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Sun Buying StorageTek for $4.1B

Posted by Zonk on Thu Jun 02, 2005 10:26 AM
from the that's-a-lot-of-storage dept.
Sun Microsystems Databases Programming Software Hardware IT
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)."
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  • Oooh (Score:3, Funny)

    by c0ldfusi0n (736058) <admin.c0ldfusi0n@org> on Thursday June 02 2005, @10:30AM (#12705039) Homepage
    So that's why the two StorageTek people in the room next to my office are soo happy.

  • Reverse acquisition? (Score:5, Insightful)

    by sjbe (173966) on Thursday June 02 2005, @10:39AM (#12705131)
    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 [com.com].

    • Re:Reverse acquisition? (Score:5, Interesting)

      by Glock27 (446276) on Thursday June 02 2005, @11:02AM (#12705361)
      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 [yahoo.com] 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.

      • "Actually, its server business has grown the last couple of quarters."

        When you go from some of the worst quarters in the company's history, and say they improved. It doesn't say very much. I agree with the original poster, they are close to an exit strategy.

      • P/E overrated (Score:3, Informative)

        by sjbe (173966)
        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

      • Re:Reverse acquisition? (Score:4, Insightful)

        by clem (5683) on Thursday June 02 2005, @11:46AM (#12705727) Homepage
        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.

        • And even some non-former employees see the same thing. I hope that all the pie in the sky being sold about this acquisition internally is right, but I'm not holding my breath either.
          • And even some non-former employees see the same thing. I hope that all the pie in the sky being sold about this acquisition internally is right, but I'm not holding my breath either.

            What I remember from my few years at Sun was that the management team was really good at blowing smoke up your ass and making you think that Sun was going to turn around. Every quarter you'd have to sit through some meeting where management would literally almost brainwash you into thinking that Sun was the center of the univ
            • ...management would literally almost brainwash you into thinking that Sun was the center of the universe...

              Well, Sun is at least the centre of the solar system...

              (I'm sorry. Really. I couldn't resist)

            • Nowadays, middle management actively sabotages anything remotely possible of success simply because they cannot tolerate the thought that an engineering team might create a technology that could save the company.

              That's interesting. The reasons behind Sun's failures are no secret. They made a ton of money in the late 90's selling Big Servers. They expanded like crazy and spent a lot of R&D money on making Even Bigger Servers and on developing software for Big Servers. They were in the worst possibl

              • Re:Reverse acquisition? (Score:5, Insightful)

                by illumin8 (148082) on Thursday June 02 2005, @04:55PM (#12708662) Journal
                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...

                • Also a former employee here. I dont think mcnealy is the problem. Its the people between mcnealy and the talent. People like schwartz (who has to be the biggest fucking ass ever).

                  A lot of people think Sun will get bought out, the name and talent alone are worth the going rate these days. Buy sun, fire all of management and essentially absorb the engineering and service departments.
      • I think you're relying on bad data for your analysis. I'm not sure how Yahoo has come up with a P/E of 19 - Sun was not profitable last quarter (-.02), nor were they profitable in the ttm (-.04). The company is expected to return to profitability, but they aren't doing well now nor have they had a profitable 12m time period since 2001.
    • I could see Sun offering tightly bundled turnkey installations.

      The first time I read that as "tightly bundled turkey installations". Time to get some sleep...

    • Re:Reverse acquisition? (Score:4, Insightful)

      by Bryan-10021 (223345) on Thursday June 02 2005, @01:05PM (#12706503)
      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/ [sun.com])?

  • Sun still has money?

    Only half joking....lots of organizations I know of are pulling their support for Solaris and are buying cheaper machines from other vendors to run Linux on. I'm sure Sun has a substantial customer base left, but I wonder how long it will last as Linux continues to rise.

    • Only half joking....lots of organizations I know of are pulling their support for Solaris and are buying cheaper machines from other vendors to run Linux on. I'm sure Sun has a substantial customer base left, but I wonder how long it will last as Linux continues to rise.

      Every place I've worked has either abandoned or is in the process of abandoning Solaris. Java is probably Sun's future.

