Hewlett Packard Enterprise (HPE) is buying Nimble Storage for $1 billion, a maneuver mostly – but not entirely – about size.
Nimble Storage coincidentally released its Q4 2017 results today. The company boasted of having added 750 new customers in the quarter for a total of 10,200. It posted revenue growth of 30 percent year over year, from $90.7 million in its fourth quarter a year ago to $117 million in the fourth quarter just ended.
But the company is consistently losing money. Nimble Storage was short $36.1 million in its most recent fourth quarter, compared to a $31.9 million loss a year ago.
In its fiscal 2017, the company brought in $402 million, and posted a loss of $156.6 million; the 2016 numbers were $322 million and $158 million, respectively.
Startups such as Nimble Storage helped establish the nascent flash storage market with hybrid flash and all-flash products. Despite the market being in its earliest stages, the small innovators have already been eclipsed by larger companies such as EMC, HPE, and IBM. Indeed, all-flash pioneer Violin Memory got pushed out of the market altogether; it is currently going through the Chapter 11 bankruptcy process.
The storage market is inevitably going flash. Flash is inherently more reliable than mechanical storage systems, is far more compact, uses less power, and is getting progressively less expensive. HPE cited independent research that the overall flash market was estimated to be approximately $15 billion in 2016 and is expected to be nearly $20 billion by 2020, with the all-flash segment growing at a nearly 17 percent compound annual growth rate (CAGR).
In its announcement of the deal, HPE said, “By bringing together complementary product portfolios and leveraging HPE’s expansive go-to-market capability, partner ecosystem, and leading server platform, HPE and Nimble will be able to significantly accelerate the financial performance of the combined business.”
Translating, HPE will get Nimble Storage’s customer base in the midrange of the market to pad out its 3PAR storage product portfolio, while riding the same growth wave in flash storage. Plus HPE can leverage its own sales and marketing resources to help get the Nimble Storage operations out of the red.
Nimble Storage might have been heading for profitability anyway, though perhaps not soon enough for some investors. In a research note from RBC Capital Markets published just before the announcement of the acquisition, RBC said, “We continue to expect NMBL to reach profitability on a standalone basis six to eight quarters from now and could see an acquisition by a larger entity like HPE driving profitability in a shorter time frame.”
With the acquisition, HPE gets something beyond just a quick bump in size with the acquisition. It also picks up an interesting technology. Nimble Storage specialized in what it calls predictive flash.
Predictive flash is essentially cloud-based management of flash devices. Nimble Storage calls its management system InfoSight. Several times a day, through the cloud, the InfoSight platform connects to deployed Nimble Storage flash devices, collects data, and analyzes it using machine learning techniques.
HPE said that InfoSight automatically detects 90 percent of all issues within a customer’s infrastructure, and resolves over 85 percent of them, a huge benefit to customers’ IT teams. Moving forward, HPE expects to use InfoSight to support its 3PAR products.
Referring to InfoSight, Antonio Neri, executive vice president and general manager of HPE’s Enterprise Group, wrote in a blog post, “…we’ll be able to bring flash optimized data services, which provide the right balance of price, performance, and agility, to customers across SMB, Enterprise, and Service Provider segments.”
Nimble Boosts HPE Storage
In addition, just at the end of February, Nimble introduced multicloud storage services that work with both Amazon Web Services (AWS) and Microsoft Azure.
Enterprise customers are apt to park different elements of their business with different cloud services, but eventually risk the problem of having systems that ought to be able to communicate with each other isolated because the different clouds are essentially incompatible. Nimble Storage’s new service, called Nimble Cloud Volumes, is designed to solve that problem.
As for the details of HPE’s acquisition of Nimble Storage, HPE said it will pay $12.50 per share in cash, representing a net cash purchase price at closing of $1 billion. In addition to the purchase price, HPE will assume or pay out Nimble’s unvested equity awards, with a value of approximately $200 million at closing. By one estimate, Nimble Storage’s market capitalization is $752 million.
Nimble Storage will become a wholly-owned subsidiary.
This is HPE’s second significant purchase recently. The company is also buying SimpliVity for $650 million, also for cash. That deal is seen as giving HPE some competitive leverage against Nutanix, a competitor that specializes in hyperconverged infrastructure (HCI).