Broadcom fired its counter salvo at Emulex today – taking its $764 million offer directly to shareholders.
A day after the Emulex board turned down Broadcom’s offer to buy the HBA vendor, Broadcom made a tender offer to Emulex shareholders to buy their stock for $9.25 in cash. That’s the same price per share Broadcom offered the Emulex board in December. The new offer expires June 3.
Broadcom also said it filed a preliminary consent solicitation statement to amend Emulex’s bylaws to allow stockholders to call a special meeting of stockholders. Cutting through the legal jargon, that means Broadcom is trying to get Emulex shareholders to call a meeting and vote to sell their stock to Broadcom.
Broadcom’s press release points out the offer represents a 62% price premium over Emulex’s stock price for the 30 days before Broadcom first made its offer public April 21, and a 40% premium over the price on April 20. However, Broadcom’s offer is below Emulex’s opening price today of $10.75. Financial analyst Kaushi Roy of Wedbush Morgan Securities says Emulex’s rising stock price “means that Emulex shareholders believe that Broadcom ‘really’ wants it and that Broadcom will increase the offer price.”
Broadcom urged Emulex shareholders to overturn the board’s decision.
“The Emulex board’s response on Monday and its continued unwillingness to engage in discussions with Broadcom are clearly not in the best interests of either its stockholders or its customers,” Broadcom CEO Scott McGregor said in a statement. “This intransigence could cause needless delay in efforts to combine our two companies, leading to further deterioration of Emulex’s market share and stockholder value.
“While we much prefer to arrive at a negotiated agreement with Emulex, the Emulex board has left us with no choice but to ask Emulex stockholders to call for a special meeting of stockholders so that they can consider the merits of our offer for themselves.”
Broadcom’s release also answered statements Emulex management has made since the offer was made public. Referring to 10-Gigabit Ethernet OEM design wins Emulex says it has earned at Broadcom’s expense, Broadcom claims “[Emulex] has failed to demonstrate an ability to convert design wins into either revenue growth or market share. Over the last several years, including this most recent quarter, Emulex has continued to lose share to its larger competitor [QLogic].”
Broadcom also pointed out financial analyst estimates for Emulex lowered expectations for Emulex revenue this year and next after the vendor’s latest earnings report, “suggesting that Emulex’s future standalone opportunities amid increased competition remain highly uncertain.”
Emulex sent out a release this afternoon saying its board will review the tender offer, and advised its stockholders to take no action on the consent solicitation. “The Emulex Board will make its recommendation on the tender offer and respond to the consent solicitation in due course,” the company said in a release.
When I spoke to Emulex COO Jeff Benck yesterday after Emulex rejected the offer, I asked him about the possibility of Broadcom appealing directly to shareholders.
“I think shareholders are looking for best value they can get and we have to do a good job of describing our value and what we can bring to table,” Benck said.
In other words, the two management teams are competing to convince shareholders they represent the brighter future.
The more conversations I have about FCoE, the blurrier the distinctions get between its value prop and InfiniBand’s. The declaration today that InfiniBand switch maker Voltaire plans to get in to the Converged Enhanced Ethernet (CEE) game with a new line of “FCoE-ready” Ethernet switches just reinforces that idea.
Voltaire VP of marketing Asaf Somekh said that the similarities are not coincidental. CEE, sometimes called Data Center Ethernet (DCE), is being worked on by “all the same people who defined the InfiniBand standard 10 years ago,” he said. “Some features have been borrowed and sometimes stolen from InfiniBand, which has been lossless since day one.” Both InfiniBand and FCoE are supposed to consolidate the ‘first hop’ networking infrastructure, carrying both Ethernet and FC packets over a converged pipe.
Somekh said Voltaire remains committed to InfiniBand, but “if Ethernet is going to add features that require InfiniBand expertise, why not leverage that opportunity?” The concept, software and chassis for the new 10 GbE switches will be based on the current InfiniBand models. The company has had parallel engineering teams working on InfiniBand and Ethernet for more than 18 months, according to Somekh.
Voltaire will focus on layer-2 data center switching rather than top-of-rack or edge switches with its switches when it ships them later this year. It plans to team up with server vendors to compete with Cisco’s Unified Computing System (UCS). “A complete solution is a valid thing to do, but Voltaire switches are scalable to thousands of servers and compatible with any server OEM,” Somekh said
The product itself will run Ethernet and will be “FCoE ready,” but “the gateway functionality of FCoE, transmitting Fibre Channel traffic, happens at the top of the rack,” Somekh said. “FCoE is a nice architecture, and people are definitely interested, but it will be some time before it’s [built out].”
Of all the storage companies that have reported their earnings for last quarter, only one has increased revenue from the previous quarter. And that was the smallest of the public storage systems vendors – Compellent.
