NetApp Inc. (NTAP) has sealed a definitive agreement with LSI Corporation (LSI) to acquire its external storage systems business. This all-cash deal worth $480.0 million is expected to be wrapped up within two months, subject to regulatory approvals.
California-based LSI designs, develops and markets complex high-performance semiconductors and storage systems. Its technology provides outstanding storage capacity, speed, reliability and power saving to users. LSI reports revenues in two segments––Semiconductors and Storage Systems.
The Storage Systems business includes both external storage systems and server RAID adapters and software. It accounted for 41% of total revenue in the fourth quarter of 2010. The divestiture of the external storage systems business is aimed at streamlining LSI as a pure-play semiconductor company. This would in turn improve LSI’s profitability and help maximize long-term shareholder value.
Under the terms of the agreement, NetApp will take over all the assets of the LSI external storage systems business, which develops and delivers Engenio product suites. Engenio specializes in bandwidth intensive storage. As of now, NetApp specializes in providing virtualized IT infrastructures. Following the acquisition, NetApp will be able to focus on the video storage market as well as high performance computing applications like genomics.
The Engenio business unit will be integrated into NetApp’s business functions and sales teams of both companies will join hands to maximize opportunities in the storage vertical. The combined entity will significantly expand NetApp’s addressable market and generate higher revenue. The company expects the deal to be accretive to GAAP and non-GAAP earnings per share by the second quarter of 2012.
The storage vertical space has seen a number of acquisitions in the past few months. In January, NetApp acquired Akorri Networks Inc. and complemented its OnCommand management suite with the latter’s flagship BalancePoint software.
This software is used to analyze and virtualize data center operations, with a focus on managing and tracking storage capacity. Post integration, the capacity analytics software will help customers to analyze fast-growing storage infrastructure.
Ace PC maker Dell Inc. (DELL) acquired enterprise data storage solutions provider Compellent Technologies Inc. to strengthen the existing level of its storage offerings. In yet another deal, Western Digital Corp. (WDC) agreed to take over Hitachi Global Storage Technologies for a massive $4.3 billion, to evolve into a more customer-focused storage company.
Additionally, EMC Corporation (EMC) acquired storage systems vendor Isilon Systems Inc., to capitalize on business prospects in the storage space. In September 2010, Hewlett-Packard Company (HPQ) completed the acquisition of 3Par Inc. All these deals are indicative of the growing importance of storage technology in a market moving towards cloud computing and virtualization.
Though we are positive on the back-to-back acquisitions made by NetApp, since they could help in gaining storage market share, intensifying competition keeps us on the sidelines.
Currently, NetApp has a Zacks #3 Rank, which translates into a short-term (1-3 months) Hold recommendation.
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