HP Acquires 3Par For $2.35 Billion – Expensive, But Positive, News

HP 3Par Acquisition Highlights

• Beats Dell by paying $2.35 billion for 3Par – perhaps overpriced for a company with annual revenues of $194 million
• With Dell has the worst storage systems business growth
• Offsets the more negative news of the loss of its CEO and Department of Justice fine
• 3Par should help build interesting clustered storage
• Should allow HP to go further in building solutions – such as its newly announced CloudStart package
• ITCandor expects Dell to continue to search for a storage systems acquisition and could be joined by IBM

HP’s 3Par Acquisition And CloudStart Introduction Offset More Negative News

It’s been a difficult few weeks for HP. It lost its CEO Mark Hurd and has been fined $55 million by the US Department of Justice for providing sweeteners to Accenture consultants on the condition they recommended HP products to federal agencies, according to news reports. On the positive side it has announced its CloudStart package, which includes a mix of HP BladeSystem Matrix servers, its Cloud Service Automation along with other software and support such as data services from its Storage Works group. HP claims that it allows businesses to set up internal Cloud Computing services within 30 days of installing the hardware and software. Last night HP also won its bidding war with Dell to acquire 3Par, spending $2.35 billion in the process.
ITCandor has been working on its Storage Systems sizing over the last few weeks and we thought it would be interesting to look at some provisional findings to see why both HP and Dell want to add to their storage businesses through acquisition.

Storage Systems Revenues Vary Significantly By Vendor

Figure 1 shows the quarterly storage systems revenues of the leading worldwide vendors. We’ve included total storage revenues of each vendor with the exception of Hitachi from which we’ve estimated and removed disk drive sales and EMC from which we’ve tried to extract software revenues. It demonstrates a number of interesting developments. In particular:

• EMC clearly leads the market; as a storage systems specialist it has been able to form alliances with server vendors such as Unisys, Fujitsu, Dell and Bull (and even HP many years ago)
• IBM’s storage systems business has very seasonal peaks and troughs, based on its direct sales approach and large customer base
• Dell has grown significantly based on its own products and those it makes with EMC as part of a long term agreement
• NetApp – like another specialist storage systems vendor – has continued to grow its revenues, rising from around $200 million per quarter in 2003 to $600 million in 2010
• HP’s revenues show less seasonality, perhaps due to a greater use of indirect channels, but have dropped from a peak of around $1.5 billion in the middle of 2008 to around $900 million in Q2 2010

We can see clearly the significant fall in revenue most vendors suffered at the beginning of 2009.

Storage Systems Revenue Growth Was Worst At HP And Dell

The Storage Systems business has suffered badly during the recession and has yet to recover for many suppliers, which can be seen in the rolling q4 analysis of revenue growth by quarter in Figure 2.
While NetApp is growing at around 5% in Q2 2010 and EMC is at 0%, all the other vendors demonstrate continued falls. As the worst performing it’s clear why HP and Dell are looking to build their businesses up through acquisition. As a growing company with real revenues and interesting products it’s also clear why 3Par was so attractive, although the purchase price look steep for a company with annual revenues of $194 million. For readers interested in knowing more I suggest you look at Claus Egge’s excellent analysis. I believe that IBM might well join Dell on the acquisition trail for other likely candidates, given the fact that its storage systems business is also in the doldrums and it has increased its acquisition activity recently. Many vendors are using their cash to build their businesses at the moment – as Mike Norris at Computacenter says ‘use it or lose it’.

Some Conclusions – HP Will Use 3Par To Help Build Clustered Storage And Integrated Enterprise Solutions

In the case of HP we believe this to be an excellent addition to its enterprise portfolio. It will allow it to build more interesting clustered storage products and also build more integrated solutions, such as those required for its CloudStart program. It also demonstrates that it is able to act decisively at a time it lacks a permanent CEO, the selection of which will be the next big story, unless something else untoward happens in the meantime.

Who would you buy if you were Dell or IBM? as always please let me know by commenting on this post.