UPDATE 4-EMC to buy data storage firm Isilon for $2.25 bln

* EMC offers $33.85 per share

* Offer 29 pct premium from Friday's close

* Isilon seen as M&A target since bidding war for 3PAR

* Termination fee set at $100 mln (Adds names of bankers, last paragraph; updates shares)

By Jim Finkle and Ritsuko Ando

BOSTON/NEW YORK, Nov 15 (Reuters) - EMC Corp (EMC.N), the biggest maker of corporate data storage equipment, plans to buy smaller rival Isilon Systems Inc ISLN.O for $2.25 billion as consolidation in the technology sector gains steam.

Large, cash-rich technology companies like EMC are buying up smaller rivals as they position themselves for an economic recovery.

"You want to buy companies when times are good. The fundamentals are very strong right now," said Kaushik Roy, an analyst with Wedbush Securities. "On top of that, you better strike before competitors strike."

Data storage companies have been among the hottest targets in the recent round of consolidation as they play a crucial role in "cloud computing" -- the use of technology to access remote computing power and data over the Internet.

"The unmistakable waves of cloud computing and 'Big Data' are upon us," EMC Chief Executive Joe Tucci said in a statement. "Customers are looking for new ways to store, protect, secure and add intelligence to the vast amounts of information they will accumulate over the next decade."

EMC's $33.85-a-share cash offer for Isilon, announced by both companies on Monday, represents a 29 percent premium over Isilon's closing share price on Friday. Isilon shares closed at $33.77 on Nasdaq, just 8 cents shy of the offer price.

The growing popularity of online video from media companies, and new software from industries like life sciences, particularly related to gene sequencing, are expected to generate exponentially large amounts of data.

EMC, International Business Machines Corp (IBM.N), Hewlett-Packard Co (HPQ.N), Dell Inc (DELL.O) and Oracle Corp (ORCL.O) are jostling for dominance in the storage market.

HP bought 3PAR for $2.4 billion earlier this year after a heated battle with Dell. [ID:nN02238002]

IBM completed the $1.7 billion acquisition of Netezza Corp last week. [ID:nN20239103]

Isilon shares had already rallied about 56 percent over the past three months amid persistent speculation that the company would quickly be sold in the wake of the 3PAR deal.

Jefferies & Co analyst Bill Choi expects consolidation to continue in the sector. He cited Compellent Technologies Inc CML.N, CommVault Systems Inc (CVLT.O) and NetApp Inc (NTAP.O) as potential targets. Activist investors are pushing Symantec Corp (SYMC.O) to consider strategic options, including a spinoff of its storage management software business. [ID:nN10239775]

Isilon sells so-called mid-range storage equipment that is easy to configure, an area in which EMC needs to improve its portfolio, Choi said. That would help it better compete with NetApp, the leader in that segment of the market, he added.

"This is going to be a key battle for next year," Choi said.

The Isilon deal, unanimously approved by the boards of directors of both companies, is expected to close late this year. The companies expect the deal to add to EMC's earnings, excluding one-time charges, in 2011, and would likely not have a material impact this year.

EMC also reaffirmed its outlook for 2010, announced last month, including its forecast for revenue of $16.9 billion and earnings per share of 91 cents, or $1.25 excluding special items.

The companies agreed to a breakup fee of $100 million in case the deal is terminated, according to a filing with the U.S. Securities and Exchange Commission.

Shares in Hopkinton, Massachusetts-based EMC fell 1.2 percent to $21.45, compared with a 0.2 percent drop in the Nasdaq Composite Index.

Qatalyst Group and Morgan Stanley provided investment banking services to Isilon. EMC did not hire bankers. Wilson Sonsini Goodrich & Rosati was Isilon's legal adviser, while Skadden, Arps, Slate, Meagher & Flom advised EMC on the deal. (Reporting by Jim Finkle in Boston and Ritsuko Ando in New York and S. John Tilak in Bangalore; Editing by Gerald E. McCormick, Derek Caney, Gary Hill)