There's an implosion going on in the $36 billion enterprise storage market, which was the darling of the tech world just two years ago.
One of the hardest hit is NetApp, its stock now trading at its lowest point in about five years — the stock is about $22, a mere $6.9 billion market cap. It's lost almost half its value in the last year, and almost two-thirds of its value since 2011.
Now everyone is buzzing that Cisco might buck up and buy its partner NetApp, which is the No. 5 storage vendor.
We've heard this Cisco-buying-NetApp scuttlebutt from multiple people in the last week.
People have been talking about it ever since Dell announced its plans to buy EMC last October. (And every few years, there's a new Cisco-buying-NetApp rumor.)
But we understand from people close to the company that such a deal isn't going to happen. Not now, not ever.
Cisco is aware of the all the talk and is being asked all the time, we hear from somebody close to the company. But the truth is Cisco's "focus is on emerging technologies in storage," and that the company is "looking forward instead of backward."
For the record, Cisco spokesperson Nigel Glennie declined comment, telling us, "We don't comment on rumors and speculation." (We've reached out to NetApp as well and will update when we hear back.)
Why this rumor won't stop
With a $6.9 billion market cap today, NetApp isn't terribly expensive for Cisco. (The joke in the industry, another person told us, was that Cisco just needs to wait another 3 months and NetApp would be even cheaper.)
NetApp is cheap because it "missed" the biggest opportunity in its industry, the shift to flash storage, another source told us. The company just finally bought a flash startup, SolidFire, in December.
But this is years after its competitors were snapping up flash vendors. NetApp paid dearly for it, too, spending $870 million in cash on SolidFire. If Cisco bought NetApp it would gain SolidFire, as well as all of NetApp's enterprise storage customers.
Plus, Cisco needs storage technology.
The struggles in the storage industry come from a movement called "converged" and "hyperconverged" computing. That means that companies are buying their computers, networking, and storage all together as a bundle, Miki Sandorfi, a vice president at major storage player Hitachi Data Systems tells us.
Storage vendors who are just selling storage are struggling ... from EMC to NetApp, Sandorfi says.
Meanwhile, some of the hot newer storage companies are also hurting. Pure Storage had a less-than-spectacular IPO, Nimble Storage is trading below $7 (from a year-ago high of $52), and Violin Memory's stock is now nearly worthless.
Cisco was one of the leaders of the "converged" computing market, with its UCS computers/networking/storage boxes. It originally partnered with EMC for the storage part, but those companies don't like each other now. Cisco is now partnering with everybody, including NetApp, IBM, Pure Storage.
But to really compete with HP and EMC/Dell, Cisco needs its own storage tech.
Cisco actually tried to build its own storage offering and that was a disaster. It bought a startup called Whiptail for $450 million in 2013, and after a couple of years the product still didn't work. One of new Cisco CEO Chuck Robbins' first acts was to kill the product and lay off the team.
Cisco is likely up to something in storage
While an acquisition may seem obvious for Cisco, others are telling us that Cisco may be looking at an internal team to build an original product.
We're hearing that this new team may even involve the legendary triumvirate of engineers at Cisco known as "the heart, soul, and brains" of the company: Mario Mazzola, Prem Jain, and Luca Cafiero.
That team is currently running Cisco's all-important Insieme unit, which makes Cisco's flagship Nexus 9000 router and the software that allows Cisco to compete in the "software defined networking" market that threatens to upend its hold on the network equipment market.
Cisco has previously leaned on these engineers for its famous "spin-in" model. That's where Cisco bankrolls a startup staffed mostly with its own engineers. It then buys that startup for millions of dollars once it successfully builds a product.
Robbins has already gone on record saying he's not a fan of that funding model, but he wants to create teams internally that develop new products and are similarly rewarded if they succeed.
Meanwhile, the storage industry has already moved on to the new thing beyond flash.
Intel and Micron have created a breakthrough new kind of storage chip that is ideal for big-data, in-memory kinds of uses, known as XPoint, which they say is 1,000 times faster than flash and 1,000 more durable.
If Cisco is really focused on emerging storage technologies, we can see why NetApp would not be its first choice.
