Investopedia: Can Xyratex Change With The Times?

While being positioned as something of a nuts-and-bolts supplier of components to the burgeoning enterprise data storage market might sound like a good thing, Xyratex (Nasdaq:XRTX) is at a very challenging point in its lifecycle. With a major customer potentially moving more and more of their business away from Xyratex, the company needs to start finding new sustainable growth markets.

A Tough First Quarter
Xyratex didn't do much to dispel the worry that its business is facing the risk of substantial erosion in the coming years. Revenue fell 18% this quarter and missed the average sell side estimate by about 7%. In addition, revenue in the enterprise data segment fell 19%, while hard drive capital equipment sales fell 10%.

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EMC Buys More Storage Space

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. 

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.)

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