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Dot Hill Systems (NASDAQ: HILL) is moving into data storage management with the acquisition of Cloverleaf Communications.
Dot Hill, an OEM supplier to six of the top 10 data storage companies HP (NYSE: HPQ), NetApp (NASDAQ: NTAP), Hitachi Data Systems (HDS), Sun Microsystems (NASDAQ: JAVA), NEC and Fujitsu has been known up until now as a builder of RAID storage arrays for entry-level and midrange customers.
But the acquisition of Cloverleaf at one time a pioneer in storage virtualization and unified storage moves the hardware company squarely into the storage management market (see Cloverleaf Updates Smart Storage and Cloverleaf Does It All).
Andy Mills, Dot Hill's vice president of marketing and business development, said the acquisition "puts Dot Hill into the mainstream of storage management, heterogeneous storage virtualization and unified storage. This sits nicely on top of our standard storage lines, as well as any generic Fibre SAN array product from other vendors, and allows us to pursue a more systems-oriented sell as the solution scales up to the petabyte level."
Arun Taneja of Taneja Group, who has followed Cloverleaf since its origins as a spinoff of an Israeli defense firm, said the company "has always had a good heterogeneous storage virtualization product, with excellent storage applications built on top."
However, Taneja noted "two flaws that had kept it from exploding on the market a few years ago." The first was that it was based on the Solaris operating system, "and the uncertainty of Sun and Solaris kept customers away," especially when they had alternatives from IBM, HDS, NetApp, Datacore and StoreAge (now owned by LSI).
The second flaw was the company's high-end enterprise approach. "The entry price was astronomical, particularly for an enterprise to shell out to a startup," said Taneja, who added that Cloverleaf was in the process of developing a smaller entry-level product. The company has "been nearly absent in the U.S. market for the past three or more years," he said.
That said, for $2.5 million in cash and $9.5 million in stock, Taneja thinks Dot Hill got a good deal; Cloverleaf had spent $43 million in nine years of development.
"Clearly, they paid very little for the wealth of software they acquired," Taneja said. "Dot Hill has known for a while that it either expands beyond array hardware or it dies. On top of that, LSI acquired StoreAge and is now incorporating that functionality into its array offerings. Dot Hill had two choices: Develop its own software or acquire someone. Developing software is not an easy thing for a hardware company and Dot Hill has been smart enough to know that. Cloverleaf is a good choice, as I see it."
"Storage virtualization software is not just good for heterogeneous systems," Taneja said. "Its value is equally valid inside one vendor's box."
The acquisition has been approved by the board of directors of Dot Hill and the principal shareholders of Cloverleaf and is expected to close within two weeks.
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