"Sun's move reeks of desperation. Their server market share continues to decline, and they've taken their eye off the ball again with yet another strategic blunder, making an acquisition in an area of storage that does not promise high growth over the long term"
While HP is not in any position to be accusing anyone of "strategic blunders", its take on Sun's acquisition of tape-storage specialist StorageTek is not completely out of whack with the groundswell of reaction to a deal worth an estimated $4.1bn. It is of course totally biased, but it is also largely inline with the opinion out there.
Sun has been on the back-foot for three or four years now and this latest deal lacks any real "wow" factor to change the view that Sun is a company who's time has come and gone. Set against this backdrop of scepticism are some more tangible reasons why the move has failed to set industry watchers or Wall Street on fire:
- One of Sun's biggest defences against criticism that it is going under has been its huge cash reserves. But now Sun has spent nearly half of its $7.4bn in the bank on a solid but unremarkable storage company.
- The exact positioning of the move still lacks focus over what StorageTek will actually do for Sun as far as long-term strategy goes.
- Tape as a storage medium is on the decline and is seen by many as yesterday's technology.
- StorageTek has yet to announce any real products or strategy around the area of information lifecycle management (ILM) which many experts see as the critical to the future of most storage companies.
That said, there is a flip-side to the acquisition. On the most basic level, Sun is demonstrating to the rest of the industry, Wall Street and its own employees that it has no intention of going out without a fight. On a more granular level, buying StorageTek has some very obvious benefits:
- Sun may have spent around half its cash reserves but Scott McNealy has always aggressively stated that "Sun wants to use its cash for more than just sending a signal that the company won't fade away any time soon."
- Sun said its own earnings will increase within 12 months as a result of the acquisition.
- According to analysts the451, the move makes sense in terms of the wider context of the requirement from IT departments to be able to "interact with fewer, larger technology suppliers that are capable of handling more than one element of the IT stack".
- Disk-based storage may be the new, new thing but according to Sun tape is still up to five times cheaper and is still an effective long-term archiving media.
- StorageTek is set to make an announcement around its information lifecycle management strategy next week.
The aquisition of StorageTek may not be revolutionary but along with the recent purchase of Tarantella, the moves to open source Solaris and its innovative pricing models for server capacity and storage, Sun is at least trying to innovate its way back from the brink and overcome the inertia that has haunted it for half a decade or more.