Sun Microsystems pulled US$4.1 billion out of its US$7 billion war chest to purchase Storage Technology, a buy that proves the vendor is serious about transforming into a powerhouse in the storage and emerging information lifecycle management (ILM) arenas.
At first glance it may appear that Sun, in its largest cash deal to date, is acquiring little more than tape storage and backup, technology that has been waging a tough battle against competing disk offerings over the last two years.
StorageTek is one of the top four independent vendors in the tape automation space, a market which for now is fairly flat. The company is seeing its disk business grow slightly, thanks in part to an OEM deal with Engenio, which also OEMs arrays for IBM, Sun, and SGI.
Adding to its traditional storage portfolio, however, is not necessarily the real gravy of the deal, according to Sun executives.
Rather, the acquisition gives Sun the potential to provide secure information lifecycle management (ILM), a hot button for customers due to increasing government regulation of how data is stored and managed, including requirements for HIPAA and Sarbanes-Oxley compliance.
Sun chairman Scott McNealy highlighted the plans to be a leader in the ILM space, noting that the combination of Sun's identity management software and other secure systems technologies will complement StorageTek's own plans to provide ILM solutions.
"It became very apparent that there is a very interesting alignment in terms of our vision around network storage, around end-to-end information lifecycle management," McNealy said.
"We have the ability to handle the entire lifecycle of data securely with a better chance at the appropriate levels of privacy and availability than anybody else out there in the marketplace."
One snag in this grand vision is that StorageTek does not have much in the way of ILM software at the moment, though its disk offerings are a good basis for ILM solutions. However, Brenda Zawatski, StorageTek's vice president of information lifecycle management, hinted that a comprehensive ILM software portfolio is in the works.
"We have a whole roadmap of [software] products that when we went through this acquisition, [decided] fit in nicely with Sun's vision of what they want to do from a storage perspective," Zawatski said.
One solution provider noted that it's foolish for Sun to pony up more than half of its cash on a company that is seeing its core competency--tape storage and backup--lose market share, while it OEMs some of the same disk arrays as Sun's competitors.
"[StorageTek CEO] Tom Martin pulled the wool over someone's eyes to get US$4 billion for that shrinking company," said the VAR, who asked not to be named. "Using up US$4 billion of US$7 billion to buy [StorageTek] isn't the way I would've spent my money."
One of Sun's chief competitors HP naturally questioned the logic of the deal as well. Patrick Eitenbichler, director of marketing for HP StorageWorks Division, said the move "reeks of desperation" and is "yet another strategic blunder" because purchasing StorageTek does not promise high long-term revenue growth.
Publicly and to no one's surprise, Sun executives expressed nothing but optimism for the deal. McNealy said purchasing StorageTek, a plan that has been in the works for about six months, was a no-brainer. Sun and StorageTek have enjoyed a 10-year partnership and there is very little overlap in the companies' technologies.
Another boon for Sun in the deal is the company will acquire 1,000 new storage sales representatives and a host of storage VARs. StorageTek said 40 percent of its business goes through the channel.
Sun is committed to working with all existing StorageTek partners, but has no specific plans for integrating them into Sun's iForce program yet, a Sun channel spokeswoman said.
StorageTek reported $2.22 billion in revenue for the year ended 2004, a slim increase from the $2.18 billion reported in 2003.
The company has $1 billion in the bank, which means the total cost of the deal to Sun will be about $3.1 billion in cash when all is said and done, said James Whitmore, a storage marketing vice president for Sun.