EMC Bails Out Quantum

Last week, when EMC provided financing to Quantum, the storage industry saw its version of an economic rescue -- really without much fanfare. Sure there was the defense of the move from a few of the EMC bloggers and, of course, the response from Data Domain. But let's face it, this deal just made sense for both parties. That said, there are some interesting questions if you read between the lines of the press release.

The loan by EMC makes sense, because it has a fair amount of cash on its balance sheet -- about $9 billion -- and it needs Quantum to continue for a while. The relationship does seem to be working out for EMC, although I am not sure I can 100 percent back its claim of de-dupe leadership. Data Domain and Exagrid are also making similar claims, and they are in the conversation.

The first thing to read from this is that Quantum, despite being considered a player in the de-dupe space, a space that is growing like wildfire in this tough economy, was unable to get financing elsewhere, and EMC jumped in to loan it $100 million. The reason stated is that those very same tough economic times made it difficult for Quantum to get funding. I find that interesting.

Storage vendors in general, and de-dupe vendors in particular, are still getting funding. For example, Ocarina Networks secured $20 million at the end of February. Others in the de-dupe space like Exagrid and Septon are approaching profitability. In fairness, they were not asking for $100 million, and they were not going to use that to convert a credit facility -- but they are getting funding. Maybe it was just easier to get the money from EMC, maybe the terms were better, there could be a dozen reasons.

The point here is Quantum needed outside help. Despite being in a hot market, it was not able to overcome the debt, and it was clearly a problem, as I predicted in my original post about the issue. The other point is Quantum got it, so one of the major concerns I had last year about the firm has been put aside.The other question is: Why EMC did not just buy Quantum? Clearly EMC is not afraid to buy the technology that it wants and has done so in the past. Why not Quantum? For one reason, there is a difference between a $100 million loan and assuming responsibility for all of Quantum's debt. Frankly that could be the sole reason.

The other reason may be that there is some truth to the rumor that EMC is doing something on its own. It already has the Avamar technology and it has de-duplication technology in the Celera, so a jump to a VTL-based de-duplication option does not seem like a far one to make. In this case, EMC needs Quantum until that need is met internally. If this is the case, lets hope that EMC has a migration strategy for its Quantum customers and that Quantum has planned on how to sustain itself post-EMC, because I think the odds are better than 50/50 that there will be a post-EMC.

Of course the other side of the 50 percent is that "it is what it is." You can counter that EMC has no future VTL de-duplication plans other than Quantum. For some reason EMC has never owned its VTL technology outright. The original Clariion Disk Library was a Falconstor OEM, and, of course, now there's the relationship with Quantum. Maybe EMC thinks the backup-to-disk market is just a passing phase and what we really should be doing is backing up to SSD? Maybe EMC knows its limitations and just does not want to focus its development efforts on that market right now -- it certainly does have enough other stuff going on.

If I were to place a bet though, I'd go with the former -- D2D is just too attractive for EMC to ignore and it has too much of the surrounding pieces of the puzzle not to make a go of it with its own technology.

So what's the net for the users? Is Quantum any safer than they were before? Sure. While it remains to be seen if the holders of the debt will take the offer, for now it looks like the albatross that was the $160 million convertible debt is off of Quantum's back. The decision, like before, really comes down to the technology. Who is going to meet your needs for simplicity, performance, and scale -- and how much of each do you need, and can your data center deliver? And as before, make sure you are comfortable with the business environment that the providers operate under or through.InformationWeek Analytics has published an independent analysis of the challenges around enterprise storage. Download the report here (registration required).

George Crump is founder of Storage Switzerland , which provides strategic consulting and analysis to storage users, suppliers, and integrators. Prior to Storage Switzerland, he was CTO at one of the nation's largest integrators.