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Confirming earlier rumors, EMC Corp. (EMC - Analyst Report) recently announced the acquisition of Israeli flash storage company XtremIO. Israeli business news web site Globes says that EMC is paying approximately $430.0 million. However, the company refused to confirm the payout, saying that the all-in-cash transaction would not have any material impact on its fiscal 2012 results.

Founded in 2009, XtremIO has operations in San Jose, California. The company received funding from a number of venture capitalists including Jerusalem Venture Partner, Giza Venture Capital, Battery Ventures and Lightspeed Ventures. Although the company is yet to record any storage revenue, its unique products have garnered significant attention in the flash storage market in recent times.

As the data explosion continues with higher adoption of cloud computing and big data, flash storage has been touted as the best solution to take care of the demand for higher speed and performance at the same cost as disk arrays. XtremIO specializes in developing all-Flash storage arrays, a much sought-after technology for traditional storage companies such as EMC and NetApp.

XtremIO’s flash storage arrays, instead of focusing on improving cache performance, acts as primary storage for applications requiring high speed, such as cloud computing and virtualization. This decreases fetching time, thereby increasing speed. Further, XtremIO’s flash arrays are built on low-cost MLC flash technology, which will make it more cost effective in our view.

EMC has a dominant position in the flash drive market, shipping approximately 24 petabytes (PB) of flash drive to customers in 2011. The acquisition is expected to boost EMC’s flash based storage product portfolio going forward. We believe that the acquisition will expand EMC’s customer base and market share, due to the higher demand from enterprises going forward.

Moreover, we believe that the acquisition will provide EMC a significant competitive edge in the storage market where it faces significant competition from NetApp (NTAP - Snapshot Report), Hewlett-Packard (HPQ - Analyst Report), IBM Corp. (IBM - Analyst Report), Hitachi and Dell Inc. . However, we also believe that the low-cost flash array products can cannibalize sales of EMC’s VNX disk array product over the long term.

Thus, we remain Neutral over the long term (6-12 months). Currently, EMC has a Zacks #2 Rank, which implies a Buy rating in the near term.

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