By Nicola Leske and Nadia Damouni
(Reuters) - Cisco Systems Inc on Tuesday announced its first foray into the data storage market, saying it would pay $415 million to acquire privately held storage system maker Whiptail.
Cisco said it will pay cash and incentives for the acquisition, expected to close in the first quarter of 2014.
Whiptail, founded in 2008 and based in Whippany, New Jersey, makes storage systems based on flash memory chips, which allow data to move through servers with greater speed and efficiency as well as higher volume.
One flash server can manage the workload of a number of servers on traditional hard disk drives.
Cisco, one of the biggest providers of X86 servers, said Whiptail's technology was a good fit allowing Cisco to extend its converged infrastructure, combining components such as servers, data storage devices, networking equipment and software into one offering.
Cisco's senior vice president of corporate development Hilton Romanski said the company decided to acquire Whiptail after observing the technology up close.
"We've known the company for some time and we're actually an investor," he said.
He added that Cisco preferred to be in exclusive conversations with potential targets and that had been the case with Whiptail.
Romanski declined to give a revenue figure for Whiptail but a source close to the situation said Whiptail's revenue was between $20 million and $30 million. The company has about 80 employees.
ISI group analyst Brian Marshall said that with the acquisition Cisco was "finally entering the $50 billion enterprise storage industry".
The move is likely to weigh on Cisco's partnerships with data storage equipment makers EMC and NetApp, which offer flash storage.
"Cisco is clearly taking a more offensive stance now and will no longer completely rely on existing partners like EMC and NetApp for its enterprise storage solutions," Marshall said.
On Monday, hard drive maker Western Digital said it would pay $685 million in cash to buy Virident Systems, which makes flash memory for servers.
Tim Stammers, an analyst with 451 research, added that many of the other large vendors had their flash storage sorted.
"IBM has Texas Memory Systems, Dell invested in Skyera, EMC has XtremIO and HP has 3Par," he said.
He said the price Cisco paid was on the high side and that it appeared Whiptail had pushed a hard bargain.
Whiptail was advised by Evercore Partners.
Cisco stock was up 0.79 percent at $24.10.
(Reporting By Nicola Leske; Editing by David Gregorio)