Israel is where the USB flash drive was invented and where innovative companies such as Anobit and XtremIO are drawing American companies to their shores in droves to get a piece of the intellectual property pie.
At the same time EMC was in Israel trying to strike a deal to buy XtremeIO, NetApp and Dell were also there vying for the flash storage array maker's intellectual property.
EMC's acquisition of the NAND flash storage company followed a similar move by Apple when it purchased Israeli-based flash drive maker Anobit in January.
"Particularly in flash memory they have really good talent over there," said Ryan Chien, an analyst with market research firm IHS iSuppli.
Flash storage is at the forefront of technology powering current industry trends such as cloud services, virtualization and online transaction processing. Because of that, flash development is a red-hot industry, analysts said. That fact has not been lost on Israel.
Israel has long been a nation that draws in big corporate R&D facilities and acquisitions. Microsoft and Cisco both built their first non-U.S. R&D facilities there, for instance. Google has two R&D centers in Israel now; Intel has four. Intel also has two manufacturing facilities
In 2010-2011, Israel was ranked No. 1 in the world in terms of the quality of its scientific research institutions by the Geneva-based World Economic Forum. It also ranked seventh in its capacity for innovation.
EMC itself has about 800 employees in Israel, part of an R&D center that includes VMware development. In 2010, Micron also purchased Numonyx, which operates a flash fabrication in Israel.
R&D centers in Israel (Source: State of Israel Ministry of Industry, Trade & Labor)
In flash, software rules
When it comes to engineering NAND flash storage products, writing code to manage how the non-volatile memory is used is key, especially as the size of flash chips continues to shrink. (Smaller chips increase the likelihood of increased data errors as electrons leak through thinner and thinner silicon cell walls.) Controlling how data is laid out on flash chips also results in longer product life.
On top of managing the NAND flash itself, solid-state drive (SSD) systems need software that enables optimum performance in conjunction with I/O hungry applications and hard disk drives. For example, tiering technology migrates data from low-end disks to high-end disks to flash drives.
Israel has long been home to flash storage development. For example, USB flash drives were invented by the Israeli company M-Systems in partnership with IBM. M-Systems was bought out by flash drive maker SanDisk in 2006.
"EMC is looking at the NAND resources in Israel, scientists who can handle all the issues with lower-lithography NAND," Chien said.
In 2010, EMC hired Orna Berry -- formerly the chief scientist of Israel's Ministry of Industry, Trade, and Labor -- to be the general manager of its Center of Excellence (COE) facility in Beersheba, directly adjacent to Ben-Gurion University. The COE is responsible for R&D in areas such as security, high availability systems and flash memory and runs EMC's anti-fraud service for the company's worldwide user base.
The Israeli difference
Because of Israel's diminutive size and its location, technological innovation is more a matter of "life and death," Berry said. "Many of the technologies, if we don't invent them, we also [could not] buy them. It's a political issue. Consequently, we often need to be self-sufficient in certain technologies. On the other hand, being first to market often gives us an opportunity to have a place in the market."
Israel's military-industrial complex is also tightly intertwined with academia, helping to develop and promote programs that foster technology innovation and corporate incubation. "I would say that almost more than any other government, maybe with the exception of Finland and Singapore, Israel has been extremely focused on turning know-how into economical or defense value as a policy," Berry said.
Mark Peters, an analyst with market research firm ESG, agreed. What Israel has to offer is a large population of students steeped in mathematics and science. The country has no natural resources to speak of and doesn't export any significant retail items, Peters said.
"When was the last time you saw a tag that said 'Made in Israel?'" Peters said. "For Israel, education is all about sophisticated science and math. As a country, they're not focused on low-margin products. They're always at the advanced level."
Israel's top schools, such as Tel Aviv University and Technion-Israel Institute of Technology, are bastions of high-tech education.
Additionally, Peters noted that an unusually high number of well-educated Russians have immigrated to Israel since the fall of the Soviet Union in the 1990s. Peters also pointed to high military R&D spending, and a strong venture capitalist community for the nation's tech success.
