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Adaptec to snap up Snap Appliance

Maker of components plans to buy storage device company for about $100 million.

Computer component maker Adaptec has agreed to acquire data storage device company Snap Appliance, the companies said Tuesday.

Adaptec, which makes products including network interface cards and controllers for the Serial ATA disk drive interface, said the purchase price is expected to be about $100 million. The amount represents about $91 million of cash and $9 million of assumed stock options. Adaptec said it expects the transaction to generate more than $40 million in new revenue over the next four quarters.

Adaptec has been expanding into standalone storage systems, selling them under its own brand and for use by companies that sell them under their own names. Adaptec acquired external storage system maker Eurologic in 2003.

"I am aspiring to be a major player in the storage market," said Mark Delsman, senior vice president of business strategy at Adaptec. Those aspirations have limits, though--the company is focusing on smaller customers and doesn't expect to become the next EMC, he said.

In the company's most recent quarter, $18 million of Adaptec's $125 million revenue was from external storage devices, Delsman said.

Industry statistics show an increasing hunger for storage gear, thanks to factors including government regulations for retaining data and the growing digitalization of content such as music. The amount of disk storage system capacity shipped worldwide in the first quarter of this year hit 247 petabytes, up 39.4 percent from the first quarter of 2003, according to researcher IDC.

Revenue for disk storage systems is growing much less quickly, as prices fall. According to researcher IDC, total disk storage system revenue grew 3.5 percent in the first quarter, to $5.1 billion.

The Snap acquisition is "certainly a win for Adaptec as they acquire a solid customer installed base," said Brian Babineau, analyst with research company Enterprise Strategy Group. Babineau estimated that Snap Appliance's gear accounts for about 30 petabytes of storage. All the printed material in the world is estimated to equal 200 petabytes.

Babineau said Snap Appliance customers will start to benefit from faster product releases after the acquisition. On the other hand, he warned that the deal could complicate Adaptec's relationship with current customers such as Hewlett-Packard.

Snap makes low-end storage devices that compete with machines sold by EMC, HP and others. "There will probably be renegotiations or some question on where they agree to compete and where the supply chain remains intact," Babineau said.

Adaptec's expansion won't encroach on the turf of current business partners that have their own storage lines, Delsman said, because those companies already are looking for storage system suppliers.

"Most of the server (manufacturers) already outsource much of their storage lines," he said, adding that one of the top seven server makers has recently signed an agreement to sell storage systems based on the Eurologic technology.

The companies said Snap Appliance has shipped more than 150,000 of its Snap Servers worldwide, resulting in customer installations at 60 percent of the Fortune 500 companies. Snap Appliance was funded by Moore Capital Management, Mellon Ventures and Ascend.