The news this week that SanDisk is buying Fusion-io for over $1 Billion dollars is something to pay attention to. If the acquisition goes through, SanDisk becomes a formidable competitor to a wide variety of companies in the storage and memory industry and may change the game altogether. These changes are important not only for storage vendors, but will also change how and who enterprises acquire their storage solutions from.
What Does SanDisk Do With Fusion?
The first question is why? While I am not privy to any insider information, it is my belief that SanDisk sees a market opportunity to sell directly to companies that they would normally depend on their system manufacturers to sell to. Fusion gives SanDisk a well trained end-user sales and engineering team and it gives them products that enterprises are buying. It also gives them a shared storage array, the former NexGen storage system, that Fusion acquired last year. I can’t see SanDisk getting rid of any of these assets, so one can only assume that they are going after the whole market. When they have completed this acquisition they will become the ultimate vertically integrated company, from making the flash modules to actual delivery of shared storage to an enterprise.
The End of The OEM?
Original Equipment Manufacturers (OEM) are supposed to play by a set of rules. They are supposed to quietly work behind the scenes and provide product to systems manufacturers like EMC, NetApp, HP and IBM. If OEMs have a direct selling model, it is generally supposed to be to a part of the market that their system manufacturing partners are not focused on. For example, in addition to supplying flash storage to systems manufacturers, SanDisk has had a very robust consumer business.
But now it seems that the OEM no longer wants to stay inside the lines. Instead, they want to have it all. This is a trend we first identified last year when HGST bought Virident and Velobit. HGST also has a successful consumer business, but it is primarily an OEM. SanDisk, who last year bought SSD supplier SMART and FlashSoft, now has raised the stakes by buying Fusion-io. Again, this gives them a direct sales force and a shared storage system. SanDisk, if it chooses to, can clearly compete head to head with storage systems vendors.
Why Are OEMs Going Direct?
There are several reasons for OEMs to want to move directly into accounts as opposed to letting systems manufacturers carry them there. I believe the primary reason is the size of some of these direct accounts. The purchasing volume of the major cloud provider like Amazon, Google, Facebook, Apple and Microsoft is massive and in many cases larger than the purchasing volume of the systems manufacturers. In other words, it all comes down to money and control of one’s own destiny. OEMs now get to decide if the system manufacturer brings value when dealing with a cloud provider. In some way, systems manufacturers are getting a taste of their own medicine. Long ago they started to exclude resellers from large accounts because of an apparent lack of value add. Now OEMs are doing the same thing to them.
The second reason is because they can. Owning the entire supply chain has become a reality in the modern business era. Companies like SanDisk and HGST are just taking advantage of that. These are just examples of vertical integration taken to a whole new level.
The Vertically Integrated Trend
We think that SanDisk and HGST are just the beginning. Expect other companies, especially those with Flash FAB capabilities, to follow a similar path, most notably Toshiba and Samsung. I would not be surprised at all to see Toshiba buy Violin Memory Systems and Samsung to buy Pure Storage within the next year. Hitachi, due to its massive size, can become this type of company without buying anybody.
Missing from this list is Micron, they have shown a desire to stay within the OEM lines so far and there is nothing to lead me to think that they would stop. Staying within the lines could actually be a good strategy for Micron, they could be EMC, NetApp, HP, Dell, IBM’s only friend while the other OEMs take a more competitive position.
As I alluded to above, we will see more of these acquisitions in the future. Systems manufacturers are going to need to show added value versus the new breed of OEM. The challenge for the new OEM is if can they manage this large of a vertically integrated stack. If they can, we may see a new era in storage.
Years ago everyone talked about consolidation in the storage industry. But the thought was that the industry would consolidate down to Hitachi, NetApp and EMC, but that has not happened. Now consolidation may happen a the FAB level, where companies that own memory production own everything.