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In order to expand its cloud-based storage business, software giant Microsoft Corp. (MSFT - Analyst Report) has reached a definitive agreement to acquire StorSimple. The financial terms of the deal were not disclosed.

Based in Santa Clara, StorSimple offers Cloud-integrated Storage (CiS) solutions that combine physical data management services, such as basic storage, backup and recovery with cloud integration. This hybrid approach, which integrates on-premise storage with cloud storage, reduces costs by up to 90% and provides complete data protection.

Large enterprises across many vertical markets, including retail, oil and gas, manufacturing, consumer goods, healthcare, and financial services use services provided by StorSimple. The company states that most of its enterprise customers use Microsoft’s Windows Azure as their primary cloud computing solution.

Cloud storage came into prominence in 2009, with Nirvanix and Amazon's (AMZN - Analyst Report) Simple Storage Service (S3) being two of the major pioneers. Though Amazon continues to dominate the space, other players like Microsoft and Rackspace (RAX - Snapshot Report) are not far behind.

Microsoft’s leading cloud-based storage capabilities when combined with StorSimple’s software solutions could create the necessary synergy to tilt the scales in its favor. The addition of CiS will enhance Microsoft's Cloud OS vision and help customers to use hybrid cloud computing more efficiently. We think that the StorSimple acquisition will expand Microsoft’s customer base, due to the expected increase in demand from enterprises going forward.

Microsoft’s aggressive acquisition strategy has proved beneficial in the past and is largely responsible for the company’s market position. In fiscal 2012, the company closed the Skype acquisition and picked up an enterprise social networking company Yammer for $1.2 billion in cash.

Microsoft remains one of the best positioned software vendors, given its wide range of products, emerging markets strength, continued technology deployment at data centers and growth in cloud computing. We believe that Microsoft’s current investments are supported by its strong balance sheet and expect these to drive the next growth phase, improving prospects of market share gains.

Microsoft Corp. has a Zacks #3 Rank, which implies a Hold rating in the short term (1-3 months).

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