IBM Acquires Storwize – Analyst Blog

International Business Machines Corp. (IBM) has announced to acquire Storwize, a privately held company, for an undisclosed sum. The acquisition, expected to close in the third quarter of 2010, is expected to boost IBM’s storage capacity.

 

Marlborough, Massachusetts based Storwize is a provider of data compression technology, which helps clients to reduce physical storage requirements by up to 80%.

 

Storwize has more than 100 customers such as Mobileye, Polycom Israel, Shopzilla Inc. and Sumitomo Mitsui Construction, among others. The company serves in a diversified range of markets, which include energy, manufacturing, finance, insurance, telecommunications and cloud services.

 

Storwize’s patented Random Access Compression Engine (RACE) compresses primary data as compared with other prevalent storage compression technologies, which only compress secondary or backup data. Primary data, extensively used in daily business operations, may comprise multiple types of files from virtualization images to databases.

 

By compressing primary data, Storwize allows its clients to store more than five times of data using the same amount of storage, as the technology shrinks data files and databases take up less space. Storwize data compression does not affect business and other applications and takes only four hours to install.

 

Storwize’s data compression technology enables its clients not only to reduce their storage cost, but also improves the overall efficiency in fetching data for analytics and other applications. Decision making improves as analytics applications can scan through a huge amount of historical data without any additional storage need and at a faster pace.

 

Enterprise’s demand for larger storage space is increasing daily and is expected to grow at a compound annual growth rate (CAGR) of over 43.0% from 2008 to 2013, according to the research firm IDC.

 

We believe this acquisition will help IBM to serve its expanding analytics customer base. IBM already uses technologies such as ProtecTIER deduplication that can be used along with compression technology to improve storage efficiency.

 

IBM also utilizes XIV high-end disk storage architecture that supports faster analysis of data by making it available in a considerably short span of time. The company pointed out that its Scale-out Network Attached Storage (SONAS) supports multiple petabytes of storage in a single file system.

 

The Storwize application will work with popular network attached storage (NAS) systems, including IBM N series and SONAS, as well as non-IBM NAS systems from EMC Corporation (EMC), Hewlett-Packard (HPQ), NetApp Inc. (NTAP) and others.

 

IBM continues to proceed with its strategy of accretive acquisitions that can be easily integrated into its current business. IBM plans to spend approximately $20.0 billion in acquisitions over the next 5 years.

 

Since 2000, IBM has acquired approximately 108 companies for a total of about $22.0 billion, all of which have been profitable. Since 2005, IBM has invested $10.0 billion, or $8.5 billion net, in 14 strategic acquisitions to build its business analytics capabilities.

 

We believe IBM will continue to acquire companies with a higher intellectual property, particularly in the software arena going forward.

 

Although IBM benefits from a strong liquidity position, operational efficiency, substantial free cash flow and earnings momentum, the company faces stiff competition from Hewlett-Packard, Accenture plc (ACN), Oracle Corporation (ORCL), VMware Inc. (VMW), Google Inc. (GOOG) and Microsoft Corporation (MSFT) in most of its markets. We maintain a Neutral rating on a long-term basis (6–12 months).

 

IBM has a Zacks #2 Rank, which implies a Buy rating on a short-term basis (1–3 months).