So Sun has bought StorageTek. There can be few who don't get the impression that this is somewhat of a last-ditch attempt to impress the market, its potential customers and those all-important shareholders. At least one analyst agrees that it's a bit of a ho-hum move.
Sun's rationale for the move is that there are product synergies, and that its storage product line was the cause of weak financial results in April. It reported a net loss of $61 million for the quarter, and missed analyst expectations. 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. While Sun competitors such as IBM have been selling storage devices with servers, Sun has lagged.
From a market perspective, Sun was one of StorageTek's biggest OEMs, offering StorageTek libraries under Sun's own StorEdge brand. On the other hand, HP has also been an important StorageTek sales partner, a relationship that was renewed only two weeks ago.
On 16 May, the storage vendor announced an extension of its OEM partnership with HP to deliver mid-range storage products. Under the terms of the deal, HP was to provide StorageTek with LTO Ultrium tape technology, a significant cuddling-up after their break-up which succeeded the HP-Compaq merger. Since HP competes head-on with Sun in the server market, you have to assume that the HP-StorageTek deal is over following Sun's move.
And what do the shareholders think? They're not impressed. While StorageTek saw an increase of some £550 million in its valuation, due to the 18.5 per cent premium that Sun paid for the shares, Sun shareholders saw the their company's value fall by $460m.
Sun has just squandered over half its cash mountain on a storage company in a bid to transform itself back into a company with some form of growth. And it may well do that briefly, as StorageTek's sales force's efforts translate onto Sun's bottom line. But with $3.4 billion left in the bank and companies proving expensive objects to buy, there is little scope for a second acquisition on this scale. This one has to work.
As we pointed out last June, Sun is the Apple of its market. Apple has its niches in desktop publishing and multimedia, but it has to look over its shoulder as others catch up. Similarly, Sun is in the leading pack for the niche that is the market for big servers, but it has to keep on running. On the software front, Solaris is very much a minority operating system -- and even though the Intel version has been resurrected as a going concern, its dire hardware support renders it an also-ran.
Little has changed since then. Solaris has gone open source but that is unlikely to load significant cash volumes onto Sun's bottom line for quite some time -- if ever. And scepticism levels run high about Sun's much vaunted but apparently stalled alliance with Microsoft.
While Sun punches above its weight in many areas, not least clever software and hardware technology together with bumptious, publicity-seeking top execs, in a growing market, it continues to lose money while its rivals post profits.
It's not a viable strategy in the long term, and the StorageTek purchase just looks desperate.
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