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The storage wars are hotting up with EMC the clear leader in block oriented product and with a huge portfolio of software that places them as the seventh biggest software company on the planet. NetApp hold onto the leadership position in the Network Attached Storage (NAS) market with a technically advanced set of products. Why is that? Why do we have two main players in the storage business? Here’s my take.

EMC sell to Storage Admins, NetApp sell to Server Admins. Server Admins and Storage Admins work in different groups, and usually report to a different VP. Generally they don’t like each other much.

You see, NAS was introduced as a replacement for home grown CIFS (Windows NT Servers running file sharing services) and NFS (UNX servers doing the same thing). Server Admins bought NAS to get rid of some of the server sprawl and kept on running them. Block storage has always been a different group, originally working with Enterprise Systems like the Mainframe and AS400 platforms and then moving into major databases, ERP and latterly right across the enterprise. But it never reached the Server Admins, they held onto the NAS systems where all of their scripts and applications resided and the user files from Office whilst the structured data stuck with block storage.

So we have two different classes of storage and two different sets of buyers. If I was a marketing guy in EMC, I would have created an appliance or blade to slot into the Symetrix and put NetApp under pressure but that never happened. Instead the EMC NAS offering (Celera) is a mid-range Clariion with the NAS blades installed. Clariion has a different Admin system to Symetrix so there is no real simplification driver for the enterprise with NetApp and EMC. One way or the other they have two platforms.

Also NetApp has been the functionality thought leader in the NAS space, first to market with thin provisioning and loads of other capabilities. Data Domain’s de-duplication capability fits right in.

Did they pay the right price? Far be it for me to comment but I expect that the market will tell.

Here is the press release from NetApp:

NetApp (NASDAQ:NTAP) and Data Domain (NASDAQ:DDUP) announced today they have entered into a definitive agreement under which NetApp will acquire all of the outstanding shares of Data Domain common stock for $25 per share in cash and stock. The transaction is valued at approximately $1.5B, net of Data Domain’s cash.

“This combination is a great opportunity for both NetApp and Data Domain,” said Dan Warmenhoven, chairman and CEO of NetApp. “Data Domain is an innovative high-growth company with a complementary product line ideally suited for multi-vendor environments where customers want to minimize their use of tape for backup. NetApp has the distribution channels and international reach to offer Data Domain products to more customers, accelerating growth and market adoption. The combination of our two companies will increase NetApp’s reputation for delivering both outstanding efficiency and operational breakthroughs to customers worldwide.”

Customers will benefit from the robust worldwide sales, support, partner, and service network NetApp can bring to Data Domain products, further enabling customers to deploy Data Domain products on a global basis. NetApp and Data Domain channel partners will benefit from the inclusion of the innovative Data Domain product line into the NetApp Partner Program.

NetApp intends to operate Data Domain as a product line within NetApp’s product operations organization. The Data Domain sales organization will be integrated with NetApp sales to maximize momentum and access new accounts.

“Our objective will be to amplify Data Domain’s success, grow Data Domain’s revenues as quickly as today’s economy will allow, and create systems and incentives within NetApp to nurture Data Domain to its fullest potential,” added Warmenhoven. “We will focus on new customer acquisition and maximum market share expansion. Their existing customers should see the benefits of NetApp’s broader scale and support capabilities.”

“Notwithstanding the rapid record sales growth Data Domain has experienced over the past 5 years, with NetApp’s distribution channel and customer base, we have an opportunity to accelerate even further,” said Frank Slootman, president and CEO of Data Domain.

Portfolio Synergy
The Data Domain portfolio brings a complementary offering to NetApp, expanding NetApp’s reach in the market for heterogeneous disk-based backup. Today, NetApp’s heterogeneous backup offering (with its VTL product line) provides installations with disk-based solutions to augment their tape backup infrastructure. Data Domain’s portfolio will extend NetApp’s ability to compete in the increasing number of installations wanting to minimize their reliance on tape. The Data Domain acquisition increases NetApp’s ability to capitalize on the growth of disk-based backup adoption, a trend accelerated by the economics of deduplication.

Transaction Details
The Board of Directors of Data Domain has unanimously approved the transaction. We anticipate that the deal will close in 60-120 days subject to customary closing conditions including regulatory approval.

More details on this transaction will be available on NetApp’s quarterly results conference call which will be broadcast live on the Internet at http://investors.netapp.com on Wednesday, May 20, 2009, at 2:00 p.m. Pacific Time. The conference call will also be available live in a listen-only format at (800) 638-4930 in the United States and (617) 614-3944 outside the United States. The pass code for both numbers is 57400475. A replay will be available for 72 hours following the completion of the live call by dialing (888) 286-8010 in the United States and (617) 801-6888 outside the United States, using replay code 92143343. The Webcast replay will be posted on NetApp’s Web site for at least one year. Other materials will be available on netapp.com.