said he’s confident that Cisco will succeed by continuing to “aggressively move into new areas where the network is becoming the platform.”

Brocade’s Numbers:

- Q3 revenue was $504 million, increasing approximately 1% sequentially and 2% year-over-year.

- Q3 GAAP EPS (diluted) was $0.05, sequentially level, and increasing from a loss in Q3 2009.

- Q3 non-GAAP EPS (diluted) was $0.13, sequentially level, and increasing 8% year-over-year.

- Q3 non-GAAP operating margin was 17.3% versus 20.5% in Q2 2010 and 20.3% in Q3 2009.

- Q3 effective GAAP tax rate was (220)%; non-GAAP effective tax rate was 0.2%.

- Q3 Adj. EBITDA was $102 million, down from $116 million in Q2 2010 and $119 million in Q3 2009.

- Q3 total Storage Area Networking (SAN) port shipments were approximately 1.0 million.

For the full Q3 financial results, including prepared comments from Brocade executives, go to http://www.brcd.com.

For more earnings news, check out Dave Simpson’s blog on NetApp’s Q1 bonanza.

Open season on open-source ZFS?

July 8, 2010 -- A one-page legal letter from NetApp has sparked a debate over the use of open-source ZFS technology and put at least one storage startup in a bit of a bind.

Earlier this week, Coraid informed its customers that it has suspended sales of its recently announced EtherDrive Z-Series NAS appliances, which are based on ZFS. The decision was made after Coraid received a "legal threat letter" suggesting that the open-source ZFS file system planned for inclusion with the EtherDrive Z-Series infringes NetApp patents (see "NetApp threatens Coraid over sales of open-source ZFS technology").

So why single out Coraid? The Z-Series NAS solution is based on Nexenta's software, but, according to Nexenta, the company "has not at this time received communications yet from NetApp."

Enterprise Strategy Group senior analyst Terri McClure wonders why NetApp didn't hit Nexenta with the same letter since Nexenta supplies its ZFS software to multiple storage vendors.

"If NetApp did it would make sense – stop a number of vendors instead of just one. It certainly makes you wonder why they would single out Coraid, people could read into this that NetApp sees Coraid as a threat. Coraid's NAS product is pretty new but the underlying platform has been on the market a while and is solid, at a really aggressive price point," said McClure.

"[NetApp] just spent a couple of hundred dollars in lawyer's fees and took a competitor out of the market. Quick and easy, but a little disappointing, too. At the end of the day, ZFS is open source, and while there is no way to predict how the settlement talks between Oracle and NetApp will turn out, you can't really un-open source ZFS," she said.

There's still no word from NetApp on the matter.

Nexenta CEO Evan Powell supplied Enterprise Storage Forum with the following statement:

"I am not a patent law expert and cannot comment specifically on NetApp and Oracle's legal battle. However, I find NetApp's behavior consistent with what typically transpires when established legacy technology companies are confronted with innovation that threatens their price structure and profit margins. They first protest that the technology is unproven and unstable, then it lacks enterprise features, then adequate support and services and finally, when all else has failed, that it is violating their intellectual property. This is the path that NetApp has taken in the last two years with the ZFS file system.

"Based on the explosive and sustained growth in adoption of Nexenta's Open Storage software based on the ZFS file system, it is clear that our partners and customers are confident that this case will reach a settlement that follows the trajectory of almost every technology market in the last 15 years-- low cost, high innovation and open solutions that provide a clear and competitive alternative to closed, proprietary and expensive technologies."

You can read more from Nexenta's Powell in his latest blog post.

Related articles:
Coraid Combines ZFS With Ethernet SAN Technology
Coraid Delivers EtherDrive Storage Arrays, HBAs
Nexenta Leverages OpenSolaris and ZFS for Enterprise Storage
Compellent Offers Open-Source ZFS-based NAS
Nexenta Adds Data Dedupe to NexentaStor 3.0 with ZFS
10 Reasons Why ZFS Rocks

EMC, IBM, NetApp – Storage growth across the board

April 22, 2010 -- All signs are pointing to recovery in the data storage market as EMC, IBM and NetApp are all reporting big – in some cases record breaking – earning and sales.

EMC this week reported all-time record Q1 revenue, 92% profit growth, record quarterly free cash flow and an increase to its full-year 2010 business outlook.

