Oracle buys Pillar Data Systems

IDG News Service - Oracle is building out its array of hardware products with the acquisition of storage vendor Pillar Data Systems, the company announced Wednesday.

Oracle CEO Larry Ellison already has a majority stake in Pillar. As of Wednesday, Pillar had an outstanding $544 million loan with Ellison and his affiliates for money it had borrowed in past years, according to a filing made Thursday with the U.S. Securities and Exchange Commission. "Immediately prior to the closing of the acquisition, the then outstanding amount of the Pillar Data Loan will be converted into shares of preferred stock of Pillar Data which will have a right to dividends accruing at an annual rate of 1.5%," the filing said.

The deal was engineered by an independent committee of Oracle board members, according to a statement.

Pillar makes SAN (storage area network) Block I/O storage systems, technology Oracle needed to complement its ZFS Storage Appliance's NAS (network-attached storage) File I/O capabilities, according to a presentation document on the deal.

Sun Microsystems, which Oracle acquired last year, resold third-party SAN storage products, and it is "critical for Oracle to own a proprietary storage asset, especially for building engineered systems," the document stated.

Oracle will go up against the likes of EMC's Clariion products with the Pillar technology.

Some 600 customers with 1,500 systems are running Pillar products now, according to Oracle.

Pillar is one of the last remaining independent storage vendors following a rash of recent deals, such as Dell's acquisition of Compellent and Hewlett-Packard's purchase of 3Par.

The fact that Ellison has a stake in Pillar left the vendor in somewhat of a limbo "and kind of took them off the table for an acquisition by anyone else," said Forrester Research analyst Andrew Reichman.

Pillar's best attribute is the fact that its storage technology can handle block and file work simultaneously, Reichman said. "That's become a very hot category. From that perspective, this gives Oracle a pretty solid play in the midrange to small-enterprise unified storage space, where they can go head-to-head with NetApp and EMC."

However, Pillar, like any small company, has fewer resources for research and development, Reichman added. "Now with the full backing of Oracle behind them, hopefully they can invest the money that's needed to develop the product into a more effective platform."

Oracle is expected to give a broad update on its storage strategy during a webcast Thursday, with appearances from co-president Mark Hurd and John Fowler, executive vice president of systems.

Since buying Sun, Oracle has emphasized the fact that it wants to focus on specialized hardware systems that run its application software stack, and not go head-to-head with the likes of HP or Dell on commodity server products.

But the Pillar technology could nonetheless fit into a more general-purpose midmarket strategy combining Sun servers with Pillar storage on the back end, Reichman said.