Sun-STK signals further consolidation

By Ann Silverthorn

—Since yesterday, when Sun Microsystems announced its plan to purchase StorageTek for $4.1 billion, the media and analysts have been going crazy speculating on motives and trying to foretell the future.

Simon Robinson, sector head, storage and systems for The 451 Group research and consulting firm, says, "Sun has failed to build a storage business, and it has never used storage strategically. This move addresses that [problem], but it's a strange acquisition, because StorageTek doesn't have any technology that Sun didn't have access to anyway. If you look at tape, Sun resells or OEMs it, too. In the midrange storage area, they both have essentially the same products."

What StorageTek does have is a strong channel with a sales force of 1,000 and an installed base that might just be waiting to hear about Sun StorEdge 6920s. And 36% of the archived data in the world is on StorageTek media. StorageTek has been relatively unsuccessful selling disk arrays, which are often included as part of a server sale, so the two sales forces should have a lot to learn from each other, according to analysts.

Sun officials say that the StorageTek acquisition is the first part of a broader strategy of being an industry "consolidator," and The 451 Group's Robinson speculates that Sun will be looking at other parts of the storage stack that it doesn't actually own. Robinson speculates that Sun might be considering buying suppliers such as Dot Hill or Engenio.

Scott McNealy, chairman of the board and CEO at Sun, touched briefly on the topic of grids (storage, compute, and network) in the Q & A section of the announcement: "A lot of people ask why the environment that creates, and distributes, and manages information is different from that which stores the data assets that are a byproduct of the compute environment."

McNealy says that Sun is moving toward providing an integrated environment, starting at when data is created all the way to when it is archived or destroyed. The vision is to give customers one point of contact for servers, storage, and service contracts.

"When you look at the capability we have built into Solaris, file systems, clustering, storage resource management, and you look at the whole ILM environment, it's not just about putting it on disk, says McNealy. "It starts at creation, capture, and transactions and moves all the way through archiving. We can give a much more integrated environment; one architecture on which to build your data."

However, analysts such as Robinson want some more concrete answers. "Sun would like us to view its move as part of a bigger picture, and, as such, it should be seen in that wider context and not simply as 'Sun buys a tape company.' Our concern is that beyond the 'one throat' argument, the message still lacks clarity. Is this primarily an ILM play, or a grid play? Or both? What else does Sun need as part of this vision? Sun needs to better articulate its strategic intentions here."

In any case, StorageTek won't likely be backing out any time soon. If it does, it'll face some hefty termination fees. According to Dow Jones, a June 2 SEC filing states that StorageTek may owe Sun $133 million if the deal falls apart under certain circumstances.

Summary of Transaction

  • Consideration: $37 per share in cash for a total of approximately $4.1 billion
  • Transaction: Purchase business combination
  • Timing: Expected to close by late summer, early fall 2005
  • Closing Conditions: Subject to regulatory approvals, StorageTek shareholder approval, and customary closing conditions

This article was originally published on June 03, 2005