Hewlett-Packard's $1.6 billion offer today to purchase grid-storage vendor 3Par came as a surprise to many tech industry watchers, but it's a smart move, both offensively and defensively.
HP does not have its own enterprise-class storage array; instead -- like Oracle/Sun -- it resells Hitachi Data Systems' Universal Storage Platform (USP). And it sees Dell -- which offered $1.15 billion for 3Par a week ago -- as a threat in the enterprise data center marketplace. 3Par's cloud-based storage architecture would give it a significant leg up into that space.
HP's chief strategy and technology officer, Shane Robison, argued that HP would be a better fit for Fremont, Calif.-based 3Par than Dell, since both HP and 3Par are Silicon Valley companies.
HP had been eying 3Par for some time and had made an earlier offer for the grid-storage vendor, HP executives said, though they did not provide further details.
3Par declined comment on HP's bid. So did a Dell spokesman.
"Clearly, when you go in with a bid that's a 33.3% premium [over a rival's bid] it's a competitive bid and not based on what the company is worth," said Mark Peters, an analyst at Enterprise Strategy Group in Milford, Mass. "So it's going to end up with who blinks first. Which company wants to lose this bidding war less?"
3Par's technologies will help HP expand its offerings for building public and private cloud services, according to Dave Donatelli, HP's executive vice president and general manager of enterprise servers, storage and networking.
In addition, HP has "a unique ability" to bring 3Par's products to market. "Our reach is something other [companies] simply can't match," he said during a morning conference call.
A gut punch to EMC
Donatelli once ran EMC's Storage Division. He left EMC and moved to HP in April 2009.
In more ways than one, HP's move reflects a worst-case scenario for EMC, which last year was able to obtain a court order blocking Donatelli from openly working in HP's storage division for one year under the terms of a noncompete agreement he signed with EMC. Now, however, Donatelli and HP have an opportunity to make a land-grab for technology that competes directly against EMC's high-end Symmetrix array.
"No question in my mind that Donatelli is a technology-hungry guy. Probably from the day he walked into HP, he made it known he was not crazy about reselling arrays from HDS," said Arun Taneja, lead consultant at Taneja Group in Hopkinton, Mass.
The HP-Dell bidding war is reminiscent of EMC's 2009 battle with rival NetApp for leading data de-duplication vendor Data Domain. NetApp bid first, but EMC eventually won the war in July 2009 by offering $2.1 billion in cash for a company that generated $274 million in revenue in 2008.
While Data Domain's board of directors urged the company to reject EMC's bid, ultimately they accepted the bigger offer.
3Par reported $194.3 million in revenue for the fiscal year that ended March 31. So HP's bid already represents a valuation that's more than eight times the revenue 3Par generates. Even so, analysts don't think the bidding war will end quickly; they expect a counter offer by Dell.
Both HP and Dell have deep pockets. Dell reported earnings of $52 billion in its last fiscal year. HP earned $114 billion.
"It would be very odd for someone to back down soon," Peters said.
What's in it for Dell?
Dell has been acquiring companies in the storage arena for the past two years. It bought out iSCSI storage company EqualLogic in 2008, network-attached storage provider Exanet in February and data compression vendor Ocarina Networks last month as part of a strategy to gather best-in-class storage products.
3Par sells storage arrays that can be clustered together to provide petabytes of capacity that can be served up to business units like a utility. The technology is especially well suited for supporting virtualized server setups and private and public cloud computing infrastructures because it can be centrally managed and scales, like building blocks, in capacity and performance.
So if Dell purchases 3Par, it gets a strong foundation on which it can build a cloud computing offering.
"Dell's bid was always and still remains about more than just storage," Peters said. "Dell wants to be more of an enterprise player in the data center, and this is part of a jigsaw piece in that puzzle."
Taneja said that while HP may appear to be the better suitor for 3Par because of its longer history with storage in the enterprise data center, Dell has proven it knows how to handle storage acquisitions. For example, since Dell's acquisition of EqualLogic, the iSCSI storage company has seen a 63% year-over-year increase in revenue, according to Taneja.
"At the time Dell was purchasing EqualLogic, everyone was saying, 'What does Dell think it's doing?' All of EqualLogic's resellers will disappear," Taneja said. "Man, how wrong was that?"
What about EMC, IBM - even Oracle?
Industry analysts agreed that other data center and storage players, such as IBM, EMC and even Oracle, won't likely enter the fray between Dell and HP. For one, IBM and EMC already have their own enterprise-class storage arrays, so purchasing another array company would practically be an admission that their existing technology is lacking.
Oracle is still busy digesting its purchase of Sun Microsystems, which currently resells HDS' high-end arrays and offers entry-level systems from LSI Logic midrange systems of its own. So it's also not a likely suitor, both Taneja and Peters said.
"Oracle would be a horrible place for 3Par," Taneja said. "Look at what they're doing with Sun. They're quashing all the openness. Customers were already leaving Sun. In the hands of Oracle, that has accelerated."
Peters agreed: "I think the others will stand on the side and say, 'Let them fight it out.'"