HP Acquires StorageApps

Hewlett-Packard Co. (NYSE: HWP) announced today that it will acquire StorageApps in a stock swap deal worth $350 million (see HP Scarfs Up StorageApps). The purpose of the deal appears to be for HP to plug a gap in its product line for virtualization technology.

Under the terms of the agreement, HP will acquire all of the capital stock of StorageApps for HP common stock. Completion of the transaction is subject to customary closing conditions and regulatory review. The deal is intended to be structured as a tax-free re-organization and accounted for as a purchase.

Upon completion, StorageApps and its 200 employees will remain in Bridgewater, N.J., but will become a wholly owned subsidiary of HP.

So whats in it for HP?

Basically, virtualization technology is the trend in the storage networking market right now. Roughly $270 million has already been poured into startups in this space (see Venture Capital Survey), and analysts are predicting that it will eventually be ubiquitous in storage networks. Yet, until this acquisition, HP had nothing to show in this department.Virtualization gives administrators the ability to pool storage devices from different vendors, add capacity easily, and move data among devices independent of server operating systems or network infrastructure. It’s a big leap from the laborious and cumbersome way that data is currently moved around storage networks.

There are a couple of ways to do virtualization. StorageApps makes an "in-band" appliance that sits between the host server and the storage devices. The alternative approach, adopted by companies such as StoreAge Networking Technologies Ltd., means deploying an "out-of band" appliance. Instead of the software sitting between the host servers and storage arrays, it resides on these systems at either end of the network (see The Coming of the StoreAge).

Which way is better? Good question. HP itself says there are pluses and minuses to each approach. “You’re basically trading one problem for another,” says Buzz "Lightyear" Walker, director of strategic ventures for HP’s storage organization.

Walker says the main reason HP bought StorageApps is not technology at all -- but customers. The startup is already selling to Morgan Stanley Dean Witter & Co., Bear Stearns, and E-Trade.

“The majority of other startups are still in development mode,” says Walker.

And there’s certainly enough of them, including (but not limited to): Panasas, DataCore Software, FalconStor Software Inc., Zambeel Inc., and StoreAge (see Top Ten Private Storage Networking Companies).Via the acquisition, StorageApps gets to leap another step ahead of these competitors, as it now has access to HP's gigantic global distribution channels.

HP’s plan is to bring StorageApps under the umbrella of its Federated Storage Area Management (FSAM) strategy. FSAM is the company’s marketing term for its network management software, OpenView. Ultimately it wants this software to provide storage and network management in one package. Walker reckons this integration will be complete by the end of the year -- which some observers think is a tad optimistic.

”Clearly HP’s biggest challenge is piecing all this together,” says Steve Duplessie, analyst with the research firm, Enterprise Storage Group Inc.

The deal also poses a little hiccup for Dell Computer Corp. (Nasdaq: DELL). Dell has invested in StorageApps and OEMs its technology. As an investor, Dell will have made a tidy profit from the acquisition, but it's likely the company will look for a different vendor with which to pursue its virtualization goals, rather than HP, a major competitor. Dell was unavailable for comment at press time.

— Jo Maitland, Senior Editor, Byte and Switch http://www.byteandswitch.comMovers and shakers from more than 100 companies – including Hewlett-Packard and several others mentioned here – will be speaking at StorageNet, Byte and Switch’s annual conference, being held in New York City, October 2-5, 2001. Check it out at StorageNet2001