EMC CEO Joe Tucci called the past few months "the best first quarter in company history" and credited the double-digit growth to EMC's "private cloud strategy and focus on four multi-billion dollar markets."

For the full details of EMC's Q1 results see "EMC breaks first quarter sales records."

IBM is also feeling the storage love. Big Blue announced its earnings this week, including an 11% jump in revenue growth for its System Storage hardware business for 1Q 2010.

Rewind seven weeks and NetApp topped expectations with Q3 GAAP revenues of $1.01 billion compared to $746 million in the same period last year (see "NetApp hit$ a home run").

The big boys are pulling in big bucks. The data storage market isn't recession-proof, but data doesn't stop growing and there's always a need for storage capacity despite advances in data reduction technologies and consolidation efforts.

So what's behind the record-breaking numbers? Are we in the midst of a hardware refresh cycle? Has the storage market really rebounded? On the other hand, is it just a proverbial case of "nobody gets fired for buying IBM" (or any other tier 1 vendor)?

NetApp to acquire Bycast for cloud storage software

April 7, 2010 -- NetApp is advancing its efforts in the cloud storage market with the acquisition of Bycast, a developer of object-based storage virtualization software that turns multiple storage devices across geographically dispersed locations into a single pool for storing fixed content data.

NetApp announced today that it has entered into a definitive agreement to acquire privately held Bycast for an undisclosed sum. According to NetApp, the plan is to expand NetApp's reach in unified storage by adding object-based storage software to the mix.

NetApp claims that Bycast's products will strengthen its ability too serve vertical markets such as digital media, Web 2.0, healthcare, and cloud services providers.

"The addition of Bycast's products enables NetApp to offer our enterprise customers and service provider partners a complementary solution that enables them to efficiently build and manage a very large-scale global repository of data central to many IT-as-a-service offerings," Manish Goel, executive vice president, Product Operations, NetApp, said in a press release today.

Bycast's flagship product is its StorageGRID storage virtualization software. StorageGRID virtualizes heterogeneous storage devices – everything from high performance disk to tape – and runs on industry standard servers and provides a virtualization layer that sits between applications and the underlying storage hardware.

Applications store and retrieve data from the StorageGRID grid using CIFS, NFS, and HTTP. The system manages stored data using configurable policies that determine the degree of replication, geographic placement, and the storage tier on which data is stored.

Bycast positions StorageGRID as a cloud storage platform for service providers based on its ability to deliver multi-tenant digital archives across multiple sites.

Bycast claims to have about 250 customers under its belt and has OEM partnerships with HP and IBM, both of which sell the StorageGRID software under their own brands.

HP and Bycast have a strategic OEM partnership focused on medical image storage and archiving under the HP brand Medical Archive Solution (MAS).

IBM's System Storage Multilevel Grid Access Manager Software (Grid Access Manager Software) is based on StorageGRID and the IBM Grid Medical Archive Solution (GMAS) combines IBM's TotalStorage and IBM System x servers plus the Grid Access Manager Software. In addition, IBM also uses Bycast's File System Gateway technology to provide a standard CIFS/NFS interface for the IBM System Storage DR550.

According to NetApp, the company will determine whether it will continue the existing Bycast partnerships as it works through the closing of the transaction. The deal is expected to close in May 2010, subject to closing conditions.

According to an e-mail statement to InfoStor, NetApp plans to keep "most of the Bycast team" and does not plan to lay off existing NetApp employees because of the acquisition. NetApp is planning "to eliminate a small number of positions at Bycast. While Bycast employees' roles are not changing as a result of the acquisition, Bycast groups are being integrated into NetApp's organization."

The company plans to turn Bycast's Vancouver headquarters into a technology center for responsible for existing Bycast products and future product development.

Bycast's engineering and product management groups will report to product operations, solutions specialists will report to field operations, sales resources will report to sales, and so on.

NetApp announced its cloud storage intentions earlier this year when it formed a cloud partnership with Cisco and VMware (see Dave Simpson's article "NetApp, Cisco, VMware collaborate on the cloud").

The partnership is based on developing the Secure Multi-tenancy Design Architecture, a reference design with the goal of enhanced security in cloud environments.