Compellent’s revenue of $28.1 million in the first quarter of 2009 ticked up from $26.7 million in the last quarter of 2008. That earned Compellent $1 million in income. That and a 4% revenue increase are modest under normal circumstances but not bad during a recession. Compellent added 98 customers in the quarter, with 55% of its revenue coming from existing rather than new customers.
“We grew revenue by hitting a lot of singles,” Compellent CEO Phil Soran said. “We did not have large revenue deals to get us to this revenue growth.”
While it’s unlikely that big storage vendors such as EMC and NetApp are worried about a singles-hitter chipping away at their business, Compellent’s success helps showcase what people are spending their storage budgets on these days.
Compellent tends to sell its modular systems to smaller companies who use its software such as thin provisioning and Automated Tiered Storage to manage data better, and then buy more capacity when needed. These customers aren’t cutting back spending as much as large enterprises who have been overbuying storage for years.
“Selling into the enterprise is a little more challenging than in midsize enterprises, but we’ve made some inroads there,” Soran says, pointing to the addition of Travelers Insurance and the FBI as customers. “Large enterprises buy 30 terabytes every month whether they need it or not. The economy has affected them. In midsize companies, they know when they need it and they buy more storage when they need it. Customers still have to store data but find more efficient ways to do it.”
Compellent started rolling out solid state drives last quarter, and Soran says even midrange customers are using them. Hedge fund Munder Capital Management will appear at Compellent’s C-Drive users’ conference next week to discuss its use of SSDs with Complellent’s Storage Center system.
Automated Tiered Storage is a key piece of Compellent’s SSD strategy. The application is designed to move data intelligently among tiers, a capability industry experts and some of Compellent’s large competitors say will be necessary to make SSDs catch on.
“Automated Tiered Storage is the killer app for solid state devices,” Soran said. “People have to find a way to manage inactive data, and solid state heightens the need for it.”
Compellent also facilitates smaller purchases because it has one platform that customers upgrade by adding cards for different functionality and doing software upgrades instead of forklift upgrades. Soran says support for 8 Gbps FC, 10-Gigabit Ethernet and Fibre Channel over Ethernet (FCoE) and better integration with server virtualization is on the roadmap.
But Compellent’s streak of 14 straight quarters of sequential revenue growth is in jeopardy. The company’s guidance of from $27 million and $29 million for this quarter means it would have to get nearer the top than the bottom to increase over last quarter. It was also a little lower than financial analysts expected, although analysts see Compellent continue to stroke singles for the near future.
“In the field, we continue to see Compellent experience solid win rates, increasing deal sizes, and nice recurring revenue streams,” Amit Daryanani of RBC Capital Markets wrote in a note to clients. “Overall, we continue to see Compellent winning deals primarily on feature/function and scale.”
A week that started happily for Brocade will end with pink slips.
Brocade’s OEM deal with IBM for its Foundry switches won’t save the company from laying off a chunk of its workforce. Brocade today confirmed it made its first workforce reduction since the company acquired Foundry for $2.6 billion last year.
Brocade spokesman John Noh confirmed the cuts, but said the RIF was more of a re-alignment than a layoff.
“Brocade has made some personnel changes to better align our talent with our go-forward strategy,” he said. “These decisions are designed to leverage the significant growth opportunities available.”
The cuts fell more heavily on the Fibre Channel side than on the Foundry Ethernet group. Brocade grew from 2,834 employees at the end of October to 3,950 at the end of January following the Foundry acquisition. Noh said the current reduction impacted less than 5% of the company.
We don’t know yet what Emulex’s board will do about the takeover offer from Broadcom, but Emulex management hardly seems resigned to becoming the Fibre Channel piece of a larger vendor’s convergence strategy.
Since Broadcom went public with its move on Emulex last week, Emulex executives have been positioning their company as one with enough Ethernet capability to successfully compete with Broadcom and others on that front.
The new spin started on the Emulex earnings call Monday night. “The cornerstone of our strategy is the converged data center, based on 10-gig Ethernet technology,” CEO Jim McCluney said. “Our converged data center network is one that unifies IP and storage networking over a single wire.”
McCluney said the strategy revolves around its OneConnect Universisal Converged Network Adpaters and OneCommand management platform. Both rely on 10-Gigabit Ethernet for iSCSI, Fibre Channel over Ethernet (FCoE) and enhanced Ethernet.
With ASICs it gained through a joint development partnership with startup ServerEngines, Emulex claims 16 10-Gigabit Etherenet-based cards, five 10-GigE NIC design wins, three 10-GigE iSCSI adapter wins, and four Fibre Channel over Ethernet (FCoE) design wins with OEM partners.
“While we’re not in a position to announce the details of these wins, we believe some of them have come at the expense of our leading competitors, including Broadcom,” McCluney said.
