NetApp Annexes Spinnaker

Network Appliance Inc. (Nasdaq: NTAP) moved to pick up competing and complementary technology and engineering expertise today when it announced plans to acquire rival Spinnaker Networks Inc. for around $300 million in stock.

Sunnyvale, Calif.-based NetApp gets an advanced distributed file system architecture, cluster performance scaling, and what NetApp CEO Dan Warmenhoven calls a world-class engineering team.”

“This acquisition is primarily about engineering expertise,” says analyst Clay Sumner of Legg Mason Inc.

“Spinnaker has some of the pioneers in distributed file systems.”

For Spinnaker and its backers, the deal is a very sweet victory -- and the ultimate validation of its distributed NAS technology. Spinnaker has raised $51.4 million to date; its most recent funding was a $31 million second round in May 2002. Investors included Menlo Ventures, Norwest Venture Partners, Mellon Ventures Inc., and GIC Special Investments (GIC SI), the private equity investment arm of the government of Singapore (see Spinnaker Sails In With $31M).

Spinnaker was generating a little bit of revenue, but not enough to sustain the company over the long haul. Sources say the NAS startup had a run rate of between $4 million and $5 million per quarter -- clear evidence, it seems, that NetApp was interested in obtaining Spinnaker's software rather than knocking a competitor out of the box.Sumner says the acquisition will help NetApp increase its market share by making its products more scaleable. After the acquisition is completed –- probably in January 2004 -- NetApp will integrate the SpinServer product line into its product family (see Spinnaker's NAS Hauls Ass).

Warmenhoven says Spinnaker’s technology will accelerate delivery of what NetApp calls "Storage Grid" technology for improved scaleability, performance, and management of storage networks. He says NetApp and Spinnaker will first integrate their hardware, which should take only six months to a year, mainly because they both use Intel Corp. (Nasdaq: INTC) architecture processors. After the hardware is integrated, they will concentrate on integrating Spinnaker’s operating system code with the NetApp Data OnTap operating system. The software integration will probably take years to complete.

“Eventually we’ll converge into a single hardware [platform], with the customer choosing the Spinnaker OS or Data OnTap,” Warmenhoven says.

Spinnaker, a privately owned company based in Pittsburgh, currently has 50 customers or potential customers mainly in the financial services, biotechnology, life sciences, and digital entertainment industries. It has 84 employees, including 60 engineers. Warmenhoven says Spinnaker’s Pittsburgh lab will become NetApp’s fifth R&D center.

“I can assure you we want to keep those 60 engineers there,” he says. NetApp says Spinnaker CEO Ron Bianchini and other top executives will also likely become part of NetApp.The technologies Spinnaker will bring NetApp include a global namespace, unified system image, transparent data migration, and the ability to cluster up to 512 servers to form a single storage pool.

"Spinnaker has developed the distributed file system software which excels at serving and storing very large files for a large number of users," Sumner says.

Warmenhoven says NetApp and Spinnaker started with the same goal, but took different roads that will now converge.

“This brings us a competent and complementary set of skills,” he says. “Our visions were similar, but we started with some pieces and they started with other pieces.”

Now the question is whether NetApp can make the Spinnaker pieces yield more than they would have on their own.— Dave Raffo, Senior Editor, Byte and Switch