Dell also entered the object-based storage fray recently with last month's debut of the Dell DX Object Storage Solution, a new homegrown system that uses metadata to store fixed digital content in a scalable, flat address space (see "Dell jumps into object-based storage").

Is Data Domain a good fit for EMC?

July 10, 2009 -- The experts are weighing in on EMC's pending acquisition of Data Domain and questions abound. Did EMC pay too much? How will it juggle its many data deduplication offerings? Did NetApp make the right move?

The price tag was just too high. EMC forced NetApp to bow out of its acquisition agreement with Data Domain earlier this week after upping the ante to $2.1 billion.

According to some analysts, this may have been a blessing in disguise for NetApp.

"NetApp just forced EMC to spend [more than $2 billion] for an asset that really doesn't fit and that EMC didn't want until it thought NetApp would get Data Domain," says David Vellante, co-founder and contributor to The Wikibon Project. "EMC-ers believe that dedupe is best done at the source. It's a culture clash of a serious nature."

Vellante believes NetApp's interest in acquiring Data Domain was based on the potential impact it could have on the bottom line.

"NetApp wanted Data Domain because it saw Data Domain as the path of least resistance to $5 billion in revenue. Personally, I think there are better ways to get there," he says.

Vellante's opinion echoes that of Enterprise Strategy Group (ESG) founder and senior analyst Steve Duplessie.

"I think the price was too high to begin with and nuts by the end," says Duplessie. "I think NetApp would have enjoyed a lot of synergies and opportunity with Data Domain, but at that price, there was simply no margin for error. I think it would have strapped them and put an unnecessary microscope on their every move that would deflect from the fact that they are a great company. I think they will be happy with their decision."

Now, he says, EMC will be under that microscope.

"EMC has more room to maneuver simply because of their size and assets, but that doesn't mean they won't be under the microscope. That's a mongo big price to pay for anyone to simply ignore it. They certainly have the muscle and brains to make it work, but it won't be easy," says Duplessie.

EMC raises bid as NetApp gets green light from regulators

July 6, 2009 -- If you thought EMC was out of the race for Data Domain – think again. Just as NetApp announced this morning that it has received the go ahead from federal regulators to take its acquisition proposal to a stockholder vote, EMC once again raised its offer to acquire Data Domain. The EMC bid now stands at more than $2 billion.

The Data Domain Board of Directors currently plans to hold a meeting of stockholders and a merger vote on August 14. EMC is hoping to spoil the party by forcing Data Domain’s stockholders to take a long, hard look at its latest offer.

Under its revised proposal, EMC has increased its offer to acquire all the outstanding common stock of Data Domain to $33.50 per share in cash, for a total value of approximately $2.1 billion, net of Data Domain’s cash. NetApp’s offer is currently $1.9 billion.

EMC CEO Joe Tucci outlined the offer today in a letter to Data Domain’s Board Chairman, Aneel Bhusri. Here is the full text of Tucci’s letter:


Dear Aneel:
On behalf of EMC, I am pleased to submit to you and your Board of Directors this revised proposal to acquire all outstanding Data Domain common stock for $33.50 per share in cash. This price represents a substantial premium to the cash and stock proposal of NetApp and is a Superior Proposal as defined in your merger agreement with NetApp. The Board of Directors of EMC has unanimously approved this proposal.

As with our prior proposal, EMC’s revised proposal is not subject to any financing or due diligence contingency, and we will use existing cash balances to finance the transaction. In addition, we have received all necessary regulatory approvals. We are amending our currently outstanding tender offer to acquire all of the outstanding shares of Data Domain to reflect our higher price.

We enclose a revised definitive agreement that has been executed on behalf of EMC and which reflects our new $33.50 per share, all cash offer. This agreement is substantially identical to the NetApp proposal except as to the fact that the EMC offer:

-- Is materially higher in price;

-- Reflects our faster two-step structure, which will enable you to close almost a month faster than under the NetApp proposal; and,

-- Very importantly, eliminates all deal protection provisions that could further impede the maximization of stockholder value, including the no solicitation section and the break-up fee obligation.

This last point is very significant to you and your stockholders. Data Domain does not have any justification for continuing deal protection provisions for NetApp or any other party given our willingness to proceed without them. It was questionable agreeing to deal protections in your initial agreement with NetApp, when you knew of our interest in acquiring the company. There is no basis for continuing with them now.