      • Sun really needs to get Open Solaris [opensolaris.org] out the door. If they play their cards right, they can push Solaris back into the market. Once they have a foothold with the "free" (as in Beer, Libre, and whatever other BS you want to call it) version, they can then turn around and become the premier vendor for Solaris systems. Whether it be x86, AMD64, or 64 way UltraSparc boxes, Sun will provide it and make companies feel all warm and fuzzy.

        At the same time, Sun can leverage a large degree of open source software bu

    • Re:Wait.... (Score:4, Interesting)

      by Plutor (2994) on Thursday June 02 2005, @12:25PM (#12706121) Homepage
      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 v20z [google.com]s.
  • I knew it would happen eventually, but I thought it would be more like EMC as they have a full suite of disk and software already. Sun OEM's their storage software, and their storage hardware has been OEM'd from Quantum and LSI Logic for some time.

    I hope this will help bring them back...SUN is a good company with a great past.
      • Agreed. StorageTek makes some of the best storage hardware in the world. I'm a long-time STK believer. That is exactly why I hope this will put SUN in the light they need to be in, because I am also a SUN fan.
        • I've only dealt with one StorageTek solution and I have mixed opinions on the solution. The online storage portion was very good but the tape storage didn't perform as well as we had been lead to believe. For the datacenter I was in, the complete backups (basically a level 0 once a week) were expected to complete within a couple hour window, but in reality took the entire weekend (late Friday to early Monday morning).

          The cost was also a major disappointment. I don't know the exact figures to break out

          • Actually StorageTek wouldn't be surprised if you could pay someone to do the work manually. However the company has made several sales when the manager walked in on the night shift and discovered the kids were using hockey sticks to pass tapes across the room. That explained why so many tapes were breaking overnight. No surprise that a fully automatic solution was brought in and those kids fired.

            Combine abuse of hardware, with potential for stealing sensitive data, and the difficulty of finding peopl

  • 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?

    • Re:Accounting (Score:4, Informative)

      by Thanatopsis (29786) <despain.brian@gm[ ].com ['ail' in gap]> on Thursday June 02 2005, @10:47AM (#12705237) Homepage
      8.6% profit on HARDWARE is spectacular. Hardware is a very low margin business.
      • That would be spectacular. Now if Sun were relying on their hardware business for their profit...they actually rely on their services division for most of their profit. Despite being about 1/3 of their revenue, services makes up about 60% of their profits.
      • Unless I miss my guess, 8.6% profit on commodity hardware is spectacular. My guess is that SAN are what StorageTek makes, and StorageTek isn't precisely commodity.

        Commodity hardware is really brutal. You can drop that "hardware" out of that sentence and still be accurate. Being in a commodity business is brutal. All you really have to compete on is price. With SAN's, there's lots of other stuff to compete on. SAN's aren't as competitive as say the PC market. So I'm far less impressed by that then y

    • 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% [google.com] and IBM is a pretty darn good company.

  • Well connected (Score:4, Informative)

    by youknowmewell (754551) on Thursday June 02 2005, @10:42AM (#12705175)
    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.
  • Lets buy a tape storage specialist (founded in 1969) as our answer to business and technical challenges facing us today? I wonder which bright Sun exec thought up that one vs. making a smart(er) move on one of the Linux/cluster storage outfits around (Panasas et al) that will give Sun some legs for the next decade, not just geriatric technology with boardroom relationship based Sales that go away with the boomers retiring in the next ten years.

    • "Lets buy a tape storage specialist..."

      ... who, BTW, also manufactures and markets disk array subsystems. When IBM's own array products floundered, they ended up remarketing STK's disk subsystem as the "IBM RAMAC Virtual Array", which arguably kept EMC from eating IBM's lunch.

      "... geriatric technology..."

      You ought to learn something about the "geriatric technology" before you take shots. Those nines of uptime come as a result of redundant design, high quality components and media, and a paranoi

        • Virtual tape disk is a stopgap, all the backup software companies are pushing hard to get Disk->Disk->Tape support out the door.

          Tape will never go away (you can't beat it for archival purposes) but disk has become cheap enough that there's no real cost advantage to tape for on-site storage. Once backup vendors start making full use of random-access for information retrieval, no one will look back.

