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Why IBM's Flashing Its Storage Cash

Stocks in this article: IBMEMCFIONTAPLSI

NEW YORK ( TheStreet) - IBM's (IBM) decision to acquire privately-held flash memory specialist Texas Memory Systems (TMS) this week was first and foremost an attempt to bolster its storage business. But could it also signal more storage industry M&A?

Clearly, IBM sees TMS's solid state technology as a way to boost its own storage story. With fewer moving parts than traditional hard disk drives, solid state systems offer users faster data-access speeds, as well as low power and cooling costs.

"It will really be a great enabler, not just for storage, but for our systems as well," IBM vice president and integration executive Terri Mitchell told TheStreet. The company's existing flash partnerships with Fusion-io (FIO) and LSI (LSI), she added, will be unaffected.

Although the value of the TMS deal was not disclosed, storage is a key focus area for IBM. Revenue from the tech giant's Systems and Technology group, which encompasses servers and storage, was down 9%, or 7% adjusted for currency, during its recent second quarter. Storage hardware revenue was flat year-over-year at constant currency.

The solid state market, however, is growing at a rapid pace. Tech research firm IDC estimates that solid state technology being shipped into enterprises will grow significantly over the coming years, reaching almost 3 exabytes by 2016. By way of comparison, 1 exabyte of data is the equivalent of more than 4,000 times the information stored in the U.S. Library of Congress, according to a report released by McKinsey last year.

Set against this backdrop, the initial reaction to IBM's deal has been positive.

"In our view, the acquisition makes strategic sense as solid state storage becomes a more critical part of helping improve performance and lower power requirements in storage systems," explained Brian Marshall, an analyst at ISI Group, in a note.

"IBM will gain a significant flash storage technical boost with TMS and integrate the technologies across its hardware and software portfolios," added Krista Macomber, an analyst at Technology Business Research, in a note.

Roger Kay, president of Endpoint Technologies Associates, told TheStreet that the TMS deal makes perfect sense for acquisition-hungry IBM.

"Getting control of all elements of its solution is one of its goals," he said. " IBM really buys a lot of little companies - the idea is to assemble a lot of different technologies under one roof."

TMS is IBM's fourth storage systems acquisition since 2007. Company-wide, Big Blue has made more than 100 acquisitions since 2003.

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