HPE adds flash and analytics through acquiring Nimble storage

The storage systems market is growing again for the first time in years on the back of new larger disk drives delivered by western Digital and Seagate last year. It’s been a long wait for the largest suppliers… and some didn’t make it; as we all know EMC was the market leader when acquired by Dell. Part of the challenge has been how to farm the existing business while addressing new technical components and applications – one reason why most of the interesting new products (flash, in memory, hadoop analytics, software defined storage) have come from start-ups and smaller suppliers. Yesterday HPE announced that it intends to buy Nimble storage for around $1.09b in cash. You’ll want to consider what it will gain from this move and what it means for its customers and competitors.
Nimble was founded in 2008 and went public in December 2013. It produces predictive flash systems and software attached by iSCSI or Fiber Channel connections. Currently it has 1,300 employees and 10,200 customers. As my Figure shows since going public the company has made small (but growing) net losses, which is typical of the early years of any new technology company.

During its existence as a company flash storage has changed from being used mainly as an application accelerator to a main-stream offering – and its suppliers from technical experts to major suppliers. There is still a significant price ($/GB) difference between flash and disk, so customers tend to use the former for mission critical, in-memory and advanced analytics and the latter for larger database and other workaday applications without the need for instant access.

Eventually all storage systems will be based on flash, not least because disk drives have the disadvantage of being just about the only non-cooling devices with motors in them being used in the data centre. NetApp’s acquisition of Solidfire last year as well as IBM’s of TMS in 2013 show that buying in the expertise of the smaller vendors is one way of making sure you can manage this long transition effectively.

As always there are potential winners and losers from the deal. In particular:

• Winners
  • HPE gains some interesting software and may be successful in bringing flash storage products to small and medium customers who have been put off by the relatively high prices of its 3Par offerings; it also gains-much-needed storage system revenues (see Figure).
  • Nimble’s products should find a sales boost from HPE’s extensive supply chain; in its last financial year revenues from international (non-US) business had grown, but were still just 23% of its business. That will change rapidly as they become part of HPE’s portfolio.
  • Prospects who like Nimble’s products, but who like the reassurance of buying from a more established supplier.
• Losers
  • Cisco and Lenovo both have partnerships with Nimble (for SmartStack and the ThinkAgile CX series respectively) – it is unlikely that these will survive the change of company ownership.
  • Other storage systems vendors such as Dell EMC, NetApp, IBM and Fujitsu who will no longer have such a lead over HPE in all flash and integrated flash solutions.

HPE is continuing to acquire well-known, but small suppliers – adding Nimble to Simplivity and SGI. As the largest server vendor in the world it tends to gain from customer moves toward ‘software defined’ storage and networking, but it has to share the profits from servers with Intel, whose processors were used in 95% of all servers sold in the last year. HPE has had strong sales of Business Critical servers in recent quarters, helped by its SGI acquisition. Adding Nimble’s product will be something of an integration challenge, but (if successful) will help slow the decline of its storage business over the last few years and add products with more of its Intellectual Property in them.

I believe that M&A decisions in the IT market are being triggered by political and social instabilities. It is less likely today that a start-up with Nimble’s plans back in 2008 would be able to develop strong technology and products, go public and sell itself for $1b within 10 years. I will continue to track and report further acquisitions by HPE and others in future quarters of course.