          Both MS and Veritas have disk-based backup products in public Beta, I'm sure others will follow. Just
  • Yeah, pointless post. I'm not seeing a whole lot of bad things about a deal like this. Sun makes servers, StorageTek makes honcho tape libraries. The easier they work together, the better. Less games of "blame the other vendor" when your library starts munching up DLT tapes at 3am. :)

  • Strange pairing (Score:3, Interesting)

    by confusion (14388) on Thursday June 02 2005, @10:49AM (#12705260) Homepage
    Storagetek has had some pretty good products, but I can't see how this acquisition is going to help either company in the long term.

    I used to be a big Sun supporter but they seem to be stuck in neutral lately.

    A merger with EMC or Quantum would have made a lot more sense than this.

    Jerry
    http://www.syslog.org/ [syslog.org]

    • Re:Strange pairing (Score:4, Informative)

      by Spectra72 (13146) on Thursday June 02 2005, @12:24PM (#12706113) Homepage
      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.

  • Here's a new one (Score:3, Funny)

    by jargoone (166102) on Thursday June 02 2005, @11:25AM (#12705554)
    Sun posted a loss last year (albeit a much smaller one than the year before).

    I got it now:

    1) Lose money
    2) Lose less money next year
    3) Profit???

    Doesn't sound right...
  • StorageTek is a profitable company with $191 million in profit

    So, that means they'll break even in only 20 years!

    A good buy at the wrong price isn't a good buy - unless they think they can grow the company REALLY fast!
  • 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.
  • I used to work for Digital, designing Alpha workstations. When they couldn't break a profit in that market, we fell back and concentrated on the higher-margin server market only. When that didn't work, we fell back again to making alpha-based storage servers.

    The rest of course is history, wasn't long before the Compaq buyout, retirement of the Digital brand, and end of production of the Alpha chip altogether; ie total company death.

    Sounds a lot like that.

  • A good deal (Score:3, Interesting)

    by 0xABADC0DA (867955) on Thursday June 02 2005, @12:22PM (#12706103)
    ST has $1.1 billion cash, so Sun is really spending more like $3 billion. At $191 million profit that's over 6% return on their investment. Plus you have to expect sales to increase due to companies storing more data due to the recent demise of that accounting firm due to aggressively destroying documents.

    Then you factor in the forthcoming zfs, which should make Solaris far better than any other operating system for handling mass data storage and they could do very well by this deal.
    • You know I've done a lot of reading on ZFS, and I can't say it's likely to make that much of a difference. It's a journalled, 64-bit (yes they claim 128, but that's junk, as the underlying scsi layer doesn't support it), scalable filesystem. It has a few bells and whistles with indexing and access controls, but nothing that isn't already in a lot of other products. Basically it's catching up with where most other 3rd generation filesystems have been for years. It's probably not a bad filesystem, but I don't

  • Sun has THREE billion in cash.
    Sun spends FOUR billion in cash to buy a company.

    Sun is posting a loss on their revenue.
    Sun is buying a company with a $190 million profit.

    Does this look like desperation to you or is it just me?
  • For that kind of money, they could have bought Bea System Inc. Their valuation is $3.42 billion today.

    Java is supposed to be Sun's big thing. And buying the #2 App Server company will go a long way in helping Sun in the java market. And help Sun improve its software business which I believe is higher margin than hardware.
    • 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."

    • I used to work for StorageTek. I got a lot of stock in the late 90's for a a employee discount. I think I paid as little as $8/share for them. (StorageTek had to be the only high tech company that lost money 99, and had their stock drop for it)

      I don't get too many wins, but this looks like one of the better ones.

    • This isn't that bad a move. Sun has a ton of cash and needs to start making some investments with it. Sun's storage solutions have been all over the map and hopefully the aquisition of StorageTek will solve that problem. With StorageTek and Tarantella they've really made some good moves in providing a full solution to future enterprise computing needs.

      Ever since sarbanse oxly, storage has been a gold mie business. People need to store insane amounts of information now.

      What sun really should figure

    • If Sun is smart they'll do what IBM does and accidentally leave extra stuff in the delivery:

      Truck Driver: Hey wait, you didn't unload all your stff.
      ST Customer: Only thing left in the truck are a few galaxy servers and JES software packages. All we ordered were ST storage arrays.
      Truck Driver: You're m last delivery and all I know is I gotta bring back the truck empty and clean so I can either dump the stuff or you can take it. Your choice.

      Before websphere became popular they were trying to give i

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