HP needs 'fancy footwork' for 3Par buy to work
Hewlett-Packard and 3Par are a good fit but having bought the storage vendor at a premium, HP needs to display some "fancy footwork" to make the acquisition worthwhile, according to an analyst.
Simon Piff, program director for enterprise infrastructure at IDC Asia-Pacific's practice group, noted that it was a "gamble" for HP to pursue an overpriced deal. On the other hand, as HP has been a reseller of Hitachi Data Systems (HDS) in the high-end storage market, the 3Par acquisition would reinforce its commitment in that space and earn the company "interesting mindshare in Asia", he said in a phone interview.
"Not many customers were taking HP seriously in the high-end storage business because they did not have their own product," Piff pointed out. "Now, [with 3Par,] they are going to have their own product.
"While it is going to be very difficult for them to get a cash return in the short term on this [acquisition], they have also in one fell swoop completely changed the market's perception about their attitude toward higher-end storage."
HP and Dell were locked in a bidding war for 3Par for nearly a fortnight, following Dell's announcement on Aug. 16 that it would acquire the maker of high-end storage systems for US$1.15 billion or a payout of US$18 per share.
HP eventually won the race after Dell declined to match its rival's offer of US$33 a share, or US$2.4 billion. Prior to the bidding frenzy, 3Par's shares were trading in the US$9-10 range.
According to Piff, HP's success with previous storage acquisitions and integrations suggests that the company is capable of taking the acquired technology and assets further. "They've done a good job of integrating LeftHand, so I see no reason why they would do anything other than a great job of integrating 3Par," he said.
3Par, he noted, "hasn't been really big" in Asia, although it was growing fairly quickly. With the acquisition, it would have access to HP's vast sales force and channel segment, thereby reaching out to a much broader customer base in the region.
"3Par is now probably going to grow a lot faster as part of HP than it could possibly have done as a standalone organization," added Piff.
Dell in the aftermath
As for Dell, despite having lost 3Par to HP, the company is not without options as there are "a number of other smaller, high-end storage vendors available in the market", noted Piff.
Dell also revealed this week in a filing with the U.S. Securities and Exchange Commission its intention to float bonds for raising money to fund future acquisitions.
In an e-mail commentary earlier this week, Tim Stammers, senior analyst at Ovum, pointed out that bringing 3Par into its fold would have taken Dell "further down a path toward independence from its storage partner EMC".
"Until Dell bought EqualLogic, the bulk of its storage sales consisted of products that were originally designed by EMC. The EqualLogic purchase allowed Dell to own its own mid-range storage technology and enjoy greater profit margins on sales of those products," he explained. "3Par's mid-range to high-end disk arrays would have complemented Dell's EqualLogic mid-range products well."
Stammers noted that EMC announced last year it was "winding down its reselling relationship with Dell", which had allowed the server maker to resell EMC's flagship Symmetrix disk array. 3Par, according to the analyst, had been "the only independent supplier of high-end block-level storage that Dell could afford to buy". With the acquisition foiled, Dell now has to look for an alternative high-end hardware option to fulfill its expansion plans.
"Dell could follow in HP's footsteps and re-badge [HDS] products, but that is unlikely to happen because it would result in a confusing mix of storage architectures in Dell's portfolio," he concluded.