The Sun Shines on Louisville as Sun Micro buys StorageTek

Congratulations to all of my friends at StorageTek on the announcement that Sun Microsystems is buying the company for a cool $4.1 billion dollars.
This is an interesting, albeit somewhat puzzling strategic move for Sun too, as Storage Technology Corp. (the formal name, though everyone here in Colorado calls it StorageTek) is focused on data storage issues, an area that hasn’t been much of a strategic focus for Sun as it’s retooled itself with Solaris 10 to move into the open source future.


It’s a bit jargon-filled, but here’s the StorageTek vision statement from their site:
Vision statement: Be the storage experts who deliver easy-to-use, industry-leading, innovative storage solutions to manage and protect business critical information.
A typical StorageTek product is the FlexLine FLC200 Disk Array, which offers up to 250GB of space in a 14-drive unit. This type of drive is perfect for data center backup uses or similar applications. Not glamorous, but StorageTek is one of a handful of companies that supply the disk drives and disk drive arrays used in modern computers and computing facilities.
If you’re thinking commodity, you’d be right. StorageTek has had a rough go of things in the last few years as the disk drive business has evolved into a completely commoditized business segment. It’s not about MTBF (mean time between failures) any more, it’s about size, speed and, mostly, cost.
But why would Sun Microsystems buy them? Until a few years ago, Sun’s push was to sell its SPARC-based servers into data centers, with its powerful (but proprietary) Solaris operating system as an integral part of the package. Yes, The Network Is the Computer as Sun’s flamboyant CEO Scott McNealy famously coined, but as the technical community moved towards the world of open source, Sun stuck with its proprietary solutions (in a grand irony, since Sun engineers really helped create the modern open Unix operating systems).
It wasn’t until a few years ago that Sun abandoned its proprietary windowing environment, for example, in favor of the already industry standard GNOME windowing system, and it wasn’t until recently, the jump from Solaris 9 to Solaris 10, that Sun actively embraced the world of Open Source. Today you can download the Solaris 10 operating system from Sun’s web site, and it’s a credible, albeit niche player in the open source community. It’s not Linux, but it’s an interesting alternative operating system.
Sun continues to promote itself as a provider of “network computing infrastructure solutions”, but its latest 10Q filing notes that “Our Products net revenue was unfavorably impacted by competition and a continuing market shift in overall computer system demand away from our data center servers towards the usage of enterprise and entry level servers.”
Hopefully this new acquisition will be viewed in the industry as a move where Sun will be able to regain some of its lost ground in data centers with a new, more competitive product. But I’m skeptical. Consider recent computer industry events: Hewlett-Packard disastrously acquires commodity manufacturer Compaq and finds it does not help their competitive position, while IBM sells off its own commodity business, personal computers, as Lenovo, so it can focus on its value added services.
I’m not the only analyst who thinks Sun has been flailing around, trying to find a single arrowhead behind which the company can form in the last few years either. The Wall Street Journal report on the acquisition notes that Sun “continues to struggle after the collapse of the Internet boom”.
I wish the acquisition well, and am certainly heartened at the benefit for the many Colorado-based StorageTek employees, but I’m still going to be watching with interest to see how Sun folds the StorageTek product line into its own, and how Sun will position itself in an industry that has been laid bare by commoditization, by the increasing pervasiveness of cheap commodity hardware stitched together by free, open source software and systems.
Make no mistake, this is an epic struggle, and it’s no accident that most of the biggest Unix server players have now moved into services as a way to survive in this new, tougher market. But commoditization changes the business ecosystem irreversibly, and its how nimbly companies respond to this change that will determine who are the winners in the 21st century.


More thoughts on the acquisition and its import for Colorado: VC Brad Feld and New West columnist Richard Martin.

5 comments on “The Sun Shines on Louisville as Sun Micro buys StorageTek

  1. It sure sounds like a good move, and it does help to make some progress in consolidating the tech sector which is suffering from a gross over-supply of staggering old dinosaurs.
    Note that Sun is about to embark on a big new branding program, so it’s not yet clear how the “new” Sun will be billed (especially by the marketplace who *might* buy Sun products and services.)
    The real challenge here is that so many companies are still downsizing and outsourcing and technology is evolving so rapidly (replacing very large reptiles with small, agile mammals), so it’s difficult to get your arms around the growth of the IT “data center” market.
    BTW, the formal, charter name is Storage Technology Corporation, not “Inc.”.
    — Jack Krupansky

  2. I’d disagree on calling StorageTek a strictly commodity company. While disk is certainly getting that way — even enterprise disk — I think STK’s bread and butter is still automated tape libraries. At the enterprise level, these are only made by a few players, and STK is either the biggest or darn close. (ADIC being next.)
    I think that Sun is significantly more threatened by commodification than StorageTek. Google has proven to everyone that you can build massive servers out of clusters of cheap-o boxes, and when one breaks, you just toss it and plug in a new one. On the OS side, Linux has overtaken Solaris on pretty much every front.
    It’s also worth noting that StorageTek has been doing pretty good in recent years. While it certainly has its share of flaws, it’s profitable, which is more than can be said for Sun. I’d say that STK’s tape market is threatened by obsolescence in the not-too-distant future, but tape is still holding its ground admirably against disk as a backup and archival medium. (I’m as surprised by this as anybody.)
    This will be an interesting road, no doubt. I’m honestly not sure who’s getting the good end of the deal here — if the cards are played right, perhaps it’ll be good for both sides. I sincerely hope Sun will get itself turned around, because they’ve done some great things in the past (e.g. Solaris, Java) and I want to see them deliver more in the future.

