No Surprise: IBM To Stop Reselling NetApp Storage

IBM is expected to stop reselling storage equipment it has purchased from NetApp, effectively ending a nine-year OEM relationship between the two companies.

The ending of the relationship, first reported Friday by Bloomberg, has been expected by the channel given the gradual slowdown in IBM's sales of its N-series of storage appliances from NetApp and the fact that NetApp itself has been reporting a steadily-falling OEM storage business.

IBM and NetApp in 2005 signed an OEM agreement under which IBM resold much of NetApp's storage hardware under the IBM N-series moniker. The storage systems sold by IBM under that agreement were essentially identical to the same models sold by NetApp except for the logo.

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Bloomberg, citing an internal IBM memo, said IBM on Tuesday plans to formally withdraw from selling new N-series systems while encouraging customers to purchase IBM's own storage solutions.

The move stems from changes in the storage business of both IBM and NetApp.

IBM's overall storage sales have been rapidly contracting for the last couple years. IDC in March reported that IBM's fourth-quarter 2013 external disk storage revenue, which would include revenue from the N-series, fell 10.6 percent over the fourth quarter of 2012.

IBM reported in April that first-quarter 2014 storage sales plummeted 23 percent compared to the same period one year ago.

IBM and Lenovo are currently finalizing the sale of the majority of IBM's x86-based server business to Lenovo. That sale, once it is completed, will likely reduce IBM's footprint in customers' data centers, resulting in a further drop in storage sales.

Meanwhile, NetApp last week reported its total fourth-quarter 2014 revenue fell nearly 6 percent over the same period last year.

Nick Noviello, NetApp's executive vice president of finance and operations, and CFO, said during the company's quarterly financial conference call on Wednesday that NetApp-branded revenue was flat in the fourth quarter and up 4 percent compared to last year, while OEM revenue, which includes sales through IBM, fell 34 percent in the fourth quarter and 26 percent for all of 2014.

OEM sales accounted for only about 9 percent of NetApp's total revenue during fiscal 2014, wrote Aaron Rakers, an analyst with Stifel Nicolaus Equity Research, in a May 23 research report.

NEXT: Understanding The Possible Impact Of IBM Stopping Sales Of NetApp Storage

"Within this, we estimate N-Series was an immaterial revenue contribution as Engenio continues to be the largest OEM revenue contributor. Per Gartner estimates, N-Series storage revenue accounted for 5%-6% of NetApp total storage product revenue during (calendar year) 2013. Management has previously made it well understood that NetApp's OEM revenue will continue to be in yr/yr decline," Rakers wrote.

Neither IBM nor NetApp responded to requests for more information.

One solution provider partnering with both NetApp and IBM, speaking to CRN anonymously because of the sensitive nature of the partnerships, said NetApp's OEM business has almost collapsed, and that the vendor has all but said so.

A move by IBM to stop selling the NetApp storage solutions is no big deal for that solution provider's business. "For us, it was more of a convenience for our IBM customers," the solution provider said. "We preferred to sell them as NetApp-branded solutions."

The move will not impact IBM's indirect channels, the solution provider said. "Any IBM reseller realizes IBM is getting out of low-margin businesses, whether it's servers or storage," the solution provider said. "I can't imagine any sizeable reseller would stake its business on IBM's N-series."