3PAR bounces on takeover chatter
Rumor du slow news jour
The cost of acquiring exotic disk-array maker 3PAR Data went up by nearly 12 per cent today on a slow holiday news day when a report in Barron's, the weekend stock-rag companion to the Wall Street Journal, suggested that 3PAR was ripe for the picking.
3PAR, which was founded by two server engineers from Sun Microsystems back in 1999 and is one of the originators of clustered disk arrays based on x86 and then x64 servers, has been shipping products since 2004. The company was one of the innovators in thin provisioning, virtual copy, and remote booting, to name a few.
As the Barron's report put it, 3PAR is on track to have around $195m in sales, has no debt, and enjoys $104m in cash and equivalents, making it an excellent takeover target. What the report did not say - and which investors on Wall Street seem to not have checked as well - is that in the trailing four quarters, when 3PAR pulled in $187.1m in sales, it also has lost $3m. And in the past five fiscal years ended in March, the company has lost money every year. But sales have grown steadily for its exotic disk arrays, and the company seems poised to turn profitable, provided the technical features and deal-making from the competition - EMC, IBM, and Hitachi - do not crush 3PAR out of existence.
IBM has already bought XIV, so an acquisition by Big Blue seems unlikely. Oracle is working on owning Sun Microsystems, and Larry Ellison already has a chunk of Pillar Data, so Oracle doesn't seem to need 3PAR, either. The 3PAR products might have a fit with HP, which lacks its own clustered product at the high end and which might want to have its own product to sell instead of rebadging gear from Hitachi Data Systems. It's also possible that server maker and storage wannabe Dell might want to have its own kit, too, so 3PAR could be a piece in its enterprise plans.
No one is suggesting that 3PAR is the subject of a takeover bid, of course, but the stock reacted as if there were rumors, jumping 11.4 per cent on Monday to $11.45, giving 3PAR a market capitalization of $636.6m and a takeover price that would probably fall somewhere between $800m and $1.2bn - if you believe the chatter down on Wall Street today.
That's a lot of dough to shell out, but the disk business is poised to grow again if the global economy recovers (as it seems to be doing by some measures). Getting a big company like HP or Dell behind 3PAR's technology could double, triple, or quadruple its sales in a relatively short time, perhaps making it worth the cash and - equally importantly - keeping 3PAR from falling into the hands of systems enemies. ®
Nice product in need of a sugar daddy
I've always liked 3PAR: great engineering, great functionality, good company ethos. The only downside was pricing. So, out this nice chunk of block technology into HP (please not Dell!) or Cisco and you will have the right distribution network driving higher volume, lower cost of sale, and ultimately lower overall unit cost. I can't see why HP under DaveD wouldn't want to do this.
Customer list worth the buy price?
If 3PAR has penetrated some top level accounts then it may be worth buying that business, especially if you're Dell. The 3PAR marketting machine insist on making lots of noise but it looks a lot like the frantic splashing of drowning men rather than purposeful drive. What wasn't asked in the article was whom has the money AND will to buy 3PAR.
Whilst hp does have cash, it doesn't seem to have such a great need, and I suspect that Hurd is actually keeping some cash in the bank for lean times ahead. I'm not so sure hp are so unhappy with the Hitachi relationship (the latest XPs are the dog's dangly bits if you need and can afford rock-solid and capable enterprise storage), and if the market moves away from monolithic arrays then hp already has a raft of products either available or in the pipeline. Those include the Polyserve option, or clustered EVAs, the SVSP virtualised SAN products, or even just loads of cheap MSAs behind XP array headers (which means you get the wide bandwidth of the XP front-end, centralised storage management and replication, but with cheap disks at the back-end). Hp has managed to build a stronger XP bizz than Sun did with the badge-engineered Lightnings, and hp's wider product offering has allowed hp sales reps to cut better offers to keep HDS from stealing XP sales. And I also wonder if hp's own wide range of storage options doesn't need some tweaking and re-alligning (and maybe trimming?). Adding a new product now might just make that all the more troublesome. Much as I'll wave the hp flag, I can't really see them buying 3PAR just now.
Soreacle will have the cash, and ex-Sun refugees always seem to try to return to the mothership after being exposed to the rigours of The Real World, so it's not beyond belief to imagine 3PAR being borged by Larry. After all, whilst he does have a storage bizz, it is the old Sun one, and nowhere near as wide or with as many customers as his new number one enemy - IBM. It also has no real high-end array other than the Sun badge-engineered Hitachi arrays, and Sun's poor efforts with that kit leave Larry little customer-base to worry about if he decides to bring in a new high-end product. The problem is Larry is still working on the Sun mess and which bits of that carcass to cut off and throw to the wolves, so he may not feel the urge to add to his management problems, especially as it seems ever more likely that Pillar will get borged in the near future.
IBM does have the cash and has shown a willingness to kill competition by purchase. This would probably be the worst option for 3PAR customers as the IBM option would probably sound the deathknell for 3PAR, especially as the 3PAR kit doesn't seem to have any relevance to IBM's cashcow in the mainframe bizz. IBM has already spent lots of money on XIV and would only see the 3PAR option as a way to remove a competitor and maybe buy up some technology, and at a relatively cheap price. The question is whether 3PAR are a big enough blip on the IBM radar at the moment.
But, Dell are also relatively cash-rich, looking quite good for the immediate future (x86 servers look like they are bouncing back better than UNIX servers or mainframes), and may want to differentiate themselves from EMC. Dell would have the option to put their servers and budding consulting services into the 3PAR mix, and they would also like to buy up a customer list including enterprise customer. The only problem is they have recently been beaten to other acquisitions by more adroit players. That may make them quicker out of the blocks this time round, or it may indicate a bumbling, immature acquisition system.
Those with a sharper and more agile approach to acquisitions includes EMC. EMC does have the cash and the cohones to snap up 3PAR, and when EMC hits the shops it seems to be a killer shopping machine, with few seeming able to beat it to those tasty acquisitions. An EMC purchase would probably be a painful experience for ex-Sun engineers but - from what I've heard - EMC do value engineering skills and capability. And any 3PAR customers might be reassured to know their arrays would stay server-vendor-agnostic. But again, I'm not so sure EMC feel the need to hunt 3PAR down.
So, unless this is just someone trying to drive up the 3PAR stock, I'd only expect Dell to be putting in an offer soon, but such an offer may trigger competitive or spoiler bids from EMC and IBM. I expect hp, Soreacle and Hitachi to watch this one from the sidelines.