EMC distances rival NetApp

EMC  has scored another victory over storage rival NetApp by purchasing Data Domain, a merger which widens the technological gap between the companies in the fast-growing data de-duplication market.

NetApp desperately wanted Data Domain to bolster its largely unsuccessful de-duplication business, as evidenced by its $1.9 billion bid to purchase the company. But EMC proved too rich, and on Wednesday signed a definitive agreement to buy Data Domain for $2.1 billion. 

“This is a move that strengthens EMC and doesn’t put them in any financial or competitive bind,” notes Pund-IT analyst Charles King. “From a competitive standpoint, I think EMC won the day here.”

De-duplication is expected to play a major role in the storage market because it lets companies reduce the amount of disk space they need in their data centers. With data volumes growing quickly, technologies that make storage more efficient will be of huge importance over the next few years, says Forrester analyst Andrew Reichman.

But Reichman believes EMC paid too much for Data Domain. De-duplication is important because it automates the process of reducing storage requirements, but it isn’t the only technology that can make storage more efficient, he says. Thin provisioning, snapshots and clones, and denser drives can all help enterprises use disk space more efficiently, he says.

The $2.1 billion price tag for Data Domain could be “mitigated by significant market growth” in de-duplication, Reichman says. “But I think in a number of years we might look back on this deal and say the winner lost and the loser won,” he says. “You could say NetApp is a loser in this buy they didn’t spend that huge amount of money. That gives them flexibility.

NetApp actually comes out of the negotiations $57 million richer, courtesy of a merger agreement termination fee Data Domain was obligated to pay. NetApp CEO Dan Warmenhoven said the company could not justify “engaging in an increasingly expensive and dilutive bidding war,” and that NetApp remains confident in its “already compelling strategic plan, market opportunities, and competitive strengths.”

NetApp was smart to walk away from the bidding war, but may still attempt to acquire another de-dupe vendor, says Deni Connor, principal analyst with Storage Strategies Now.

“I think it was a wise decision for NetApp to step away from it,” Connor says. “Re-bidding for Data Domain would have really hurt their cash flow. It’ll be interesting to see, though, what both companies do, how EMC integrates the Data Domain products and also what NetApp does in order to get some extra de-duplication capability.”

Even if NetApp’s decision was the right one, the bidding war forced the company to expose its financial limitations relative to EMC.

“This puts NetApp in a curious position,” King says. “I’ve seen some analysts say that the company with the deeper pockets won and that’s true enough. But the bidding war has also exposed the amount of money that it took to make NetApp blink, in essence. From a strategic standpoint, that’s not a great place for a vendor to be in. … They’ve laid their cards on the table and moving forward I think that would put them at a disadvantage.”