Sun Microsystems’ acquisition of StorageTek officially closed late Wednesday after StorageTek shareholders overwhelmingly approved the $4.1 billion deal on Tuesday.
And now the hard part begins.
“There’s lots of work still to be done,” said Mark Canepa, Sun’s Data Management Group executive vice president and head of the new merged Sun-StorageTek unit. “With as much preparation work as you do beforehand, integrations begin at close, they don’t end, and so we fully expect several quarters of hard work.”
Analysts say Sun will face the challenge of translating StorageTek’s tape and mainframe expertise into greater storage sales. Overnight, Sun will become the biggest tape vendor, with a 36% market share, at a time when storage users are increasingly moving to disk for all but their archiving needs.
The key to the success of the acquisition, some analysts say, will be StorageTek’s 1,200-person sales force.
“Sun will need the StorageTek sales army to help halt its continuing revenue slide in storage,” said The 451 Group analyst Sonia Lelii. “That means StorageTek’s sales force will have to ramp up pretty quickly to prove it has the mettle to sell more than just tape.”
Canepa is bullish on his new sales force.
“The fact that all of a sudden, we’ve increased the Sun sales force by well over 1,000 storage-savvy salespeople combined with the breadth of the product line allows us to have a fundamentally different conversation with a customer than we were able to have before,” Canepa told Enterprise Storage Forum.
StorageTek Brand to Live On
Canepa said Sun has decided to retain the StorageTek name as a brand name of Sun.
“We came to the conclusion that they’ve got a good brand and we want to retain it,” Canepa said. “We’re putting it up alongside Sparc, Solaris and Java. StorageTek will become the fourth big brand of Sun Microsystems.”
The plan is that, as product cycles change over time, Sun will substitute the StorageTek brand name for the StorEdge brand name.
StorageTek has had a busy three months clearing its product pipeline since the merger was announced, unveiling the IntelliStore archive and compliance solution offering both disk and tape capability, the ViaRemote offsite backup and recovery solution, and a new Shared Virtual Array (SVA) product, the FlexLin V2X4f for mainframe environments.
Big Challenges Ahead
Robert W. Baird & Co analyst Dan Renouard said both companies face significant challenges.
Renouard noted that StorageTek is a good operator, with a strong customer base in a very tough tape market. He sees Sun as a relatively poor operator that hasn’t really made money in several years, with a large but declining installed base in a slow-growth market.
“StorageTek brings a storage focus and should offer some ability to cross-sell,” says Renouard. “Sun has some decent technology on the server side, but customer momentum is fairly negative. StorageTek probably helps a bit, but will require careful integration to work the right way.”
It’s about People
As analysts see it, Sun’s acquisition of StorageTek isn’t really about technology; it’s about people and sales.
“The overriding upside to the acquisition for Sun is that they now have additional ‘feet on the street’ who are extremely well-equipped to sell enterprise storage solutions,” IDC analyst Brad Nisbet told ESF. “Yes, they have focused on tape in the enterprise, but we have no reason to expect that these additional salespeople cannot leverage their expertise on the disk systems side, taking advantage of Sun’s broad disk storage systems portfolio.”
Nisbet said IDC expects that the acquisition will also benefit Sun’s high-end storage business.
Enterprise Management Associates analyst Mike Karp noted that StorageTek is particularly active in professional services for large enterprise IT shops.
“Not too many people know that STK does about $1 billion in IT services each year,” Karp said. “Sun may likely get to ride their coattails.”
Karp added that both Sun and StorageTek have good intellectual property and staff in the area of compliance-related technology.
Karp said StorageTek also offers access to some technologies and markets that will help Sun. Among those is access to the mainframe world, where StorageTek is a long-standing respected player. StorageTek offers Sun first-rate tape and virtual tape (VTL) technology.
Long Live Tape
Tape has been derided for years by disk proponents, yet it remains a critical archiving technology.
Market research firm Freeman Reports has forecast that even though compact tape drive shipments (cartridge, DAT, 8MM, SAIT, DLT and LTO) will decline in 2005 to 1.79 million units from 1.89 million in 2004, revenues will be up to $1.80 billion from $1.76 billion during that same time period. Both shipment and revenues are forecast by Freeman to grow over the next several years, with revenue hitting $2.57 billion by 2010 on unit shipments of 2.13 million.
Bob Abraham, president of Freeman Reports, said that even though StorageTek is highly respected as a tape technology leader, the merger is not about technology.
“I believe that the merger has a compelling business rationale related to expanding the customer base of the combined company,” Abraham told ESF. “In order to gain the maximum benefit and maintain that benefit, the combined company will support StorageTek’s tape strategy of technology and market leadership. This is indeed a good thing for the tape industry.”
Data Mobility Group founder and senior analyst John Webster views the impact on the tape industry of the Sun/StorageTek merger somewhat differently.
“I think it’s neither net positive nor negative for tape,” Webster said. “Sun has had a relationship with STK for years for OEMing tape. I don’t think it moves the tape opportunity in one direction or another. Tape is going to continue on a growth path, and it is growing for the foreseeable future as people try and figure out what their tiered storage environment looks like, and tiered storage definitely has a place for tape going forward.”
From Webster’s point of view, the more interesting question is what the combined company will look like from an R&D standpoint. Webster said StorageTek has some interesting things going on in the area of security that Sun can now take advantage of, and there are also some interesting storage management technologies that can now be integrated with what Sun is doing in information lifecycle management (ILM).
“Bringing the two companies together puts under one roof identity management, archival, security and ILM,” Canepa said. “Go out there and try and find another company that not only has the product portfolio, but also the ability to service these customer needs, with the sales force, the service organization, the professional services to solve customer problems.”
“I think we’ve created something truly unique here.”
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