(Updated with analyst comment, 5:46 p.m. ET)

March 10, 2011 – NetApp announced an agreement to pay $480 million in cash for Engenio, the external storage systems business of software producer LSI Corporation.

Engenio’s platform capabilities with server-attached and embedded storage would offer NetApp new channels in its portfolio, the company stated in a news release on the proposed deal.

Enterprise storage provider NetApp president and CEO Tom Georgens said in a news release that his company is particularly interested in Engenio’s capabilities and maturity with storage in video market segments and high performance computing applications.

“With Engenio we will have a strategic storage platform to capitalize on new, high-growth opportunities that we don’t currently reach with our FAS platform. NetApp also gains a proven OEM-based revenue stream that is run by a talented Engenio team,” Georgens said. Georgens joined NetApp after a previous stint as head of Engenio.

Overall, NetApp slated the market share for virtualization and high performance, big bandwidth applications at $5 billion by 2014.

Andrew Reichman, an analyst with Forrester specializing in data storage, says the given reasons of innovation and new markets in the deal show some backpedaling on the part of NetApp, going contrary to previous statements the company made about its own product speed and pricing. However, Reichman says NetApp got a good price from LSI on the acquisition, especially if the deal turns out to be more about NetApp controlling its destiny in building hardware.

“This way, they can vertically integrate, push down their … build costs and control the roadmap better and have more flexibility and options as they explore new architecture models,” Reichman says.

Engenio’s parent company, LSI Corporation, is a publicly held provider of silicon, systems and software technologies, including products and services throughout the storage and networking industries.

The Engenio business department will be integrated into those at NetApp, and sales teams from both companies will be combined, according to a news release. The acquisition is subject to closing conditions.

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