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Sun Buying StorageTek for $4.1B
MarkEst1973 writes "Sun Microsystems Inc. is buying Storage Technology Corp. in a $4.1 billion cash deal, the companies announced Thursday. The acquisition answers lingering questions about what Sun would do with about $3.1 billion of balance sheet cash. StorageTek is a profitable company with $191 million in profit in '04 on $2.2bn in sales while Sun posted a loss last year (albeit a much smaller one than the year before)."
from the article: "The deal, if completed, will pay StorageTek (Research) shareholders $37 a share, or an 18.5 percent premium on Wednesday's close."
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StorageTek is well connected with many other storage providers and some of their products are becoming of interest to the mainframe guys where I work. Future products to encrypt data going to tap using hardware will definitely increase their profitibility, if those products ever come out (suppose to come out 2006 last I heard). This is certainly a big buy for Sun.
8.6% profit on HARDWARE is spectacular. Hardware is a very low margin business.
Thalasar
I don't know much about finances in large businesses, but is 8.6% profit on sales considered good? Or is it just that in the case of Sun, any profit is good?
Depends on the business. For a manufacturing business a net profit of 8% might be outstanding. For a software business 8% net profit is pretty bad usually. In this case, 8.6% is pretty comparable to IBM's profit margin of 8.73% and IBM is a pretty darn good company.
Yahoo Finance shows Sun as profitable with a P/E of 19 right now...low for a tech company.
So? They aren't very profitable so we shouldn't expect a high P/E. They might be in the black but they only made $18 million in net income last quarter; basically breakeven on $2.8 billion in revenue. And they lost $147 million the previous quarter. P/E ratios can be useful but they are HIGHLY overrated as a means to compare companies. Plus their stock price is in the crapper at $3.76. Perhaps it's a bargin at that price but the market is pretty smart and companies as heavily traded as SUNW don't fall close to penny stock valuations because they are doing well.
Transition its business model to what? Sun has always sold (and resold) storage solutions.
There is a difference between reselling something and focusing on it. IBM used to make most of their money selling hardware. They've always sold services but now they focused on it. Sun has always sold storage but now it will be a MUCH bigger part of their business. Hence their business strategy will have to change.
and the first thing he said is "Do we have any StorageTek equipment?"
We don't but if we did, we might consider phasing it out now. He had lunch with McNeely at some CIO luncheon a few weeks back and came back thinking the man was a total idiot. He spent all the time railing against Linux and his competitors instead of talking up things that might make us consider Sun equipment.
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This also gives Sun a pool of tech support people who know how to support things in a heterogenous server environment, mainly Windows, but others as well. With Sun selling servers that are Microsoft Certified (the opeteron based ones for example), look for Sun storage to be attached to more and more Windows servers. Check out the Microsoft blogger with pics of Sun storage in Redmond if you doubt that.
EMC is obviously the big hitter in the storage arena, at the enterprise level at least. But of course, trying to aquire them would have been more expensive and also would have conflicted with current resale agreements with Hitachi. Doable? Possibly. But STK & Sun probably have a closer historical relationship that has had less bumps in the road. Sun has never really competed with STK, its always resold their tape libraries.