Flash industry consolidation took another step forward, with semiconductor company LSI buying flash controller startup SandForce to strengthen its server and storage array flash offerings for ultrabooks, notebooks, servers and storage arrays.
The price is $322m cash plus taking on $48m of stock options and restricted shares held by SandForce employees. LSI is an existing investor in SandForce and is gaining widely used controller technology found in competitors to its own PCIe WarpDrive flash card, which uses SandForce chips, and in solid state drive (SSD) products.
LSI's WarpDrive SLP-300 offers 300GB of single level cell flash with an average latency of less than 50 microseconds. It needs an expanded range of PCIe offerings with both single and multi-level cell (MLC) flash, and lower latency. The lower the latency, the less time server CPU cores have to wait for data. SandForce should provide that.
Fusion-io products achieve a latency of less than 26 microseconds, so LSI has some catching up to do. LSI says it is sampling MLC WarpDrive product by the way.
SandForce was founded in 2006 by Alex Naqvi and Rado Danilak, and its funding history shows A- and B-rounds totalling about $20m by April 2009; a $21m C-round in November 2009; and a $25m D-round in October 2010 – making $66m in total. A $322m cash deal plus the $48m stock-related obligations doesn't look too bad for the investors.
LSI thinks of SandForce as having a standard controller offering while LSI itself historically has a custom capability. LSI CEO Abhi Talwalkar said: “Adding SandForce’s technology to LSI’s broad storage portfolio is consistent with our mission to accelerate storage and networking. The acquisition represents a significant, rapidly growing market opportunity for LSI over the next several years.”
The main focus in the short-term is PCIe flash cards for servers, where Fusion-io has led the way with its ioDrive products. Stifel Nicolaus analyst Aaron Rakers has "estimated the PCIe SSD market opportunity at around $6 to $8bn over the next three to five years."
Numerous suppliers are shoving themselves through the door that Fusion opened, including Intel, LSI, Micron, OCZ, SanDisk, STEC, TMS and others. It is the hottest sector of the flash market and products have to have low latency, high performance, a long working life, good capacity and affordability. The latter comes from volume sales and that will only come if all the other qualities are present.
For LSI, SandForce is an absolutely necessary ingredient for making WarpDrive products competitive against the existing momentum of Fusion-io and the aggressive push of OCZ. The company says it has PCIe flash design wins at Cisco, SGI and SuperMicro and obviously feels it has a great opportunity to sell boatloads of PCIe flash over the next few year. It says it has displaced incumbent PCIe flash suppliers at several tier 1 OEMS, and, of course, Fusion-io is the main incumbent PCIe flash supplier in the industry.
Rakers comments that LSI "expects the initial ramp at a major tier-one storage customer at the end of the December quarter", and suggests this might be Del/Compellent.
That makes three
OCZ, the main flash product supplier in terms of market coverage by product families, went and bought Indilinx in March, so gaining its own in-house controller technology.
In May, SanDisk, another flash product company, bought Pliant for $327m and so gained its in-house controller technology.
With LSI buying SandForce, that leaves Anobit as a remaining stand-alone flash controller company. Potential buyers must be circling around and wondering how much it would cost to buy it.
The OCZ angle
OCZ is a big user of SandForce controller chips in its own flash products, being SandForce's largest customer, and that OEM arrangement should continue – at least in the short-term – while the Indilinx capability gets expanded, and maybe for longer.
OCZ boss Ryan Petersen said in an OCZ statement about the LSI-SandForce deal: "I would like to congratulate SandForce on its combination with LSI, a current partner of OCZ. SandForce has been a great partner, and we expect the added resources of LSI will only benefit SandForce’s customers. Moreover, because OCZ and SandForce previously contemplated this scenario, we expect that this combination will have no material impact to our existing product lines or business.”
Rakers says OCZ has signed a $30m non-cancellable purchase commitment with SandForce during its August quarter. The company has also erected a poison pill defence around its shareholdings just in case a predator builds up a large holding, not that there has been any public approach.
SandForce will become part of a newly formed LSI Flash Components Division. SandForce CEO Michael Raam will be the general manager of the division. Current SandForce customers will be interested to see if current sales arrangements continue and whether LSI will be competing with them.
The acquisition should close in the first three months of 2012. ®