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XtremIO: Costly mistake or genius deal for EMC?

Was spending $430m on XtremIO – a Flash start-up that hasn’t even launched a full beta product – a big risk for EMC or a clever move?

Flash is big news in the storage industry right now and a hot topic at EMC World in Las Vegas this week.

But this is no longer to talk about Flash confined to solid-state drives (SSDs), hidden away in desktop PCs or storage arrays. Flash is breaking out all over the datacentre, boosting performance and driving down latency for companies taking a punt on the latest technology trend.

As a result, the start-ups exploring new ways of introducing Flash into hardware are rapidly being courted by the big storage firms.

But some companies have gone further and last month EMC announced it was buying Israeli Flash company XtremIO for $430m.

But this is where the information stops. The problem is, XtremIO has never released a product past the pre-beta stage and has no record of revenues and no published roadmap of where it is heading. We know Flash is a big deal, but is purchasing a firm without a proven track record the right risk to take for EMC?

Getting in early

“Clearly, there are a lot of start-ups in that area, but for us it wasn’t a question of whether it was a fluffy price or not, it was about the best technology,” Pat Gelsinger, chief operating officer (COO) at EMC, told Computer Weekly.

But Gelsinger admitted it wasn’t all plain sailing to come to the decision to buy.

“There were some pretty harsh discussions internally as we said they are pre-revenue and asked, is it too early to move yet, should we wait a little longer?" he said.

"But we wanted the pick of the litter, so we got it.”

EMC revealed this week that its first product based on XtremIO technology – codenamed Project X – would only enter beta at the end of this year, with general availability not coming until 2013. The technology might be great, but it obviously needs development.

“XtremIO was making some pretty good news, and it cost EMC less than half a billion, which these days seems to be what someone like Joe Tucci [EMC’s CEO] can find down the back of his seat as small change,” Clive Longbottom, founder and analyst for Quocirca, told Computer Weekly.

“How strong XtremIO's patents were can only be guessed at, but probably strong enough to make buying them cheaper than trying to back-engineer and then go through the courts for patent violation.”

Buying in Flash expertise

Most analysts agreed, however, that this acquisition was about more than the technology.

Chris Evans, consultant at Brookend, told Computer Weekly: “I think EMC's purchase of XtremIO was probably for talent acquisition rather than technology.”

“EMC have already stated that there will not be a beta of Project X until the end of this year, with GA product in Q1 2013, so clearly there's no hardware platform to start shipping.”

Gelsinger said EMC wanted to grow its existing base in Israel and XtremIO fitted perfectly with that plan.

“We already had a lot of development coming from Israel – that is where VFCache and Project Thunder came from – so we thought, wow, this is a great opportunity for synergy,” he said.

“We have a very rapidly growing footprint in Israel, we love being there, we have world class technology and great leadership. XtremIO is clearly the best technology, has great people and an existing footprint, so it became a no-brainer when the deal was done.”

But the deal may have come about due to pressure from rival firms sniffing around XtremIO for a good deal. A source close to the situation told Computer Weekly that while no-one had put in a formal offer for the company, EMC had an allotted time to finalise its bid before some of the other big players came knocking at the door.

What next for the big storage suppliers?

Evans pointed out EMC was the first of the big six storage suppliers to get in the game by buying a Flash start-up, so more merger and acquisition activity could be on its way. Rumours are already rife around Dell and Fusion IO.

“EMC is making a play in this market first,” he said. “Neither HP, IBM, HDS, Netapp nor Dell have an equivalent product, so surely more acquisitions are on the cards. The SSD array vendors just need to wait for that call.”

It is clear Flash is going to become even more imperative for the big storage players and getting in first with XtremIO might pay off for EMC and become the deal of the year. But until developers get their hands on Project X and find out what is on offer, no guarantees can be made. 

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