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)."

Comments

Oooh

[c0ldfusi0n]

So that's why the two StorageTek people in the room next to my office are soo happy.

Reverse acquisition?

[sjbe]

This strikes me as something close to an exit strategy by way of diversification for Sun. Their core server business is seriously erroding and under attack from all sides. This gives them potentially two things. First, a way to provide integrated product lines. Servers and storage are complementary businesses and I could see Sun offering tightly bundled turnkey installations. Second, this gets Sun a profit center to keep them afloat as they transition their business model.

Though it might not be advertised as such, this might be akin to a reverse acquisition since StorageTek is profitable and Sun isn't. It's interesting, though not surprising, that Sun had to pay cash. Their stock isn't worth much these days and no one is going to lend them money with a BB+ credit rating.

Re:Reverse acquisition?

[Glock27]

This strikes me as something close to an exit strategy by way of diversification for Sun.

I don't think so.

Their core server business is seriously erroding and under attack from all sides.

Actually, its server business has grown the last couple of quarters. Plus, its Opteron line coupled with Solaris is a strong offering. Yahoo Finance shows Sun as profitable with a P/E of 19 right now...low for a tech company.

This gives them potentially two things. First, a way to provide integrated product lines. Servers and storage are complementary businesses and I could see Sun offering tightly bundled turnkey installations. Second, this gets Sun a profit center to keep them afloat as they transition their business model.

Transition its business model to what? Sun has always sold (and resold) storage solutions.

Though it might not be advertised as such, this might be akin to a reverse acquisition since StorageTek is profitable and Sun isn't.

Yahoo Finance shows Sun as profitable with a P/E of 19 right now...low for a tech company.

It's interesting, though not surprising, that Sun had to pay cash. Their stock isn't worth much these days and no one is going to lend them money with a BB+ credit rating.

Don't count Sun out yet...it employs many smart people.

Re:Reverse acquisition?

[clem]

Don't count Sun out yet...it employs many smart people.

Yes, but they also have a number of rabidly political middle managers who do their best to ensure that the smart people are left rotting on the dock.

Why, yes, I am a former employee.

Re:Reverse acquisition?

[Bryan-10021]

An exit strategy like IBM in the 90's? Companies go through good times and bad times and Sun will turn themselves around just as IBM did.

For those too young to remember the 90's, it was a time when IBM was getting beat up by RISC UNIX boxes from HP and Sun and mainframes were on the way out.

If Sun wanted to get out of the server market then how do you explain spending $500 million on Solaris 10? Why invest in an all new line using it's own developed Sun hardware based on AMD Opteron chips? Or the new SPARC Throughput Computing chips (http://www.sun.com/processors/throughput/)?

Re:Reverse acquisition?

[illumin8]

They did not handle the shift to smaller, faster x86 based servers. They did not handle the shift to open source enterprise software, even though much of it was written in their very own Java language.

I think this is an accurate assessment. When Linux and Open Source started to become a real market force, there were a lot of geeks and engineers within Sun that were very pro-Linux. We could see that Linux was the future. Then, there were management types that only saw Linux in the same close-minded view that Microsoft does, as a competitor that should be crushed. The problem is that although there are pockets within Sun that are very pro open source, they get drowned out by the groupthink that permeates from the top down. The groupthink that says "Linux bad, closed source good..."

It has gotten to the point where if you're a Sun employee, it could be dangerous to your career to be too much pro-Linux. For example, I had workers on my team snicker at me and say comments like "kid's OS" whenever I'd discuss something about Linux.

Think of it like this: If you're a Microsoft employee, when you're sitting around with your co-workers at lunch, are you going to tell them you spent the weekend at home setting up an Asterisk server running Linux? Not if you value your job you're not.

This culture permeates the company, and stifles innovation.

This is how I would fix Sun:

- If you manage a team of less than 10 people, you're out, period. There are many middle-managers that only have 4-5 direct reports and pull in 6 digit income. They came on-board during the dot-com boom and play political games to ensure they never get laid off. They would be the first to go. I'm sorry, I don't care how good you are, if your only job is to sit around and tell 4 or 5 people "work harder", you're not needed.
- Fire Scott Mcnealy. Really, I don't see how he's lasted this long.
- Get new executive level management that has a clue.

I think the first solution alone would probably cut 1000 head count and bring Sun to profitability immediately.

Anyway, what do I know, I'm just a former SSE that worked for a Sun partner.

I do like system administration on Sun though. I also like Linux. There's no reason those two platforms can't co-exist. The right tool for the job is what I always say...

Well connected

[youknowmewell]

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.

Re:Accounting

[Thanatopsis]

8.6% profit on HARDWARE is spectacular. Hardware is a very low margin business.

Re:Strange pairing

[Spectra72]

It gives Sun a ready made pool of sales people who understand how to sell storage. Sun's server-centric sales force has never really gotten that. Even though the Network Storage Division at Sun generates a lot of revenue with a relatively small employee base (less than 1000 people), it could be doing better if it had a better storage focused sales force. Sun's attach rate for it's own storage on its own Solaris Servers lags the industry standard. That's easy money if done even a few percentage points better. Sun has always worked closely with STK. STK is right down the street from Sun's Colorado campus. STK will help drive storage sales.

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.

Re:Wait....

[Plutor]

Where I work, we're paying sub-$4k for single-unit dual-Opteron Sun servers, on top of which we're running Linux. On a simple performance-to-cost ratio, these are the best Linux servers out there. From an administration point of view, they are a pleasure to work with, and it's a downright transcendental experience when they fail. I love my SunFire v20zs.