Posted by: Beth Pariseau
Many in the storage industry are wondering about the fate of the Sun StorageTek business following Sun’s revelation of its umpteenth restructuring last week. In a press release issued Friday, Sun said it will be laying off between 5,000 and 6,000 employees, or 15% to 18% of its workforce, in an effort to save $700 million to $800 million in the next fiscal year.
Sun’s continually dismal earnings reports (it reported a revenue decline of $1.7 billion for the most recent quarter) already led to speculation that the company will be taken private or sell off parts of its business. But the buzz in the industry is intensifying with this lastest layoff because of the restructuring’s keen focus on open source software, which is where Sun has been turning its efforts in storage as well.
The elephant left in the room is the “traditional” storage business, most of it acquired for $4.1 billion with StorageTek three years ago.
Sun’s storage business now consists mainly of tape from StorageTek and open storage. But Sun is primarily interested in developing its own ideas and making its own way. CEO Jonathan Schwartz made clear on the earnings call that open storage would be the focus going forward. “We believe we can expect strong growth in open storage as the adoption of ZFS continues and the need for open systems becomes ever more critical for customers seeking better performance at a lower price than traditional NAS,”he said.
Now, sources with inside knowledge of Sun’s storage strategy point to the realignment of key executives to focus on software as a confirmation that Sun is getting ready to pull the plug on the traditional storage business. Sun shifted Anil Gadre from chief marketing officer to the head of a new software-focused business unit, and moved the Solaris, Virtualization, and Systems Management Software divisions under Systems executive vice president John Fowler. One source said the shift in focus can’t bode well for the traditional business.
“Sun’s key systems and marketing execs are all now in charge of software business units – or they have left the company, like Andy Bechtolsheim,” said the industry insider.
According to this source, “the facts are that Sun can’t sustain its current business given its current fiscal performance. Sun’s core expertise and strategy is Solaris, file systems, [and] systems software. All indications are that Sun will continue to invest here, but economically the company must divest or sell other assets not critical to Sun’s future or core competency…the traditional storage business is clearly packaged for a sell off.”
One shareholder, Southeastern Asset Management, which took a 21% stake in Sun last week, has also stated publicly it views Sun as a software company. Reuters reported that Southeastern “said it might go around the technology company’s board to talk to ‘third parties’ about alternatives,” though that story also notes that a buyer for all of Sun as a whole is unlikely. However, “one business that Sun could sell fairly easily is StorageTek, a data storage business that it bought in 2005 for $4.1 billion. Bankers estimated it to be worth $750 million to $1 billion today,” the Reuters report adds.
If Sun is looking to sell off what’s left of StorageTek, who will buy? While a fire-sale price compared with what Sun paid for it, $750 million to $1 billion is still a hefty price for anyone to pay for tape in the current financial climate. Unless there’s some surprise white knight waiting in the wings to take on a tape storage business in this kind of economy, it could still be back to the drawing board for Sun…again.