September 3, 2010, 7:26 am

Why I.B.M. Took a Different Path in Storage

By STEVE LOHR

10:38 a.m. | Updated to correct the name of the company that EMC purchased last year.

The high-stakes sumo match between Hewlett-Packard and Dell ended on Thursday, with H.P. paying about $2.3 billion for 3Par.

I.B.M. has said it looked at 3Par and other companies more than two years ago, when it was building up in the field of clustered storage, an important technology in handling data remotely for so-called cloud computing systems. Instead of 3Par, it bought an Israeli clustered-storage specialist, XIV.

I.B.M. did not report the price tag on XIV. But analysts estimate it probably paid less than $200 million for a business that now generates more sales than 3Par’s revenue of $194 million last year.

I.B.M. will not comment on those estimates, but it does point to the XIV deal as an example of how its research labs are used to inform the company’s merger, acquisition and divestiture strategy.

In fact, Big Blue’s storage business has been bolstered by a series of early-stage purchases in the sector over the last couple of years, including Arsenal Digital, Storwize and Diligent. I.B.M. has not gotten in the middle of pricey bidding wars like the one over 3Par or over Data Domain, which EMC bought last year for $2.4 billion, after beating out NetApp.

The labs, explains Robert Morris, a vice president of I.B.M. Research, provide strategic “headlights” for the company as a whole. At the end of each year, the lab researchers prepare a global technology outlook, which presents senior management with an assessment and predictions about key technologies over the coming several years.

As a senior research manager, Mr. Morris also meets with members of I.B.M.’s M.&A. teams four times a year. “It’s not enough to see in the future, you have to act,” he said. “If you’re ahead of the game, you can go in and get companies at a good price, before others recognize the value.”

The researchers, Mr. Morris adds, learn things from the I.B.M. acquisition teams as well. “They’ll say, ‘Have you seen this little company?’ ” he said. “They’re like sensors in the marketplace. We develop a lot inside I.B.M., but most innovation is going on outside any single company.”

An earlier version of this post misstated the name of the company that EMC bought last year. It is Data Domain, not Digital Domain.