Sun Seeks Strength With StorageTek Buy

In a deal aimed at combining network computing with end-to-end information management, Sun Microsystems will acquire data-storage-system vendor Storage Technology Corp. in a transaction valued at $4.1 billion.

Sun says the acquisition of StorageTek, as it's widely known, will strengthen its position in the market for managing information from creation through long-term storage to deletion. The need to comply with government regulations such as the Sarbanes-Oxley Act is increasing demand for such technology.

"This combination makes us one of the largest enterprise-storage players and potentially the most robust and systematic," Sun CEO Scott McNealy said in a conference call. The companies expect to complete the acquisition in 60 to 90 days.

While sales of StorageTek's tape-automation and disk-storage products have grown slowly recently, the company brings decades of experience in data archiving, security, and expertise in helping large companies manage heterogeneous servers and storage as a single network.

Sun says the companies' product lines are complementary. Sun's storage-management products, such as its StorEdge 6920 data-storage system, can be coupled with StorageTek's data-protection and intelligent data-archiving products, including its Storage Resource Management software and virtual tape systems.

The most compelling reason for the deal may be Sun's need to halt the slide in its core server business. Its share of the worldwide server market, which totaled $12.3 billion in the first quarter of 2005, according to research firm Gartner, slipped to 9.5% from 10.3% a year earlier. Sun trailed IBM (30% market share), Hewlett-Packard (28%), and Dell (10.8%). "It's common knowledge that Sun's been in a difficult spot since the dot-com bubble burst," says Arun Taneja, consulting analyst at Taneja Group. "Sun had to do something extraordinary."

The StorageTek purchase is intended to help Sun compete in the next-generation data center where virtualized pools of computing, networking, and storage resources co-exist. IBM, HP, and EMC have aggressively pursued their own virtualization strategies. StorageTek's virtual tape library and information life-cycle-management products will help Sun keep pace. "While it doesn't complete the picture, it brings them a step closer," Taneja says.

Whether that vision comes to pass depends largely on how well the companies integrate their operations and products. "We're waiting to see what kind of synergy the two companies will provide in the storage backup market," says Mark Moroses, senior director of technical services at Maimonides Medical Center in Brooklyn, N.Y.

Maimonides is evaluating whether to replace a Sun server with an IBM server in its data center. Sun's Unix operating system works well with the IBM Tivoli storage-management software the medical center uses, Moroses says. "The strength of Sun versus Intel-based servers is its ability to run multithreaded applications. By using Tivoli on the Sun platform, we can have multiple servers getting backed up at the same time."

IBM, however, provides stronger integration between Tivoli and its own storage devices, Moroses says. "The question in our mind is whether Sun is likely to provide a stronger presence in the data center, because right now IBM has a more stable and mature platform."

McNealy is betting $4.1 billion to provide an answer to Moroses and others with that same question.