In-Depth

Sun Nabs StorageTek, Launches Image Makeover

For the first time in years, Sun looks like the cagey, competitive, and iconoclastic competitor of old

• By Stephen Swoyer
• 06/07/2005

If acquisitions are any indication, Sun Microsystems Inc. is rocketing along on the road to recovery.

Early last month, for example, Sun acquired thin-client computing specialist Tarantella Inc. for more than $25 million. Last week, Sun kicked off a new $50 million rebranding effort—focused on shared services—and (last Thursday) ponied up $4.1 billion for storage giant StorageTek, spending more than half of its available cash-on-hand ($7.4 billion). It’s also a significant risk for Sun, which—on the basis of its recent economic performance, anyway—isn’t likely to refill its depleted coffers any time soon.

Nevertheless, Sun’s StorageTek coup, along with its ambitious rebranding effort and less ambitious acquisition of Tarantella, is enough to give many Solaris enthusiasts that old feeling again. It almost seems like the cagey, competitive, and iconoclastic Sun of old has emerged from its self-imposed exile.

Of course, few think Sun’s mega-acquisition of StorageTek was timed to coincide with its high-profile rebranding effort, which officially launched last Wednesday.

“Given the way acquisitions and the like happen, I’m hesitant to read too much into the timing of the branding campaign and StorageTek,” says Gordon Haff, a senior analyst with consultancy Illuminata. “I think that obviously the powers that be were aware of the various pieces that were in play, and there may have been some thought of having them coincide with one another, but this [acquisition] isn’t something you can just kind of throw together at the last minute.”

At the same time, Haff stresses, the timing of Sun’s StorageTek purchase certainly doesn’t hurt. “It’s a case of great timing, certainly. It probably couldn’t have come at a better time for Sun, actually.”

Sharing Means Caring

Sun’s rebranding effort focuses on sharing. It’s highlighted in part by an undulating (and now ubiquitous) “S-curve” symbol, which Sun has displayed prominently on its Web site and in its new promotional materials.

Its goal, analysts say, is to showcase a different side of Sun—a company that has often seemed like a rudderless, Solaris-centered also-ran—by highlighting ways in which Sun’s contributions have impacted the lives of ordinary people. Sun’s campaign features testimonials from prominent customers such as eBay, General Motors, and Major League Baseball—but Sun is also providing infrastructure support for Irish rock mega-band U2, which is currently on tour to promote an anti-poverty program.

Ad campaigns are rarely interesting, much less newsworthy, but in Sun’s case, Haff and other technology observers are watching with keen interest.

“It’s well thought-out, with lots of research behind it,” writes Haff on Illuminata’s public blog. He notes, for example, that Sun pointedly rejected the use of the term “open” in its campaign because of feedback it received from focus groups. What’s more, Haff adds, Sun has set a very low bar for campaign success: “Even if all it does is get potential customers to give Sun a second look, it will have done its job. Sun’s not rolling over.”

Charles King, a principal with technology consultancy Pund-IT Research, has a slightly more skeptical take on Sun’s latest reinvention-of-self. Not that King doesn’t give Sun credit for—in this case—clarity and planning. “Sun’s planned S-curve Sharing effort attempts to place a human face on technology by focusing on the positive interactions enabled by IT solutions. This seems a reasonable approach that reflects similar, though often less overt efforts by many other vendors,” he writes. “Given the length and depth of Sun’s reputation as a technology leader, the timing of the company’s campaign makes clear sense.”

At the same time, King points out, this isn’t Sun’s first attempt to redefine itself. “Detractors are likely to remain skeptical, considering Sun’s history of previous branding campaign flops,” he writes, citing a notorious stunt in which Sun chief Scott McNealy donned a penguin suit. “More importantly, Sun’s image makeover reflects a deeper movement among IT customers. During the past year or so, at the behest of clients who need to better quantify their organizations’ return on investment, many vendors stepped up efforts to define the practical value of their products and services.” In this respect, King writes, Sun’s campaign is spot on.

Why StorageTek?

Analysts view Sun’s acquisition as an enormous gamble. The addition of StorageTek greatly expands Sun’s storage sales force and also makes the company an instant player in markets—such as those for tape storage and information lifecycle management (ILM) solutions—where it previously had little, if any, presence. In addition, Sun is currently StorageTek’s largest OEM partner, so the two companies do have important common ground.

StorageTek, for its part, dependably posts revenues in excess of $2 billion annually. It also has more than $1 billion in cash on hand, which should now pass over to Sun, too. Finally, the addition of StorageTek helps to recast Sun as a complete solutions company, in the mold of Hewlett-Packard Co. or IBM Corp. In this respect, analysts say, it should be a boon to Sun’s historically neglected Network Storage Products Group in particular.

“Sun’s Network Storage unit has been very much the unloved child in the organization, lacking in status and necessary resources to be a fully-featured player in the storage marketplace. Scott McNealy has even been known to dismiss storage as ‘a feature of the server,’” write analysts Mark Ferelli and David Freund on Illuminata’s blog. “But the sheer size of this acquisition—swelling Sun’s employee population by 22 percent, its revenues by 20 percent, and more than doubling cash flow from operations … mandates a more mature attitude towards storage, bringing it into full fellowship with its server and software peers within the company.”

On the other hand, paying a 18 percent premium for StorageTek (over the then-current price of the company’s stock), Sun has effectively limited—if not curtailed altogether—its ability to engineer large, multi-billion dollar deals in the future.

There are significant cultural differences, too. The Sun brand is synonymous with the rise and subsequent leveling-off of Unix, while StorageTek—which markets its solutions to an admittedly diverse spectrum of customers—has a very strong presence in mainframe shops. There’s both good and bad here, notes Illuminata’s Haff: StorageTek gives Sun access to mainframe customers that could be ripe for the company’s mainframe replacement sales pitch. By the same token, Sun’s Unix-first persona could turn-off many long-time StorageTek customers, especially those in mainframe shops, who will almost certainly be courted by IBM and EMC Corp., among others.

“Looking back on this acquisition a year or two from now, Sun will have to adjust what Sun is,” Haff says. To some extent, he concedes, Sun is already taking steps to do just that, thanks to its new S-curve campaign.

So why StorageTek? More to the point, why StorageTek now?

“At a kind of macro level, Sun has sort of decided that now is the time to turn on the afterburners. The branding campaign, the acquisition of StorageTek, these are big expenditures of money to really get that momentum going,” he concludes. “It’s paying off for them now, but where they’ll be in two years is anybody’s guess.”