IBM to stop reselling storage from NetApp

IBM will stop buying and reselling storage technology from NetApp Inc as part of a plan to move customers to its own products.

IBM plans to formally withdraw from selling NetApp’s new N series systems on Tuesday and shut down development on the product line, according to an internal memo reviewed by Bloomberg. Instead, the company will encourage clients to buy IBM-made offerings.

IBM, seeking to reinvigorate slumping hardware sales, has shifted its focus to newer technologies and product upgrades. The move is poised to be a setback for NetApp, which gets about 2% of its revenue from IBM, according to data compiled by Bloomberg. While NetApp has said that its IBM relationship has presented challenges, it hasn’t disclosed the reselling shutdown.

“IBM is the largest OEM customer of NetApp, and IBM is focusing more on homegrown products,” Kaushik Roy, an analyst at Wunderlich Securities Inc, wrote in a May 22 note. “IBM is also losing significant market share in storage, which, in turn, is hurting NetApp’s revenues from IBM.”

Shares of NetApp fell 1.1% to $35.76 in New York. They had declined as much as 2.8% earlier, when Bloomberg News reported on the IBM decision. IBM’s stock rose less than 1% to $185.94.

The companies entered an original-equipment manufacturing pact in 2005, letting IBM put its brand on storage products made by Sunnyvale, California-based NetApp. The agreement was meant to help both companies better compete with EMC Corp.

“IBM is focused on strengthening its Software Defined Storage portfolio to provide greater scalability to clients,” Sean Tetpon, a spokesman for IBM, said in an e-mail.

As Armonk, New York-based IBM has since shifted its focus to its own storage products, NetApp’s OEM sales, including those from IBM, have plummeted, falling 34 percent from a year earlier in the quarter that ended in April.

NetApp expects its OEM business to decline as much as 40% in the next year.

Bloomberg