EMC to Symantec Consider Deals as Startups Focus on FlashDina Bass, Jack Clark and Ian King
As storage rivals EMC Corp., Hewlett-Packard Co. and Symantec Corp. grapple with the idea of breakups poised to make them into smaller companies, they’ll need to contend with a new generation of businesses that are offering faster and cheaper systems for housing digital data.
The threat posed in the $65 billion market by these companies -- with names like Pure Storage Inc., Tegile Systems Inc. and Nimble Storage Inc. -- helps explain why EMC is contemplating a breakup or merger, and adds to the pressures leading Hewlett-Packard and Symantec to plan splitting themselves up. The younger companies’ products based on flash memory, named for its ability to rapidly access data, are growing far faster than traditional systems based on hard disks.
Demand is plummeting for the pricey machines based on older technology that EMC once relied on to fuel profit and sales. High-end storage revenue dropped 14 percent in the second quarter, the Hopkinton, Massachusetts-based company said in July. Putting it mildly, EMC’s David Goulden, who oversees the storage unit, at the time said EMC’s high-end business was “in transition.” Meanwhile, EMC’s sales from newer types of storage technology surged 52 percent.
“We’re turning storage into a world that, instead of being dominated by these big flashy boxes, is a thing that’s going to graduate more towards software running on commodity hardware,” said Henry Baltazar, an analyst at Forrester Research Inc.
Against this backdrop, EMC has been evaluating options, including holding talks to merge with Hewlett-Packard, which this week unveiled plans to split itself into two. Symantec is also considering announcing a breakup within weeks that would make its storage business -- acquired in its 2005 purchase of Veritas Software Corp. -- a separate company, people familiar with the plan said this week.
Sarah Pompei, a spokeswoman for Hewlett-Packard, declined to comment. Dave Farmer, a spokesman for EMC, referred a request for comment to a statement the company issued yesterday in response to activist investor Elliott Management Corp.’s request that the company spin off its VMware unit. The statement says the board regularly reviews and evaluates the company’s strategy. Kristen Batch, a spokeswoman for Symantec, didn’t immediately return calls seeking comment.
With companies creating and storing increasing amounts of data, and still more information coming from devices with sensors and tracking capabilities like mobile phones, wearables and automation systems, the quantity of stored information is exploding.
From 2013 to 2020, the universe of digital information will grow by a factor of 10 from 4.4 trillion gigabytes to 44 trillion, IDC said in a study sponsored by EMC. It more than doubles every two years, IDC found.
That doesn’t mean older storage vendors like EMC will benefit. Many customers building Internet-based cloud networks, made up of thousands of machines, are interested not in the pricey refrigerator-sized cabinets that EMC built its business around, but in smaller, more flexible storage devices, pairing cheap mass-produced hardware with flash memory. Customers also don’t want to make large upfront purchases like those EMC used to count on.
Growth in solid-state storage drives, mostly made up of flash memory, will average 34 percent a year between 2013 and 2018, according to IDC data analyzed by Bloomberg. For older hard-disk storage systems, the average growth rate is 15 percent a year.
EMC has responded by acquiring three flash-storage startups in as many years: DSSD Inc., bought in June, following the purchase of ScaleIO Inc. in 2013 and XtremIO Inc. in 2012.
The history of flash dates back to 1984, when Toshiba Corp. invented the technology. The chips, which retain data even when a device’s power is switched off, were used in memory cards and other storage media until graduating to wider use as part of Apple Inc.’s iPod Nano music player in 2005. Switching to flash let Apple shrink the device.
Production enhancements have since lowered the cost of the chips and bolstered their storage capabilities to the point where they’ve become viable for data centers. Other flash makers include Violin Memory Inc., SolidFire and Nimbus Data Systems Inc. Nimble, Tegile and Nutanix Inc. lead in hybrid systems which combine flash with traditional disk-based memory.
The changes in the industry are one challenge driving EMC’s strategic review, and fueled its consideration of a merger with Palo Alto, California-based Hewlett-Packard. EMC is aware that there’s a significant shift under way and it must adapt its business, said a person familiar with the company’s thinking. EMC calculates that larger companies can endure better in times of great change, said the person, pointing to International Business Machines Corp. as an example.
EMC’s board is still considering its options, according to people familiar with the matter.
Hewlett-Packard has a storage business that spans legacy systems to more modern approaches, like software-defined storage technology and all-flash arrays. Many of its products come from 3Par Inc., a storage company it acquired for more than $2 billion in 2010.
The direction of the new storage market will also influence the future of Mountain View, California-based Symantec. That company’s storage division is loaded with older technologies, making it harder to grow or to find a buyer. A breakup may position Symantec’s separated businesses as acquisition targets, given that large companies including EMC and Hewlett-Packard have been interested in the stand-alone security business or in an independent storage business, said one person with knowledge of the matter.
Still, the business generates sales and profit from existing customers, even amid a lack of cutting-edge technology, said Daniel Ives, an analyst at FBR Capital Markets & Co.
“This storage business would be attractive to private equity players given the mature, cash-cow nature of it,” he said.
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