Sun nabs StorageTek in blockbuster

Looking to stem losses and significantly boost its data protection, management and storage wares, Sun last week dug deep and acquired Storage Technology (StorageTek) for $4.1 billion.

Sun blamed its StorEdge storage product line partly for weak financial results reported in April. Sun posted a net loss of $61 million for the quarter ending March 27. 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.

Though Sun created the Network File System (NFS) protocol used in the network-attached storage market, it is widely recognized that the company has not matched the success of competitors IBM and HP at selling storage products with its server systems.

Meanwhile, StorageTek and Sun had a close relationship before the acquisition. StorageTek had a continuing OEM agreement with Sun, starting in 1999. Sun has been StorageTek's largest OEM partner, offering StorageTek libraries under Sun's StorEdge brand, according to StorageTek.

Sun CEO Scott McNealy says the acquisition might just be the beginning. "Sun's technical and financial strength puts us in a great position to act as a consolidator in the [IT] industry," he says. With StorageTek "we have an end-to-end capability" from the development, creation, capture, management, storage and archiving of data, he says.

Industry reaction

"It certainly fills out Sun's storage offerings - they will now be able to control tape library, as well as drive offerings," says Randy Kerns, senior analyst for the Evaluator Group. StorageTek's tape products accounted for 77% of its revenue in 2004.

This acquisition also will give Sun a sales and support channel the company didn't have, analysts and users say. Through the acquisition, Sun will acquire a more than 1,000-person salesforce.

"Even though it is going to take Sun some time to rationalize all the storage products between the two companies, the most important thing it accomplishes for Sun is providing them with a sales and pre-sales technology force that can actually understand and can sell storage," says Stephanie Balaouras, senior analyst at The Yankee Group.

Gordon Haff, senior analyst for Illuminata, adds: "It seems as if Sun was trying to leverage their existing salesforce to a large degree to sell storage. And it wasn't working. They've been adding storage specialists but it's hard to gain critical mass with onesy-twosy additions."

Ron Godine, manager of IS operations for Royal Appliance of Glenwillow, Ohio, says the deal will benefit him, particularly in light of Sun's past sales efforts.

The companies combined

Sun’s acquisition of StorageTek will result in an expanded portfolio of data management and protection products.
SunStorageTek
2004 revenue $11.2 billion$2.2 billion
2004 net income$651 million$191 million
Cash/short term investments$7.4 billion$4.5 billion
Employees32,0007,100
ProductsServers, disk storage, storage management softwareTape automation, disk storage, storage manage-ment and ILM software

"Some of Sun's storage has been faltering badly," Godine says. "Sun has always wanted to make an impact in storage, but they quite honestly need a salesforce - that's one of the troubles we're getting into - we are only seeing mom and pop local places that do it all and none of it well in addressing enterprise-class customers."

"It's probably the right direction for Sun," Godine says. "The move is consistent in that it will make Sun more competitive with Dell, HP, who have strong server, storage and services strategies." While Godine has no StorageTek products, he has plenty of Sun servers.

Still, others say this wasn't the deal they expected Sun to make.

Chris Foster, a storage analyst at Technology Business Research, called the deal "a step backward" because Sun recently has been heading into the services market - while StorageTek is more of a legacy storage and back-up vendor.

"I expected Sun to make an acquisition in professional services or software, and I don't think StorageTek fits that profile. If they were going to spend $4 billion, I thought they would have bought a software company," he says.

John Blau, a correspondent with the IDG News Service, contributed to this story.

Learn more about this topic

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