Was
Sun Microsystems Inc.’s $4.1 billion purchase Thursday, June 2, of
Storage Technology Corp. a shrewd entry into a tried-and-true high-tech business that will guarantee steady profits and revenue growth—or a baffling step backwards?
It all depends on how you look at tape storage, which is Storage Tek’s core product. Virtually all large businesses store at least some of their records on tape cartridges, and many use Storage Technology’s equipment. The company, in fact, estimates that more than a third of all the material archived in the world is stored on its products. For Sun, this means a huge installed base of customers and a steady stream of recurring revenues.
But as TheStreet.com said in a commentary about the deal, which is Sun’s largest ever, tape storage is also a technology that has seen better days. TheStreet said Storage Technology sees only very slow revenue growth and that tape backup is “an old technology that is likely to be slowly phased out as faster disk-based solutions come down in price.” Sun’s stock, which fell on Thursday after the purchase was announced, continued to drift on Friday as TheStreet and others asked why a company that has long touted the transformational powers of the Internet and other cutting-edge technologies would buy a business that makes money from such an old technology. TheStreet even cited data from a survey showing that 22% of Storage Tek’s customers have started shifting from tape storage to disk storage, a more expensive but also more efficient means of archiving and retrieving records.
The same survey showed that more than half of the company’s customers were considering such a shift. Yet other pundits insisted that tried-and-true could be just what the doctor ordered for Sun, which has long overemphasized interesting newfangled, but also unproven technologies. As an editorial in ComputerWorld argued, “It may not be sexy, trendy, or even related to the Almighty Internet or the highly revered open-source movement, but it is a pretty shrewd deal.” —Andrea Orr
The Deal story on Sun’s acquisition
TheStreet.com story
ComputerWorld story
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