Financial analysts on the call got the point. “On numerous occasions during the earnings call, Emulex alluded to 10GbE, iSCSI, and FCoE-based, Tier 1 OEM design wins, suggesting the company may not require additional Ethernet-based expertise to compete well in the ongoing unified fabric adoption cycle,” analyst Amit Daryanani of RBC Capital Markets wrote in a note to clients.
So when I spoke to Emulex chief marketing officer Steve Daheb this week about the company’s strategy, it was no surprise he declared Emulex an Ethernet company.
“People are saying,’ You’re kidding me, you guys have done the Fibre Channel thing, now you tell me you’re winning 10-gig NIC deals, Ethernet-based deals?’” he said. “And we are.”
Daheb added that Emulex isn’t abandoning Fibre Channel. It will add encryption and security features to its HBAs, and will support the FC roadmap beyond 8-Gbps.
“We continue to invest in Fibre Channel,” Daheb said. “We have 8-gig HBAs today, and we’ll be a player in 16-gig Fibre Channel.”
But Emulex sees there is more to the world than FC. It could even conceivably follow its HBA rival QLogic into InfiniBand.
“It’s something we’re watching carefully,” Daheb said. “We see InfiniBand for inter-switch clustering catching on. But we’re betting on Ethernet here. With the low latency [of enhanced Ethernet], you get a lot of those same benefits as InfiniBand.”
Quantum completed what its CEO called a “challenging” fiscal year at the end of March, and the fourth quarter was similar to the entire year for the backup vendor. Quantum continued to increase year-over-year disk backup and software sales around its deduplication products while its tape sales declined. But its disk backup sales decreased from the previous quarter, leaving Quantum with a long way to go to accomplish its goal of becoming a market leader.
“I think that the emphasis you heard on the [earnings] call is that it’s very much about getting through [fiscal] ’09 while making a lot of changes in the company,” CEO Rick Belluzzo said on the company’s earnings call Wednesday afternoon. “We think our business model was demonstrated last quarter that this can be a very solidly profitable business. There is a lot of cash generation potential. But we really need to focus on building revenue with our new model, with new products focused on tape of course, but as well aggressively on our disk systems and software business.”
Quantum lost $356 million for the year — including a $339 million one-time, non-cash charge for goodwill impairment — and its revenue for the fourth quarter and full year were down substantially from the previous year. It did show a $4 million non-GAAP profit for last quarter, discounting amortization of intangibles, stock-based compensation charges and restructuring costs. But while its $24 million revenue from disk and software last quarter was nearly double the previous year, it’s a far cry from the $79 million recorded by dedupe leader Data Domain.
Belluzzo said over the next year Quantum will have two major software releases and a new hardware platform for its DXi deduplication VTL family. He didn’t get specific, but emphasized the importance of replication and increasing the scale of the systems. He said Quantum also plans a “significant” new release of its StorNext software that moves data between storage tiers.
“[Our] vision includes our ability to deliver a single scalable disk-based architecture with deduplication and replication that can scale for protecting and managing a terabyte of data and remote office to more than 200 terabyte at a data center, and is also compatible with solutions from multiple vendors such as EMC,” Belluzzo said.
EMC has been selling Quantum’s deduplication software in its disk libraries since around the middle of last year. Dell has also said it will OEM Quantum’s dedupe software, although it has yet to announce any products.
“We are working with Dell on our deduplication technology. When are they going to launch a Dell-branded product? I can’t say,” Quantum CFO Jon Gacek said of when pressed about Dell on the earnings call.
You can scratch Dave Donatelli’s name off the list of possible successors to Joe Tucci at EMC.
There are no signs that Tucci’s departure as CEO is imminent, but people in the storage world occasionally play the “who’s next at EMC” guessing game and Donatelli’s name is almost always on the short list. But news came last night that Donatelli has bolted his position as president of the storage division to take as executive vice president Hewlett-Pakcard’s servers, storage and networking division.
Apparently, EMC isn’t letting Donatelli go without a fight. According to a Reuters story that moved late this afternoon, EMC has filed a lawsuit in Massachusetts seeking to enforce a non-compete clause in Donatelli’s contract and Donatelli has filed a suit in California trying to break the non-compete deal. Reuters quotes EMC spokesman Michael Gallant confirming the lawsuits.
Donatelli’s departure was abrupt. Donatelli joined Tucci on conference calls with press and analysts for the much-hyped launch of EMC’s Symmetrix V-Max system two weeks ago. (He almost certainly was deep into negotiations with HP at the time). He also has been one of EMC’s most visible execs. Another EMC veteran, Frank Hauck, has been named the interim head of EMC’s storage division.
As a 22-year veteran of the company who ran a $14.9 billion division, Donatelli will obviously be missed at EMC but the move will probably have a greater impact for HP. EMC will come up with an adequate replacement, either from its deep roster of seasoned vets or by going outside for an experienced executive. Don’t be surprised to see Hauck get the job permanently – he’s already been CIO, EVP of global marketing, and VP of products and offerings in his 18 years at EMC.
