LSI (NYSE: LSI) revealed more of its plans for the NAS market on its quarterly earnings call last night.
LSI closed its acquisition of NAS specialist ONStor this week, a deal that has raised speculation that one outlet for its new NAS offerings could be OEM partners Sun (NASDAQ: JAVA) and IBM (NYSE: IBM). IBM OEMs LSI's midrange Fibre Channel SAN arrays and also resells NetApp (NASDAQ: NTAP) NAS gear, raising some interesting competitive possibilities.
LSI CEO Abhi Talwalkar said on last night's call that the deal will "enable us to address the rapidly growing space of unstructured data such as e-mail, Web applications, archiving, video streaming as well as numerous software-as-a-service applications. NAS is a three-plus billion-dollar market with attractive forecasted growth rates. With ONStor, we will be in a position to enable our OEM customers to address this large and rapidly growing space currently served by companies like EMC and NetApp."
Phil Bullinger, executive vice president and general manager of LSI's Engenio Storage Group, told Enterprise Storage Forum today that the company is interested in ONStor's products for NAS gateways and unified storage offerings, but he added that the company has designs on the NAS market too.
"Our plans are to support and expand the sales of the ONStor NAS gateway products through both our existing OEM relationships with our storage platforms and the existing ONStor channel," said Bullinger. "We will also continue leveraging the ONStor brand for the existing products.
"Regarding the potential for OEM business, we certainly believe there are opportunities to expand sales by bundling the NAS gateways with our storage platforms and thereby bring a stronger portfolio and greater value to our OEM partners," added Bullinger. "Our priority for this business is to integrate the capabilities and intellectual property of the ONStor NAS software with our existing storage platform technology in order to deliver unified storage products in the future."
But he added that the company is looking beyond complementing its SAN offerings to competing in the market for file-based storage.
"LSI is committed to adding file-based capabilities to its midrange storage line, and will offer our OEM partners file, block and unified storage solutions," he said.
Wedbush Morgan analyst Kaushik Roy doesn't see the pure NAS market as a priority for LSI.
"I don't see IBM OEMing LSI's NAS product as such," said Roy. "LSI probably may never have a pure NAS box. Right now with ONStor they have a gateway, but I don't think LSI bought ONStor for the gateway. LSI bought it for the file system that LSI can incorporate in their own systems. The trend is to move to multi-protocol systems at least for mid- and entry systems. IBM probably will continue OEMing LSI systems when LSI comes out with a multi-protocol box, but may not position that specifically as a NAS."
IBM sells multi-protocol boxes from NetApp, but positions them primarily as NAS, even though customers still have the option to use them for block storage, said Roy. "In the future, IBM may resell LSI's multi-protocol box, but may position it as a block server," said Roy. "The customer will still have the option to use it as a NAS server."
EMC (NYSE: EMC), which leads the NAS market along with NetApp, has experienced strong growth in its Celerra unified storage line.
ONStor's use of Sun's ZFS file system also creates some interesting possibilities with Sun, particularly as Oracle (NASDAQ: ORCL) has said it will keep Sun's storage business.
Asked on the conference call for the dollar amount that ONStor will contribute to LSI's third-quarter sales, LSI CFO Bryon Look said the company is expecting something in the "single-digit revenue level" for the current quarter, or less than $10 million.
LSI is clearly aiming to grow that number to get the most out of its $25 million investment.
LSI shares were little changed on the NYSE today despite better than expected quarterly results and an upgrade from Goldman Sachs.
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