We strongly believe that the Data Domain Board of Directors should pledge to eliminate all deal protection provisions that could further impede maximizing stockholder value. Such a commitment would be the proper exercise of the Board's fiduciary duties to secure a transaction in the best interests of Data Domain stockholders, particularly in light of the EMC proposal described in this letter.

With the early termination last week of the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 concluding all regulatory conditions to this transaction, EMC could be in a position to close this transaction and deliver cash to your stockholders in as little as two weeks.

In comparison to your proposed transaction with NetApp, EMC’s proposal represents a far superior alternative for your stockholders.

EMC’s proposal provides higher absolute value for each Data Domain share.

As an all-cash offer, EMC’s proposal offers greater certainty of value.

EMC’s definitive agreement does not contain deal protection provisions that could further impede the maximization of stockholder value – including any termination fee – and is more favorable to the stockholders of Data Domain.

EMC’s transaction offers a faster time to close of almost a month.

We continue to believe that a business combination with EMC will deliver substantial and superior benefits to your company’s stockholders, customers, employees and partners. Since June 1st, when we submitted to you our prior proposal, we have received wholehearted support from many of your stockholders and customers validating our confidence in these benefits.

We encourage you to accept the merits of our proposal and look forward to your execution of the definitive agreement enclosed.

Very truly yours,
Joseph M. Tucci
Chairman, President and Chief Executive Officer
EMC Corporation


Further details on EMC’s latest offer are available on EMC’s website.

Tucci appeals to Data Domain's rank and file

June 9, 2009 -- The acquisition agreement between Data Domain and NetApp precludes EMC from communicating with Data Domain directly, but no one says EMC can't state its case to the public or to Data Domain's employees.

EMC chairman, president and CEO Joe Tucci issued an open letter to Data Domain's personnel this morning in which he praises their achievements, congratulates them for their successes and highlights the impact of their data deduplication technologies are having in data centers across the globe.

He even writes, "In many ways, you remind us of EMC."

Tucci also promises Data Domain's employees an "exciting future" if they should become part of the "EMC family."

All flattery and promises aside, Tucci continues to make the financial argument that EMC's $30 per share all-cash tender offer to acquire all of the outstanding stock of Data Domain is the better deal than NetApp's part-stock, part-cash offer.

It appears that NetApp will win the day and acquire Data Domain, but its sure is fun to watch the day-to-day developments.

The full text of Tucci's open letter to the employees of Data Domain can be found on EMC's website.

Update: Data Domain sides with NetApp

June 4, 2009 -- Another day, another development in the EMC-Data Domain-NetApp saga. Less than 12 hours after NetApp publicly raised its offer to buy Data Domain, the two companies have officially entered into a revised acquisition agreement.

The volleying has been worthy of a match at Roland Garros. NetApp responded to EMC's surprise bid for Data Domain yesterday morning by raising its offer. The price seems to have satisfied Data Domain, for now.

Late yesterday, the pair issued a joint press release stating that they have entered into a revised acquisition agreement under which NetApp will acquire all of the outstanding shares of Data Domain common stock for $30 per share in cash and stock in a transaction valued at approximately $1.9 billion, net of Data Domain's cash.

EMC is standing pat. The company issued a statement of its own on Wednesday, in which Joe Tucci, EMC chairman, president and CEO, said, "EMC's all-cash tender offer remains superior to NetApp's proposed part-stock merger transaction. We are proceeding with our superior cash tender offer, which is not subject to any financing or due diligence contingency. We do not believe that the Data Domain stockholders will approve the merger transaction with NetApp."

Tucci added, "EMC urges the Board of Directors of Data Domain to not take any actions that would further impede a transaction that is a superior alternative for Data Domain's shareholders."

Whether EMC counters the counter offer remains to be seen.

NetApp responds to EMC's bid for Data Domain

June 3, 2009 -- The bidding war for Data Domain has begun. NetApp has responded to EMC's surprise offer to buy the company by upping its offer to $1.9 billion and claiming that a combined NetApp-Data Domain has a bigger upside for both companies.

NetApp issued a revised offer this morning, raising the acquisition price to approximately $1.9 billion versus EMC's $1.8 billion offer earlier this week.

