Monday, April 28, 2008

IBM storage acquisition have echoes of EMC's past

By Christopher Calnan

Last week's acquisition of Diligent Technologies Corp. by IBM Corp. marked the second purchase by Big Blue this year of a company founded by former EMC Corp. engineers.

In January, IBM bought XIV Ltd., an Israeli storage company whose sole U.S. office was in Waltham and which was founded in 2002 by Moshe Yanai, EMC's former hardware guru. Yanai's Symmetrix group was a major driver of EMC's growth in the 1990s.

Yanai was also an investor in Framingham-based Diligent with CEO Doron Kempel, who left EMC in 2001 to start Diligent, which was formerly EMC's Israel-based development laboratory. EMC spun it out for $5 million and took a 20 percent stake in Diligent. EMC's stake in the company eventually dwindled to less than 2 percent, Kempel said.

IBM this week purchased Newton-based FilesX Inc. in a deal that also qualifies as a storage purchase -- FilesX specializes in continuous data protection for remote offices -- but the 44-employee company, with 14 people in Newton, won't be part of IBM's storage unit. It will be integrated with the Texas-based Tivoli division of IBM's software group, officials said.

IBM's recent spate of local storage acquisitions is being fueled by Big Blue's decision to apply its software merger-and-acquisition strategy to hardware.

"It's been going on (for years), but the results are now in public view," said David Messina, IBM System Storage's manager of business development.

Technology Business Research analyst Allan Krans, who said IBM's strategy has effectively turned EMC into a "farm system" for the Armonk, N.Y.-based giant, also said such overlap is natural in what is a relatively small storage industry.

Kempel said EMC had plenty of opportunity to acquire Diligent, which developed a disk-based backup system that avoids multiple copies of information, known as data deduplication. "They knew about us, that's just how it played out," Kempel said.

EMC officials didn't respond to a request for comment. In late 2006, EMC bought for $165 million Avamar Technologies Inc., a California-based data deduplication vendor.

IBM paid $200 million for Diligent, and $300 million to $350 million for XIV, according to an Israel-based financial newspaper. Diligent's 100 employees -- 40 of whom are based in Framingham -- will become part of IBM's System Storage Division, which is based in New York, because it's software is bundled with a Linux server, said Messina.