Flash memory is getting cheaper and faster, and the companies that specialize in it are becoming major acquisition targets.
On Monday, hard drive manufacturer Western Digital plunked down $645 million for flash memory maker Virident. A day later, Cisco announced its $415 million acquisition of Whiptail, whose solid-state drive technology it hopes will speed up its Unified Computing System (UCS) data center architecture.
For Jim Handy, an analyst at Objective Analysis, seeing two flash memory companies acquired within a day of each other came as a bit of a shock. “If this keeps up, I’m not going to have any companies to focus on. It’s a kind of a weird madness,” he told VentureBeat.
But while the high-profile exits of Whiptail and Virident are good for the two companies and their investors, the big question is what their acquisitions mean for the larger flash storage industry. One takeaway? This is all a great thing.
“This is actually a validation of the flash storage marketplace,” said J. Gold Associates analyst Jack Gold, who argues that the acquisitions are a natural byproduct of a maturing — and inevitably contracting — industry. “A lot of big companies are making a bet right now that flash is going to play a larger role in data centers.”
Translation: Cisco and Western Digital aren’t alone. Both IBM (via its 2012 acquisition of flash storage firm Texas Memory) and Dell (though its $51.6 million investment in SSD maker Skyera) have also made big plays in the sector, signaling that we’re going to see a lot more of these sorts of acquisitions going forward.
All of these companies have reached the same realization: As the premium for speedier flash storage over disk-based drives decreases, any companies investing in the tech are going to have a major competitive advantages with enterprise customers as time goes on. (The most common prediction being thrown around is that the Virident buy has made Fusion-io a huge target for Western Digital rival Seagate.)
For Cisco in particular, the move makes a lot of sense, as Gold points out. “For a long time, Cisco’s pattern has been to partner up then go vertical. They’re trying to control their own destinies,” he said, referring to Cisco’s partnerships with companies like EMC and Netapp. It’s Whiptail acquisition no doubt complicates those relationships.
But not everyone wins with these deal. When industries start to contract and competition eases, prices tend to increase. And typically that’s bad news for customers. “For enterprise users there could be some … price adjustments,” Gold said.