Donatelli likely found an offer from HP that he couldn’t refuse. He will report to Ann Livermore, HP’s EVP of the Technology Solutions Group and a top lieutenant to CEO Mark Hurd. Donatelli’s new division brought in $19.4 billion in revenue last year, and HP is expanding it to include ProCurve switching. Donatelli takes over as HP faces increased competition in the server business with Cisco moving in and Sun possibly getting a boost from the Oracle acquisition. It also comes as the storage and networking worlds begin to converge around Fibre Channel over Ethernet (FCoE) and converged server platforms such as Cisco’s Unified Computing System (UCS) and HP’s BladeSystem Matrix.
Donatelli obviously brings some secrets from EMC and perhaps from EMC’s close ally Cisco with him to his new post. The move should make for some interesting competition over the coming months.
IBM today confirmed one of the worst kept secrets in IT – it will begin rebranding Brocade’s Foundry Ethernet switches under an OEM arrangement next month.
The move is seen as IBM retaliation against Cisco, the Ethernet switch market leader that recently launched a move onto IBM’s turf with its Unifed Computing System (UCS) server. IBM will continue to sell Cisco Ethernet and Fibre Channel switches, but adding Foundry gear intensifies the rivalry between Brocade and Cisco. Brocade acquired Foundry late last year for $2.6 billion to add Ethernet to its Fibre Channel product platform.
“This is not a resale relationship,” Brocade CTO Dave Stevens said. “This is a move by IBM to take our products, test our products, label our products, and sell them as IBM products.”
IBM will sell the Brocade NetIron MLX Series as IBM m-series Ethernet routers, and three families of Ethernet switches: the Brocade NetIron CES 2000 (IBM c-series), Brocade FastIron SX (IBM s-series), and Brocade FastIron GS (IBM g-series).
Jim Comfort, IBM VP of enterprise initiatives, said IBM will OEM more Foundry products down the road but not its entire portfolio. IBM will also add Brocade FCoE gear, although Comfort says IBM won’t favor any one vendor.
“Brocade has an FCoE strategy, which it was developing on its own before Foundry,” he said. “We’re working with Cisco, Brocade, Juniper and others to make sure those [FCoE and enhanced Ethernet] standards are in fact standards. As the standard stabilizes, we’ll bring forth whoever’s products are consistent with those standards.”
With its IBM deal sealed, Brocade is talking to Hewlett-Packard, the other major vendor that Cisco irked by getting into the server business. HP has its own line of ProCurve Ethernet switches, but Stevens says there are Foundry products that do not directly compete with ProCurve.
“If you take ProCurve and take our Ethernet portfolio, there are some areas of overlap but there are other areas with no overlap,” Stevens said.
Products that don’t overlap also include the FCoE switch and converged network adapters (CNAs) Brocade launched earlier this month.
Tandberg Data, the Norwegian company that sells tape libraries and removable disk drives, filed for bankruptcy in Norway and has been taken over by one of its creditors. Day-to-day operations continue for Tandberg’s U.S. subsidiary, Tandberg Data Corp., and its other subsidiaries as the parent company restructures. Tandberg went into bankruptcy because it failed to repay a loan to Cyrus Capital, which then acquired Tandberg’s assets and became its biggest shareholder after the bankruptcy.
According to a press release put out by Tandberg,
Tandberg Data has been unsuccessful in repaying a lapsed loan from Cyrus Capital. As a result Cyrus Capital had no other option other than to enforce their pledges of their loan. As Tandberg Data did not have sufficient capital to repay the loan, it had no alternative than to file for bankruptcy for the holding company, Tandberg Data ASA, and Tandberg Storage.
The Board of Directors of Tandberg Data made the decision to file for bankruptcy after consideration of all other alternatives, including a rights issue, which was unsuccessful. This process will allow Tandberg Data to deal with its cost and debt burden, to effectively restructure its operations and to continue its strategic direction of broadening its focus from being a tape company to a company that provides data protection solutions, including tape, disk, software and services.
The press release attributed at least some of the financial woes to “the global financial crisis,” which it said “impacted the company’s ability to successfully deal with its debt burden.”
Tandberg CEO Pat Clarke, who took over in early 2008, said in the press release that the company will live to fight another day. “The difficult steps we are taking now will enable us to build a company that can be successful in providing data protection solutions and support to our valued customers, suppliers, and business partners for a long time to come,” Clarke said
Clarke took over with the goal of restructuring the company, whose storage products have mostly been based on tape (including IP from the 2006 acquisition of Exabyte). Last year Tandberg added more disk products like the ProStor RDX removable disk cartridge to its portfolio, and refreshed its message around archiving and tiered storage workflows rather than differentiating its products based on hardware features.