  3. I would agree with Josh Carter. StorageTek has struggled mightily to become relevant in the client server disk arena. Similar challenges exist in SAN and some of the new storage arenas. Even on the enterprise tape side they are rapidly loosing ground. Advances in robotics technology has overcome many of the limitations that created so much value in the trademark circular robotics of StorageTek of old.
    I hope for the best for everyone at StorageTek. The desire of StorageTek to be bought out has been clear for a long time. As for profitability even Enron looked to be profitable for a long time. One must be very curious how a company with a reputation in the tech industry as a one-time star past its prime with little in the way of very innovative offerings and whose R&D had been cut to nothing years ago would be profitable at a time when so many peers were not. Things to make you go hmmmm….
    Shareholders know the executive team gets a huge bonus for this and will add nicely to their golden parachutes. I fear it may not bring such good things for Colorado or the StorageTek staff who don’t have the golden parachutes.

  4. If I’m not mistaken, Sun has made an about face on open source. A few years ago, I remember considering the then “free” version of Solaris as an alternative to Linux, because most of my consulting work involved the Solaris operating system. But I turned away from that edition of “free” Solaris because Sun seemed to have abandoned support for it.
    Sun is a strange company. Flamboyant in their interactions with the media, surely. Yet, they have also been “behind the curve” in many key areas, it seems to me. Wasn’t far too much energy spent in trying to “defeat” Microsoft via Java? But then, Sun itself impeded the progress of Java by hoarding “ownership” of Java development, adopting an “if it wasn’t invented at Sun, we don’t like it” attitude to suggestions by smaller Java innovators such as BEA Systems.
    So, is the StorageTek acquisition an attempt to compete with EMC? I don’t see an immediate gain, but it could mean Sun is trying to shore up its core business by offering more complete Unix hardware solutions.

  5. [ just for the record, here’s Scott McNealy’s email about the acquisition to the “BigAdmin” mailing list ]
    To DAVE TAYLOR:
    I couldn’t be more thrilled to announce that on June 2, 2005, Sun Microsystems and StorageTechnology Corp. (StorageTek) signed a definitive agreement under which Sun will acquire StorageTek, a worldwide technology company that delivers a broad range of storage management offerings. This acquisition strengthens Sun’s mission to solve complex network computing problems for governments, enterprises, and our service providers.
    When we first discussed the possibility of acquiring StorageTek, it was apparent to me that we share similar vision for helping our customers take cost and complexity out of their IT infrastructure. There have been and continue to be huge issues relating to security of data assets that are paramount in customers’ minds. With the combination of Sun and StorageTek we can address these problems like no other.
    You may already know that Sun and StorageTek have a ten-year history of working together – with StorageTek products used by many of our customers. This announcement takes that relationship a step further. With this transaction, Sun emerges as the leader in secure Information Lifecycle Management (ILM), significantly expanding the value we offer to our customers. Some highlights:
    * Together, we bring 60 years of shared experience in providing innovative solutions to Compute, Data, Management, Software and Services challenges.
    * Combined annual revenue of more than $13 billion, placing Sun as the fourth largest storage company worldwide, and the undisputed leader in ILM.
    * The addition of experienced and respected sales, service and support professionals who possess deep expertise and share Sun’s commitment to innovation and customer value.
    * A full suite of identity management offerings to enable compliance and auditability of information assets.
    StorageTek’s products and services will be integrated into Sun’s product line once this agreement is formally closed, and customers of StorageTek will continue to be serviced under the terms of their existing agreements. An integration team has been established to oversee a smooth integration of operations, including management, engineering, sales and service personnel.
    As the agreement is subject to regulatory and shareholder approval, until it closes Sun and StorageTek will continue to operate separately from each other. We anticipate closing this arrangement during either the first or second quarter of Sun’s 2006 fiscal year.
    You can learn more about today’s announcement by visiting http://www.sun.com/smi/Press/sunflash/2005-06/sunflash.20050602.1.html. Or better yet, contact your local sales representative for more details.
    If you have any questions or feedback, please send a message to ecampaignteam@sun.com.
    Sincerely,
    Scott McNealy
    CEO and President
    Sun Microsystems, Inc.

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