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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 in the hours after it was announced, citing the fallout from the blockbuster HP-Compaq merger of 2002. That purchase was largely considered a failure that ultimately cost HP CEO Carly Fiorina her job.
"We're neutral to slightly negative on the acquisition," said a research note from Merrill Lynch. "Sun used $3.1 billion of its $7.5 billion in cash for a 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 won't buy the bearish talk on the deal, which will boost its product portfolio and tack on 1,000 sales people to hawk storage products. Sun CEO Scott McNealy said the purchase will also give the company something no one else in the industry has: secure, or private information lifecycle management (ILM).https://o1.qnsr.com/log/p.gif?;n=203;c=204650394;s=9477;x=7936;f=201801171506010;u=j;z=TIMESTAMP;a=20392931;e=i
McNealy said the StorageTek purchase would allow Sun to go beyond 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 anybody else out there in the market," McNealy said on a conference call.
McNealy and fellow executives stressed that the deal was very complementary, with very little product overlap. 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 [that StorageTek has]."
Despite this good 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 going to 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 senior analyst 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."
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 it's far from a sure thing.
"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 upon 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 mainly 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.
As an appetizer before its StorageTek main course, Sun last month bought Procom's network-attached storage (NAS) software assets for $50 million to boost its storage networking portfolio.
McNealy hinted that Sun was looking at other things in "parallel" to the 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."
Still, the overwhelming response from analysts was one of skepticism. The 451 analyst Simon Robinson urged caution on Sun 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."
Article courtesy of Internet News