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Cisco Buying NetApp? I’d Bet Against It

chuck robbins

Chuck Robbins

The old Cisco buying NetApp rumor seems to pop up on a quarterly basis. And the chatter starts again each time a major vendor (Dell, EMC, HP Enterprise, IBM, Oracle) or a startup makes a major storage move.

Speculation Cisco potentially buying NetApp popped up again this past weekend on Business Insider. But that media brand — much like ChannelE2E — doubts such a deal will ever surface.

Think of it this way: Cisco grew most efficiently in the 1990s, buying and tucking fast-growth startups into the company’s overall business. Over time, those acquisitions helped Cisco to grow — very rapidly — beyond routing and into switching, wireless, unified communications, mobile, security and so much more. I think Current Cisco CEO Chuck Robbins wants to return to that strategy.

Caught In the Middle Ground?

In stark contrast, NetApp is a midsize technology business that’s sort of stuck in purgatory — too large to be a tuck-in acquisition but too small to be an industry heavyweight. Even worse: The company was late to the flash storage market, and overall financial results have dipped.

In its Q2 2016 results (announced in November 2015), NetApp said:

  • Revenues fell to $1.445 billion, down from $1.543 billion in Q2 2015.
  • Net income fell to $114 million, down from $160 million in Q2 2015.

Still, there were signs of progress hidden within the results. For instance, All Flash FAS unit grew 246 percent quarter over quarter, though the figures were likely bolstered by a relatively small starting base. More good news arrived in December, when NetApp acquired SolidFire — a flash storage business — for $870 million in cash.

Cisco’s Storage Strategy

NetApp shares currently trade near a 52-week low ($21.39), giving the company a $6.25 billion market cap, according to Yahoo Finance. In my mind, that’s still too large a sum for new Cisco CEO Chuck Robbins to pay for a struggling storage company that’s in transition.

Yes, Cisco will need to maintain the NetApp storage partnership — and relationships with a range of storage companies — as converged data center solutions become the norm. And yes, you can bet that Cisco is combing the market for potential buyouts. Potential targets like Nutanix have popped up from time to time, but I haven’t heard anything recently.

For now, the big storage M&A headlines involve Dell’s pending $67 buyout of EMC and VMware… As for a potential Cisco-NetApp mating dance: Sorry, but I’m not a believer.

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