That purchase is widely viewed as a questionable deal that ultimately cost former CEO Carly Fiorina her job. “Sun used $3.1 billion of its $7.5 billion in cash for a Sun CEO Scott McNealy said the StorageTek purchase would allow Sun to go beyond
Gerr saluted Sun’s repeated claim that storage should be an integral part of the server sale, noting that if the company can make the argument compellingly, Sun will have a broader set of technology to draw from with STK’s enterprise and midrange tape solutions. But this isn’t a sure-shot
As somewhat of an appetizer to StorageTek, Sun last month bought
McNealy hinted that Sun was looking at other things in “parallel” to the
Sun Microsystems has a lot of work to do to instill investor confidence that its $4.1 billion bid for
StorageTek isn’t a colossal mistake.
Several analysts looked down on the deal after it was
announced, citing the fallout from the blockbuster HP-Compaq merger of 2002.
“We’re neutral to slightly negative on the acquisition,” according to a note from Merrill Lynch about Sun’s StorageTek purchase.
deal that doesn’t seem to accelerate revenue growth given that tape is a mature market. If Sun management called the HP/Compaq merger the collision
of two garbage trucks, what is a Sun/StorageTek combination?”
Sun executives aren’t buying the bearish talk. They say the deal will boost the product portfolio and tack on 1,000 sales people to hawk more storage products.
cradle-to-grave management because the company can add its significant portfolio of privacy, security, access management and ID management
software. When combined with StorageTek’s products, the integrated portfolio could approve quite attractive to customers, he argued.
“We have, with our ID management directory, Java card, access manager and Web services stack, the ability — from develop, create, capture manage and
store and archive — to handle the entire lifecycle of data securely with a
better chance of the appropriate levels of privacy and availability of any
body else out there in the market,” McNealy said on a conference call.
McNealy and fellow executives said very little product overlap came from the deal. They also said StorageTek’s relationships
with Sun rivals like IBM and HP would be preserved. Sun vice president James
Whitemore explained Sun’s position after the call.
“This is the way the storage industry works now,” Whitemore said, noting
that rivals constantly OEM from each other in the spirit of competitive
cooperation. “We’re talking about storage hardware, which is not the
significant part of the value chain. We anticipate developing the OEM
relationships [StorageTek has].”
Despite such cheer, skepticism reigns in the analyst community.
“StorageTek had partnership agreements in place with a lot of Sun’s
competitors, so how that plays, whether they will continue working with Sun,
is an interesting point,” said Pund-IT Research analyst Charles King in an
interview. “If not where are they gonna get their products?”
Merrill Lynch analysts said: “Sun needs to attract new customers to make the
deal work. The win comes if Sun can leverage STK’s data center installed
base to gain new Solaris customers. Based on our survey results, we are
skeptical.”
ESG Analyst Gives Deal a “C+”
Enterprise Strategy Group Pete Gerr said he was overly skeptical, giving the
deal a “C+” grade.
“I struggle to see how Sun will make sense of the cultural clash, both from a
West coast-East coast perspective. But also, Sun is a technology and
engineering-oriented organization while STK is a very sales-oriented
organization,” Gerr said in an interview. “There are so many ‘what ifs’ that it leaves me very skeptical.”
either.
“The problem I have with it is that neither vendor has really done a good
job of expanding their ISV community,” Gerr said. “While Sun certainly has
stable relationships with Oracle, SAP and PeopleSoft, neither company has
been able to cultivate a relationship with data management and data
protection ISVs. They’re not really relevant in the e-mail or compliance
segment.”
Gerr also said Sun’s storage unit hasn’t proven to be very technologically
proficient, while StorageTek prefers to acquire technology through OEM
deals, highlighting key philosophical differences.
One thing that seems almost universally agreed on is that Sun is targeting
EMC in this deal. But Gerr said neither Sun nor StorageTek do a good job
selling primary disk, leaving EMC fairly safe.
As for McNealy’s claims to about procuring “secure ILM,” Gerr said the
executive should realize that hardware is not going to
lead the next era of the storage industry. Software and services will.
“If that’s his claim, then Sun shouldn’t buy StorageTek, they should buy
Symantec,” Gerr said. “And then they would have gotten Symantec and Veritas
and had everything from server virtualization, volume management, e-mail
archiving, content management… That would have played a better story to
Scott’s comments than buying a hardware dinosaur.”
Sun’s Acquisitive Nature
If Sun’s announcement produced nothing but skepticism from analysts, it also
led Sun officials to drive home that it views storage as a strategic value
chain and that the company intends to become more aggressive on the
acquisition front.
Procom’s network-attached storage (NAS) software assets for $50 million to
boost its storage networking portfolio.
StorageTek deal. Whether those targets are of similar size or scope remains
to be seen, but Sun COO Jonathan Schwartz was very clear about Sun’s
intentions.
“Let me be very clear: We will be a consolidator in the industry,” Schwartz
said. “We will be delivering scope and breadth of products to customers. The
growth opportunities for us aren’t simply from products that may have a
natural growth rate in the market place.”
McNealy chipped in: “As we consolidate we are simplifying more of the
customer problem. They have to do less assembly, less best-of-breed, less
integration, testing, certifying, upgrading and all the rest of it. It’s
kind of like saying why does Ford do tires and windshields. Because it
simplifies the problem for the customer in a big-time way.”
If the public is to listen to the analysts, Sun better hope its tires don’t
fall off from acquiring the StorageTek vehicle. The 451 analyst Simon
Robinson urged Sun caution going forward.
“The acquisition could prove to be just the tip of the iceberg: Sun is
committed to being an industry consolidator, and more acquisitions are
expected,” Robinson said in a research note. “Those that have maintained
that storage was never strategic to Sun must revise their position.
He continued: “One of the first moves by Sun should be to reassure
StorageTek’s major OEMs, especially those that compete more directly with
Sun in other fields, like Hewlett-Packard. Although no single OEM accounts
for more than 10% of StorageTek’s business, major rivals such as ADIC will
be sure to make the most of any conflict, perceived or real.”
Analysts: Sun Blinded by StorageTek’s Light
