Sun Microsystems Inc.’s recent decision to acquire back-up tape vendor StorageTek Corp. for US$4.1 billion has left at least one analyst scratching his head, wondering exactly why the deal occurred.
“Buying a company that is primarily tape (technology) today doesn’t look like an exciting play for a forward-thinking company like Sun,” said Frank Gillett, an analyst with Forrester Research Inc. “It appears like they have some strategic stuff in mind in the long run…but I don’t think that this acquisition is being justified on yet-to-be-announced technology,” he said. “In the short run [the logic] is an open question.”
Under the agreement announced Thursday, Sun will pay US$4.1 billion for StorageTek. In turn, StorageTek investors will receive $37 a share in cash.
Gillett said he could only surmise that the deal was not about the technology but rather the acquisition of a storage-specialized workforce and customer base. “And I can’t make that one really hum (either),” he said. “At the end of the day it almost seems like a really simple-minded (deal)…let’s make Sun bigger.”
“If you are being a really pragmatic business person [the deal] may be about bulking Sun up with a plausible, but not easy, acquisition that ultimately may pay off if they can execute well,” Gillett said. “But Sun doesn’t have a huge track record of executing on acquisitions.”
Analysts at Forrester are still “struggling a bit” to understand this deal, he said.
But James Whitemore, Sun’s Menlo Park, Calif.-based vice-president of marketing for network storage, said the acquisition is very specific and completes a big part of Sun’s end-to-end storage strategy puzzle. “It (will be) a one stop shop.”
“Tape is a part of a tiered storage architecture. If you look at any tiered architecture you need high speed, relatively high cost, data centre class disk, you need lower cost performance disk, you need tape,” he said. “You need a complete portfolio, (and) with this acquisition, we have it.”
“What we are adding here is a thousand focused, storage-sales specialists, 2,000-plus focused, storage-service professionals,” he said.
There are no plans to change StorageTek’s product and development roadmap, Whitemore said, especially given the complementary nature of the two companies’ technologies. There is little technology overlap, he said.
As to why StorageTek agreed to the deal, Gillett is a little less confused.
“(Maybe) they thought that even though they had great technology, as a US$2 billion specialist with a tape foundation, they just couldn’t go uphill against the storage guys no matter how cool their ideas were,” he said. The ‘storage guys’ include the likes of IBM Corp., EMC Corp. and Hitachi Ltd, he said. By aligning itself to Sun, StorageTek will increase it cachet, Gillett said.
Sun targeted its storage product line as a cause for weak financial results reported in April. Sun reported a net loss of $61 million for the quarter ending March 27, missing analyst expectations.
Company executives said one problem was that the rate at which customers purchase Sun’s storage products along with servers had dropped over the last three quarters. Sun competitors such as IBM have been selling storage devices with servers, but Sun has lagged in that market.
–With files from John Blau and Grant Gross, IDG News Service — Washington Bureau
