NetApp’s Purchase of Engenio – First Anniversary

Last month, I had the chance to speak with Joel Reich who heads NetApp’s Array Products Group (APG). The conversation was to formally mark the completion of one full year since NetApp acquired the Engenio business from LSI. The first extract from our conversation was posted on 4/24 (there’s a link here) and today – exactly a year from the deal closing – I am delivering the concluding comments.

Part 2: Lessons Learned and Looking Forwards

In the first part of the conversation we’d concentrated on what motivated the deal, how the initial transition had gone and whether or not there had been ‘skeletons in the closets.’ Next I wanted to see how APG could fare in the NetApp environment. Joel was forthright in pointing out the differences between the organizations, but also sees opportunities arising from them. The Engenio division had been run frugally for quite some time, with frequent small but impactful headcount reductions, but these things – necessity being the mother of invention – had created a “rigorous and systematic product planning and testing process” that was top notch. Meanwhile the ‘genetics’ in the traditional NetApp company had been a little more free when it came to getting checks written…NetApp was usually hiring, and “we were always in constant growth mode.” It’s not that things were sloppy, but simply that the need to watch every single penny and constantly figure improved efficiency didn’t exist. NetApp was fighting to keep up with the volume of business; Engenio was fighting to maintain a business. It had “really figured out how to get extremely efficient, especially in testing, releasing and defining new products.” Right now these two parts of NetApp are being managed separately but Reich concedes that “there is a lot of upside in the future for converged system design.”

In other words, the value of the acquisition has been a two-way street. Not all of this was a surprise, because as Joel colloquially puts it: It doesn’t hurt that the guy who’s our CEO [Tom Georgens] also ran the Engenio business five years ago.” Some things were ‘no brainers’ – NetApp was buying about 20 times more disk drives each year than Engenio, so “one of the things we did leverage was to combine all of the disk drive tests and certification work into one central group between the two organizations.”

Despite the reciprocal values in some areas, NetApp never had any intention to do anything other than retain two separate divisions – if nothing else “to protect the intellectual property of our OEM clients.” Presumably as a result of this care, NetApp has – to the surprise of some outsiders – retained all these clients (a focused attempt to avoid channel conflict has helped here too). Of course retaining business is one thing….growing it is next on Joel’s ‘corporate to-do’ list. He feels the opportunity to do so is good as APG represents new channels and pathways to market that NetApp has never really had…channels that give the company a shot at moving up the storage league table. There’s a way to go of course, but as Joel concluded “So, if you want to know the strategic intent of this purchase, it’s that by getting access to all those pathways, we could be the number one vendor into the storage market for our range of technologies.”

Happy Anniversary.

*I spoke to Joel on 4/16/12; the transcribed comments have been edited for flow, but are otherwise unaltered.

Part 2: Lessons Learned and Looking Forwards

In the first part of the conversation we’d concentrated on what motivated the deal, how the initial transition had gone and whether or not there had been ‘skeletons in the closets.’ Next I wanted to see how APG could fare in the NetApp environment. Joel was forthright in pointing out the differences between the organizations, but also sees opportunities arising from them. The Engenio division had been run frugally for quite some time, with frequent small but impactful headcount reductions, but these things – necessity being the mother of invention – had created a “rigorous and systematic product planning and testing process” that was top notch. Meanwhile the ‘genetics’ in the traditional NetApp company had been a little more free when it came to getting checks written…NetApp was usually hiring, and “we were always in constant growth mode.” It’s not that things were sloppy, but simply that the need to watch every single penny and constantly figure improved efficiency didn’t exist. NetApp was fighting to keep up with the volume of business; Engenio was fighting to maintain a business. It had “really figured out how to get extremely efficient, especially in testing, releasing and defining new products.” Right now these two parts of NetApp are being managed separately but Reich concedes that “there is a lot of upside in the future for converged system design.”

In other words, the value of the acquisition has been a two-way street. Not all of this was a surprise, because as Joel colloquially puts it: It doesn’t hurt that the guy who’s our CEO [Tom Georgens] also ran the Engenio business five years ago.” Some things were ‘no brainers’ – NetApp was buying about 20 times more disk drives each year than Engenio, so “one of the things we did leverage was to combine all of the disk drive tests and certification work into one central group between the two organizations.”

Despite the reciprocal values in some areas, NetApp never had any intention to do anything other than retain two separate divisions – if nothing else “to protect the intellectual property of our OEM clients.” Presumably as a result of this care, NetApp has – to the surprise of some outsiders – retained all these clients (a focused attempt to avoid channel conflict has helped here too). Of course retaining business is one thing….growing it is next on Joel’s ‘corporate to-do’ list. He feels the opportunity to do so is good as APG represents new channels and pathways to market that NetApp has never really had…channels that give the company a shot at moving up the storage league table. There’s a way to go of course, but as Joel concluded “So, if you want to know the strategic intent of this purchase, it’s that by getting access to all those pathways, we could be the number one vendor into the storage market for our range of technologies.”

Happy Anniversary.

*I spoke to Joel on 4/16/12; the transcribed comments have been edited for flow, but are otherwise unaltered.

Topics: Storage IT Infrastructure