EMC (NYSE:EMC) is making one thing abundantly clear - if it has to do with enterprise storage, they are going to have a piece of it. From the first Symmetrix back in 1990, to the latest in software/hardware hybrid, EMC has always been at or near the edge of what is possible with large-scale storage. Now the company is buying Isilon Partners (Nasdaq:ISLN) in what may prove to be a stronger foothold in the next major type of corporate data storage technology.

IN PICTURES: 5 Tips To Reading The Balance Sheet

The Deal
EMC is paying $33.85 a share in cash for Isilon, a deal that represents a 29% premium for Isilon shareholders and a nearly $2.3 billion bill for EMC. With a termination fee of $100 million attached to the deal, though, it is not unthinkable that other bidders could come into the game.

What EMC Is Getting
Isilon is a very small company in data storage - trailing revenue of less than $200 million, compared to EMC's $16.2 billion - but a very promising one all the same. Isilon specializes in highly-scalable, clustered storage systems that store very large continuous files, and has been involved in this scale-out network attached storage market virtually from the beginning. This market exists because unstructured data is not easily handled by traditional systems, but companies involved in life sciences (sequencing data), media (movies) and energy (seismic data) find they need a better way of handling these huge files. (For related reading, see Xyratex An Interesting Data Storage Play.)

It is a market with huge potential, and a market where Isilon has been something of a first mover. That said, major companies like EMC, NetApp (Nasdaq:NTAP), IBM (NYSE:IBM) and Hewlett-Packard (NYSE:HPQ) are all well-aware of the market's potential and have been trying to position themselves accordingly. As a holder of potentially key technology and products, Isilon has been in the center of takeover speculation for a little while now, particularly after the tussle between Dell (Nasdaq:DELL) and HP over 3Par. (For more, see 3Par Suddenly A Hot Property.)

Nothing Promised
Of course, buying Isilon does not guarantee anything for EMC. Rival companies with their own scalable network attached storage products could catch fire, many companies could decide that upgraded unified storage systems are "good enough for now", and cloud storage systems could mitigate or obviate the demand for the file-based technology created by Isilon.

But then again, that is the nature of technology and nothing new to EMC. What's more, the combination of Isilon's technology with EMC's scale, reputation and infrastructure could ultimately be the winning formula for this segment.

More Buying Is A When, Not If, Question
It is practically a given that there will be more deals to come in the data storage space. Once again, though, that is the nature of the tech sector and hardly unique to data storage. Big companies need to make sure they have footholds in whatever looks to be the next major growth market, and they realize that they do not necessarily have all the answers in their own R&D.

With this particular deal, it seems pretty likely that CommVault (Nasdaq:CVLT) and Compellent (NYSE:CML) will get more market and investor attention, even though they are not really comparables to Isilon. Likewise, Brocade (Nasdaq:BRCD), Xyratex (Nasdaq:XRTX) and STEC (Nasdaq:STEC) could all go for a ride - not because they are in the same scale-out NAS market, but because the words "data" and "storage" appear in their company descriptions and sometimes that is all it takes to get institutional momentum investors excited about a stock. (For more, see 4 Factors That Shape Market Trends.)

Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!

Related Articles
  1. Stock Analysis

    3 Resilient Oil Stocks for a Down Market

    Stuck on oil? Take a look at these six stocks—three that present risk vs. three that offer some resiliency.
  2. Economics

    Keep an Eye on These Emerging Economies

    Emerging markets have been hammered lately, but these three countries (and their large and young populations) are worth monitoring.
  3. Stock Analysis

    Is Pepsi (PEP) Still a Safe Bet?

    PepsiCo has long been known as one of the most resilient stocks throughout the broader market. Is this still the case today?
  4. Investing

    The ABCs of Bond ETF Distributions

    How do bond exchange traded fund (ETF) distributions work? It’s a question I get a lot. First, let’s explain what we mean by distributions.
  5. Stock Analysis

    3 Stocks that Are Top Bets for Retirement

    These three stocks are resilient, fundamentally sound and also pay generous dividends.
  6. Investing News

    Are Stocks Cheap Now? Nope. And Here's Why

    Are stocks cheap right now? Be wary of those who are telling you what you want to hear. Here's why.
  7. Investing News

    4 Value Stocks Worth Your Immediate Attention

    Here are four stocks that offer good value and will likely outperform the majority of stocks throughout the broader market over the next several years.
  8. Investing News

    These 3 High-Quality Stocks Are Dividend Royalty

    Here are three resilient, dividend-paying companies that may mitigate some worry in an uncertain investing environment.
  9. Stock Analysis

    An Auto Stock Alternative to Ford and GM

    If you're not sure where Ford and General Motors are going, you might want to look at this auto investment option instead.
  10. Mutual Funds & ETFs

    The 4 Best Buy-and-Hold ETFs

    Explore detailed analyses of the top buy-and-hold exchange traded funds, and learn about their characteristics, statistics and suitability.
  1. Does working capital measure liquidity?

    Working capital is a commonly used metric, not only for a company’s liquidity but also for its operational efficiency and ... Read Full Answer >>
  2. How do I read and analyze an income statement?

    The income statement, also known as the profit and loss (P&L) statement, is the financial statement that depicts the ... Read Full Answer >>
  3. Can working capital be too high?

    A company's working capital ratio can be too high in the sense that an excessively high ratio is generally considered an ... Read Full Answer >>
  4. How do I use discounted cash flow (DCF) to value stock?

    Discounted cash flow (DCF) analysis can be a very helpful tool for analysts and investors in equity valuation. It provides ... Read Full Answer >>
  5. How do dividends affect retained earnings?

    When a company issues a cash dividend to its shareholders, the retained earnings listed on the balance sheet are reduced ... Read Full Answer >>
  6. What is the formula for calculating compound annual growth rate (CAGR) in Excel?

    The compound annual growth rate, or CAGR for short, measures the return on an investment over a certain period of time. Below ... Read Full Answer >>

You May Also Like

Trading Center
You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!