Big companies on the prowl
Every large technology company - from IBM to Hewlett-Packard - is considering acquiring a full range of solid-state products, from drives to arrays, Peters said. If they don't, they'll be left behind.
"They've got to be shopping around everything," he said. "Management, ultimately, for solid-state technology has got to be up and down the entire stack," he said.
For example, last year flash drive maker SanDisk purchased Pliant Technologies for its enterprise-class flash drives. It then turned around and purchased flash management software vendor FlashSoft this past February.
EMC's acquisition roadmap to date has included nine Israeli-based companies, including Kashya, nLayers and Proactivity. But XtremIO is its largest acquisition by far, with EMC reportedly spending $430 million on a company that has yet to ship its first product.
While the XtremIO buyout raised the eyebrows of some industry pundits who doubted the wisdom of the deal, according to Peters and Kobi Rozengarten, a managing partner at Jerusalem Venture Partners (JVP). JVP is one of several major investors in XtremIO, which garnered $25 million in venture funding since its founding in 2009.
Peters and Rozengarten said EMC wanted superior "architectural" software -- and got it.
"Today's flash is a very unreliable device with poor retention and endurance (especially when scaling to 20 nanometers and bellow)," Rozengarten said. "This requires a sophisticated ECC based on [a digital signal processor] and new flash controller know-how. In this space, Israeli's companies are leading with companies such as Anobit and Densbits."
In fact, Israel has been a hub for many leading companies and technologies including semiconductors, communications, security and storage, Rozengarten said.
As a result, it has become a nation of high-profile startups that don't last long before they're scooped up by big international players, Peters said.
Outside Israel, the flash storage market is flush with vendors for the picking, from all-flash array makers such as Nimbus, Violin Memory, Texas Memory Systems, Pure Storage, and Whiptail to PCIe flash card vendors such as Fusion-io, Intel, Micron and Virident. There are also all-flash appliance makers such as SolidFire and Tintri. Of the latter companies, Violin is the least likely to be acquired as it has its sights on going public.
Flash arrays: the next battle ground
Chien expects flash array products to be the next battle ground among vendors. The industry will consolidate quickly over the next several years, he said, as big storage vendors such as Dell, NetApp and HP rush to scoop up flash technology in much the same way they did data deduplication companies a few years ago.
That, no doubt, played into EMC's decision to snap up XtremIO.
One reason for the battle is that flash storage's ultra-high performance characteristics address specific applications that are on the leading edge of corporate IT projects -- namely cloud, virtualization and web-based services.
For example, cloud service providers want arrays that have the ability to offer multi-tenancy, or many users on a single server or array, but without hitting I/O performance. Virtual Desktop Infrastructures (VDIs) place a heavy I/O burden on servers when large corporate deployments boot up in the morning and shut down and refresh at night.
Although Dell declined to comment on whether it's in the hunt for flash storage vendors, a NetApp spokesperson said by e-mail that the company is "always on the lookout for opportunities to acquire technology and businesses that complement and enhance our product and solution portfolio.
"We cannot disclose details around our interest in a specific space or target," the spokesperson said. "NetApp remains interested in pursuing corporate development opportunities that help us to gain share, whether it be through acquisitions, strategic partnerships, and/or reseller agreements."
When it came to an XtremIO deal, both NetApp and Dell were at a disadvantage. EMC had been an investor in the company from the beginning, according to at least two sources.
More importantly, EMC was not looking for just another flash hardware product, Peters said. It wanted XtremIO's flash management intellectual property -- the software.
In remarks after the purchase, EMC spokesman Dave Farmer did not refer to XtremIO's product as a flash array but as "an architecture."
"EMC, whatever else you may think of them, doesn't do a lot of stupid things," Peters said. "For the next few years, the industry will be focused on storage management and not flash technology."
Lucas Mearian covers storage, disaster recovery and business continuity, financial services infrastructure and health care IT for Computerworld. Follow Lucas on Twitter at @lucasmearian or subscribe to Lucas's RSS feed. His e-mail address is firstname.lastname@example.org.
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