IBM and H-P, NetApp's on Your Tail

NetApp's(NTAP) $1.5 billion acquisition of Data Domain(DDUP) could shake up the storage market by giving it a launch pad into large enterprises.

The surprise deal, which was announced after market close Wednesday, is just the latest in a series of unexpected tech sector M&As such as Oracle's(ORCL) acquisition of Sun Microsystems(JAVA) and privately held Virtual Iron.

Data Domain is a leader in the development of de-duplication (subscription required) software. De-dupe, as it is known, aims to ensure that identical pieces of data are not backed up and stored, and it is one of the hottest data center technologies.

NetApp says that the deal is not purely technology-driven.

"This is about incremental market opportunity more than technology leverage," said Jay Kidd, NetApp's chief marketing officer, during a press conference late Wednesday.

Santa Clara, Calif.-based Data Domain generated revenue of $79 million in its recent first quarter, and is seen as a launch pad for NetApp to sell more of its own products.

"NetApp's planned purchase of Data Domain should provide it with a stronger competitive footing," wrote Jefferies & Company analyst William Choi in a note released Thursday. The analyst wrote that even with good products, NetApp has struggled to get into some larger customer accounts.

By using Data Domain's de-duplication technology as a "Trojan horse" to sell its own offerings, he added, NetApp could challenge bigger rivals such as EMC(EMC), IBM(IBM) and Hewlett-Packard(HPQ).

"We see a lot of cross-sell and upsell opportunities," said Dan Warmenhoven, the NetApp CEO, during a conference call late Wednesday. "We believe that a combination of NetApp and Data Domain can drive more revenue at less cost than could have been accomplished separately."