Seagate to acquire EVault for $185M

The disk drive maker has plans to tuck the online backup and archiving service provider into its services group.

Seagate Technology announced it has given itself a Christmas present early—a $185 million stocking stuffer in the form of privately held backup services provider EVault, Inc.

EVault will be tucked into the Seagate Services group, which already offers data recovery, online backup and archiving for small and medium businesses (SMBs). Bill Watkins, Seagate CEO, said in a press release that EVault's services would also be aimed at that market.

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However, Seagate's core business—practically its only business—has been as a disk drive manufacturer. Since the acquisition of Maxtor Corp. in an all-stock transaction valued at $1.9 billion last December (a year almost to the day before this announcement), Seagate has been the largest disk manufacturer on the planet.

"It's certainly not a move completely away from our core business," said Woody Monroy, spokesperson for Seagate. "We're looking at ancillary businesses and opportunities to extend our business beyond hardware."

Monroy said that the move isn't unprecedented for Seagate; EVault is the third company Seagate has added to its services subsidiary. In 2005, Seagate purchased Mirra, Inc., a provider of networked digital content protection products for the home and small business markets; and Action Front, a professional in-lab data recovery company.

"They may be looking to offer SMBs and consumers a choice for method of backup and data recovery," said Doug Chandler, program director of storage software and services research for IDC.

Monroy classified the SMB market as "fragmented" and "underserved"; Chandler said it certainly is the former, but Seagate is not without competitors for backup services and products in the SMB space; Spare Backup and SonicWall, formerly Lasso Logic, have already been doing healthy business there.

"It's definitely not a market that's reached critical mass yet," Chandler said. "Especially with compliance pressures, there are more reasons for users to consider outsourcing their data protection than before."

Chandler said that other big companies like Microsoft and Google were looking to get into this game, but Seagate's advantage might be its relatively blank slate when it comes to data management.

"Though there's pressure to have better backup plans in place for users, there's also more concern around security and turning data over to a third party," Chandler said. "Seagate doesn't have a bad track record and will be identified by most people as a solid, established storage company."

Some analysts said they were surprised by the deal.

"It's like me buying a pizza place—I eat, but otherwise it doesn't have many overt synergies to my business," said Steve Duplessie, founder and analyst with the Enterprise Strategy Group. Duplessie speculated that Seagate may be "trying to stick its toe in the water" of diversifying its business with the acquisition, but said it could also be an attempt to drive up disk capacity to feed its core business by offering a data-creating service.

"The thing that puzzles me there is that any of these service providers were already, by default, Seagate customers," Duplessie said.

"Their line about 'managing and protecting digital content through its lifecycle' [in the press release] suggests it may be a consumer application," said John Webster, principal IT advisor with the Illuminata Group. "Something like family photo albums, digital content people will want to save for years."

"I certainly would not have picked Seagate first among potential bidders for EVault," Chandler said. Arun Taneja, founder and analyst with the Taneja Group, came down on the side of diversification. "For the last two years, Seagate has been doing some work under the covers—word on the street has been that they're looking to be more than just a disk drive supplier."

Taneja predicted that Seagate would be making more moves like this over the next year. "This is just the first volley," he said. "It could be a big change in the industry."

The acquisition is expected to close in the third quarter of Seagate's fiscal year 2007.

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