Five Reasons Oracle Might Want To Acquire NetApp11:25 AM EST Mon. Sep. 27, 2010
Oracle CEO Larry Ellison at an analyst meeting on Thursday said that 60 percent of NetApp's business comes from storing Oracle database data, and implied without really saying it, that Oracle might want that business.
Actually, according to the Wall Street Journal, what he said is that about 60 percent of NetApp's business is "storing Oracle databases", and that, "We'd love to have that 60%."
According to Tim Klasell, an analyst with Stifel Nicolaus Equity Research, Ellison said, "We [Oracle] love that business. We would love to have that 60%. Do we [Oracle] need to acquire? I [Ellison] think there are some interesting technologies we'd like to acquire...I think it is possible."
Actually, what he said was, Oracle would like to have that 60 percent of NetApp's business that comes from storing Oracle databases. He did not actually come right out and say Oracle would like to acquire NetApp.
Wall Street investors, however, seem to have interpreted Ellison's comments to mean Oracle would like to acquire NetApp. On Friday, the day after Ellison made his comments, investors had driven NetApp's share prices up by well over $2 compared to its Thursday close, or close to 5 percent.
Regardless of what Ellison meant and how Wall street interpreted his comments, the fact is there are several compelling reasons that would make an Oracle acquisition of NetApp a very real possibility.
Turn the page for some of them.
Whether 60 percent is a well-researched or an off-the-cuff estimate, anecdotal evidence from the channel supports the idea that a lot of Oracle databases are stored on NetApp hardware.
Oracle, with its acquisition of Sun, has sent a strong signal that it wants to own a complete software-hardware stack that tightly ties all its products together, in effect turning everything into an appliance.
If Oracle wants to do that with storage, it is limited in what it can do with its legacy Sun equipment. Sun had a terrible track record in storage, except at the end when it introduced its well-received "Amber Road" 7000-series of storage appliances which integrated SSD and hard drive technology with its server technology. NetApp technology could help Oracle take its software-hardware stack to a new level.
NetApp is the storage industry's third-largest storage vendor in revenue terms, after EMC and IBM, and is also the fastest-growing of the top five vendors, according to IDC.
An acquisition of NetApp would make Oracle a serious power in the storage market, especially combined with the storage technology it got with the Sun acquisition.
That kind of storage power, combined with a rejuvenated Sun server portfolio and Oracle's database and middleware, would help Oracle be a contender with the likes of Cisco and HP for being the single throat to choke in the data center, as well as give it a leg up in laying the foundation for being one of the leaders in the development of cloud computing.
NetApp had a long-running lawsuit against Sun over Sun's use of the ZFS file system, for which NetApp claimed patents. NetApp abruptly withdrew the lawsuit in early September without either company disclosing the terms of their agreement.
ZFS, an open source technology, was designed and implemented by Sun. It is a combination file system and logical volume manager which supports large storage capacities along with such services as snapshots, data cloning and data integrity.
Outside of Sun, NetApp is the primary vendor implementing ZFS. Therefore, an acquisition of NetApp could be relatively painless from a technology viewpoint.
NetApp was one of the first top-tier storage vendors to capitalize on virtualization, particularly with its strategic relationship with VMware.
NetApp's storage appliances offer a full range of capabilities in virtualized server environments, and is currently one of two major storage vendors, along with EMC, which are tied closely to Cisco's UCS data center virtualization platform.
Furthermore, NetApp has a program through the end of this year under which it guarantees customers will use 50 percent less storage using NetApp arrays compared to EMC, HP, or Hitachi Data Systems arrays, or 35 percent less when using NetApp's V-series gateway and deduplication combined with non-NetApp storage, or it will provide the additional NetApp capacity needed to meet those claims.
IBM, which is Oracle's biggest database customer, has an OEM deal with NetApp under which it can resell NetApp's entire storage portfolio through its direct and indirect sales channels.
An acquisition of NetApp would allow Oracle to eventually end that OEM deal, although the timing is uncertain depending on how the IBM-NetApp contract is written.
However, IBM might prove allergic to that sting, and react with its own bid on NetApp, and ignite the kind of bidding war not seen since this month's war between HP and Dell over 3Par.
Ellison's comments about the importance of NetApp to Oracle's database business makes it clear that Oracle sees the value of NetApp, said Rolf Strasheim, director of client solutions at Peak UpTime, a Tulsa, Okla.-based solution provider and long-time NetApp partner.
As a marketing statement, those comments are something Strasheim plans to take to all his NetApp customers.
"Larry Ellison is legitimizing the use of NetApp storage for Oracle databases more than ever," he said. "Now I just need a statement from (Microsoft's Bill) Gates on SharePoint and Exchange, and from somebody from SAP, and I have the Golden Ticket. I appreciate Larry Ellison's endorsement of NetApp."