In a press release, NetApp's chairman and CEO, Dan Warmenhoven, said his company's "strategic rationale remains the same" and "the complementary nature of the Data Domain and NetApp product lines will result in higher aggregate growth compared to the redundancies that would result with the EMC product line."

Warmenhoven added, "The cultural compatibility between Data Domain and NetApp will maximize the potential for continued innovation from a creative and motivated employee base. This will not only create a meaningful choice for our customers but also lead to a complementary combination with no obstacles to an expeditious close of the acquisition. Therefore, we are as committed to this partnership now as we were when we first announced our intent to acquire Data Domain."

Mum's the word over at Data Domain as they company has yet to comment on the EMC-NetApp tug of war. The industry pundits, however, are keeping a close eye on the back and forth.

Enterprise Strategy Group analyst Lauren Whitehouse wonders whether EMC is just playing the spoiler, especially given its wealth of data deduplication technologies and OEM deals.

"I am having a hard time understanding why EMC wants the Data Domain technology. EMC has deduplication solutions through the Avamar product and its partnership with Quantum. I'm not sure what opportunities there are for technology integration with Avamar and EMC recently made a sizeable investment in Quantum," said Whitehouse. "The company has also promoted the benefits of the being able to replicate between Dell, EMC and Quantum solutions. What statement is EMC making about its investments in Avamar and Quantum by bidding for Data Domain?"

She continued, "Who can better leverage and integrate the Data Domain technology? EMC definitely has a better track record of doing acquisitions and leveraging technology purchases. Without really knowing the motivation for either company's bid, it's hard to judge who will leverage the technology better. It's just not obvious what the intentions are for either bidder. What a rollercoaster ride this has been."

David Vellante, co-founder and contributor to The Wikibon Project, believes EMC may have the edge.

"EMC plays for keeps. It doesn't mess around when it comes to competing. I think if EMC really wants Data Domain it will outbid NetApp for sure," he said.

So what does EMC's unsolicited bid for Data Domain say to the industry? Vellante sees it as a defensive move by EMC.

"It says to me that EMC recognizes it can't grow its core storage business organically and needs to acquire growth," Vellante said. "It says EMC is making a defensive move, albeit an aggressive one, to stop Data Domain from getting in NetApp's hands."

He also believes smaller vendors are fast becoming hot commodities.

"The market is continuing to consolidate and companies like CommVault, FalconStor, Sepaton and even 3PAR and Compellent are worth more today than they were yesterday," Vellante said.

Users get "excited" over storage vendors, technologies

Which vendors or technologies come to mind when you think about “exciting” storage products and services? According to IT industry research firm TheInfoPro (TIP), storage professionals in Fortune 1000 and midsize enterprises definitely have an answer to that question.

The firm’s latest research on storage adoption plans, management strategies, and vendor performance has been released and more than 250 Fortune 1000 and midsize end users say they are turning their attention to vendors that provide de-duplication, thin provisioning, virtualized provisioning, and capacity optimization technologies, according to TIP’s managing director of storage research, Robert Stevenson.

As a result, NetApp and Data Domain have seen the largest increase in mentions. Both vendors offer data de-duplication technologies and coincidentally each has pushed further into the de-dupe market over the past couple of days.

NetApp, which already offers de-duplication for primary storage via its Data ONTAP operating system announced this week that de-dupe is now available for its family of NetApp Virtual Tape Library (VTL) systems. Also, Data Domain this week entered a partnership with F5 Networks to co-market a joint solution that automates the movement of static and archive data from primary storage to a secondary storage tier. The joint offering will combine the de-dupe capabilities of Data Domain’s disk-based storage systems with the F5 ARX series of file virtualization devices.

Stevenson says his “Wave 11 Time Series Storage Study” shows that end users are looking for SAN architectures that are more active in managing storage utilization. It makes sense since the top technology in end users plans is once again data de-duplication, which has been dominating TIP’s list for more than a year.

Overall, Fortune 1000 users gave EMC the nod as the most exciting storage vendor followed by NetApp, Data Domain, IBM and 3PAR, while midsize users surveyed listed Data Domain, 3PAR, Compellent, EMC and HDS as their top five most exciting vendors.