Summary
LSI made a very strategic jump into Enterprise NAS market with the ONStor acquisition. It will complement its product line and extend their market footprint in storage. It will be interesting to see how usual NAS suspects and specialized vendors will react as well.
Analysis
We all know ONStor for some time with the value to connect to every SAN device and network and deliver enterprise level file services, what they called NAS Gateway. Time after time and after some difficulties, they introduced their own disk unit in order to increase revenue, sustain growth and prepare for IPO. It was the idea of the Pantera product. They even recruited Bob Miller as CEO, a pretty famous name in IT who have lead 13 startups and companies such as Data General, Mips and NetPower. He did the Mips IPO so the idea was obvious: prepare the ONStor IPO. Then, ONStor tried to sign some oems such as Fujitsu and introduced the Cougar product to activate more partners and again accelerate market adoption to grow revenue and deliver the exit strategy to investors. Return and competition were tough for ONStor, they changed their development philosophy shifting from a realtime proprietary OS to Open Solaris and ZFS but the wave was over. That choice was good for the market and users but a complete nightmare for the company, what are the differentiators with that move? Almost nothing and why pay a premium price for enterprise hardware and open-source software.
In term of finance, the company failed to make that famous IPO, they received globally 131 M$ in funding and decided, if we can consider this as a choice, to be acquired by LSI for just 25 M$ !! what a deal for LSI but what a bankruptcy for ONStor. LSI maintains some employee and now has a serious NAS offering. It was a surprise for the industry, especially from LSI. We all knew that ONStor had some difficulties but we didn't imagine that purchaser. Now LSI has to decide if they maintain the offering like this, feed their established oem channels and address some verticals such as digital asset management, video workflow, media or healthcare for instance. LSI is a very strong vendor with a good reputation, leading products and robust oems deals and for sure if they wish to develop this NAS angle, they will succeed at an interesting price/performance ratio. It will be also a key platform to integrate strategic product from LSI and demonstrate the final result. I'm convinced that LSI will take a significant market share in that NAS segment if the strategy and execution will be in sync. This is something to watch as NAS is a strategic sector and many technology developments occur coming from open-source and internet companies such as Google or Facebook.
This author consults with leading institutions through GLG
Analyses are solely the work of the authors and have not been edited or endorsed by GLG.
