Sun embarks on shopping spree

Sun Microsystems has finally revealed its acquisition plans, putting its $7.4 billion cash mountain to use. However, market watchers have been left perplexed over the choice of targets.

Firstly Sun revealed that it had reached an agreement to buy tape storage vendor StorageTek for approximately $4.1 billion. Sun will be getting a company with an established presence in the tape storage market – IBM and StorageTek claim a third each of the market – but it is an odd choice, given that there is precious little room for growth in the tape market.

There is little doubt that tape will remain a popular choice for archiving offline data: it has a proven track record and an attractive price. But improvements in low end cheap disk technologies such as FATA are expected to win out in online storage.

Analysts at Forrester Research note that StorageTek's own cash pile effectively takes $1.1 billion off the purchase price – but that still represents nearly half of Sun's outstanding cash – and it could easily have bought any number of smaller storage companies that would have been a more natural fit with that money. "StorageTek is known as a tape specialist, which won't easily translate into recognition as a player in networked disk systems," says Forrester's Galen Schreck.

Sun has plenty to prove in the storage market: currently it lags well behind EMC, IBM and HP. By buying StorageTek, Sun gets an additional 70,000 customers – and importantly a steady stream of revenue from that customer base.

But executives at Sun say the important aspect of the acquisition is that it broadens its information lifecycle management (ILM) portfolio, adding much needed sales and services expertise which will be vital if Sun is to make inroads into the ILM market.

"We've gained 1,000 data storage sales reps who understand ILM and 2,000 support people. It fits very nicely with our hierarchical storage management software and it fits very nicely with our identity management and security and access software," says Scott McNealy, Sun's ebullient CEO.

Sun's second surprise acquisition focus is a $387 million deal for integration software maker SeeBeyond. The move allows Sun to boost the number of applications to run on its software – executives at Sun see a market in the number of large customers that want to do application development and consolidation, and believe the SeeBeyond acquisition will help Sun reach those customers.

"We will be able to deliver what other vendors only have in their [plans] – an ideal platform for business and systems integrators to build the next generation applications for the future," McNealy told investors as he announced the deal.

But again critics are dubious about Sun's chances of success. "Sun is not known for the success of its software acquisitions. Many other key software acquisitions have fizzled out – leaving both customers and investors short on value," says Neil Ward-Dutton of IT analyst company Macehiter Ward-Dutton.

He has a point. In the late 1990s Sun spent a small fortune buying companies such as Forté Software, NetDynamics and Kiva trying to establish an application server platform, but with little success. It barely registers in application server sales when compared to the two gorillas of that market: IBM and BEA Systems.

However if Sun – and it may be a big ‘if' – has learned the lessons from its previous mistakes it may be able to make a success of the deals, says Ward-Dutton. SeeBeyond has a good client list and they generally like the software, he adds. But he has warning for Sun: "Don't restrict the ability of SeeBeyond to deploy to platforms other than Solaris [Sun's Unix platform] – keep a level playing field."

The two deals may yet be followed by other acquisitions; regardless, they come at a crucial time for the technology giant. The one-time darling of the US stock market has suffered badly in recent years, and desperately needs a compelling vision to get back on track. In both its ILM and software moves Sun is pitching itself at areas most market watchers believe are set for growth. Sun must now prove that its vision for both storage and application development and integration are in step with what its customers want.

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Ben Rossi

Ben was Vitesse Media's editorial director, leading content creation and editorial strategy across all Vitesse products, including its market-leading B2B and consumer magazines, websites, research and...

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