Page II: After several acquisitions it looks like Adaptec is moving in the hardware arena. Its CEO explains why he thinks that it needs to be selling parts, and not just systems.
So you are claiming that you guys are good at using a very standards-based approach of putting off-the-shelf components together in an inexpensive way with some server expertise behind it.
Absolutely. And what's magical about it is that the same RAID code and the same storage manager run from the component level all the way through the external platforms. So if you are an IT manager, you bring up your screen, you can look at your storage array -- both direct-attached storage and fabric-attached storage -- and manage it in precisely the same way.
You guys are talking a lot about going into the small- and medium-size business market, but what makes you think you know what it takes to sell products there?
If you take a look at the last couple of years, maybe go back four years, there has been some wreckage in that space. A number of companies have looked at the market in the context of the (distribution) channel, and the thought process was maybe as pedestrian as, "We will build the product, and we will provide it to the channel, and they will come." And no one came.
We did not acquire Eurologic for a distribution channel footprint. We acquired it for an OEM footprint, because 95 percent of its business was really with OEMs. Now, you might think because we have a very significant channel position and a terrific brand that it would be a natural corollary for us to drive storage array-based products in the channel. But it's a different set of VARs (value-added resellers) that buy this product than our traditional VARs.
That's why we acquired Snap. We felt that its footprint in the channel would be a tremendous advantage. It has about 1,200 to 1,500 VARs that buy system-level products. It has a terrific brand. It has been No. 1 in NAS (network attached storage) for four years, in terms of volume. Snap was exclusively a distribution channel business. It did not even look at the OEM side. We think that that is really the key to major success -- having a presence both on the OEM side and the channel side.
When you are saying Snap was No. 1 in NAS volume, can you give me a little more specific data?
It has well more than 100,000 customers. It shipped 150,000 units over, really, the last four years.
So then, in other words, it is not selling higher-price NAS devices but lot of smaller, cheaper NAS devices than, say, Network Appliance or EMC or HP?
The simple answer is yes -- that's where it started. Then it started to move up. It's a lot easier to cannibalise the competition from underneath than to scale your architecture down. Scaling architectures into a much less-expensive bill of material and all that is a major undertaking.
So with this Snap product, you think you can eventually make enhancements over time to compete against an EMC Celerra or the Network Appliance machines?
Not exactly. Snap has today a combination product -- the (block-level and file-level data) product that Network Appliance has. Frankly, what we would prefer to do is work with Network Appliance, not compete with it.
Why would NetApp want to work Adaptec?
There are configurations, certainly, and elements of architecture that would provide an advantage to them. I don't want to single out NetApp, but we see across the broad spectrum opportunities for "private label" products, whether it's Eurologic-based or Snap-based. We have been working aggressively on that front. That takes some of the risk out of the equation, from my standpoint. I would much sooner use a tier 1 sales force than to have to do all of this work organically. And so I am going to continue to walk on both sides of the street.
And now we get to back to your fundamental point on components. Why does this make sense for Adaptec, and why does it make sense to the customers? It really has been about being able to provide an end-to-end storage solution to the marketplace. And when I talk about marketplace, I am including OEMs.
Doesn't the Snap move also put you up against some potentially strong competition from Microsoft and its attempt to get a bigger storage presence in the network-attached storage arena? How are you going to fight Microsoft there?
I have no intention of fighting Microsoft. We have always been a strong ally with Microsoft.
But Snap has a proprietary operating system that, in a sense, competes against Microsoft and its Window Storage Server 2003.
Sure, it does. Snap's operating system is Linux-based -- it's called Guardian OS. But there is nothing that says we can't offer a Microsoft-based solution as well.
Can you say anything about that right now?
I can't say anything about it. But I don't like to stake out a proprietary position. Walking both sides of the street here, for the Linux users and for the Microsoft users, makes a lot of sense to us. We don't see a reason that we should take sides.
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