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Storage Analyst Pans Sun's StorageTek Deal
"They Should Have Given This Money to Shareholders," Marc Farley Says
Jun. 10, 2005 04:30 PM
Sun Microsystems announced that it will pay out $3.1 billion in cash as part of its $4.1 billion acquisition of StorageTek earlier in the week. Initial responses from industry analysts was tepid, with a Merrill Lynch report, for example, saying it was "neutral to slightly negative" on the deal.
Among the chorus of critics is leading storage analyst Marc Farley, President of BuildingStorage, Inc., who told SYS-CON Media that Sun "should have given this money as dividends to shareholders." Farley noted that many companies "rode on Sun's back during the dot-com boom to deliver storage solutions, because Sun's product line and execution in this area were weak," but that to try to remedy this situation today "will only dig a deeper hole" for Sun.
Marc Farley, Building Storage, Inc.
Farley also noted that StorageTeck does not have cutting-edge products and that in any case "Sun has not identified who will be running this news business and what the strategy for it will be."
Sun CEO Scott McNealy expressed confidence in Sun's ability to provide "beyond cradle-to-grave" enterprise IT solutions to customers, and company COO Jonathan Schwartz vociferously defended the deal in a recent post to his blog. Schwartz said that he's been "hearing ringing endorsements from customers, industry analysts, and sales folks - 'Great acquisition!' 'Superb company.' 'We love the company, our account team, and the opportunity to put it all together!' That's a great place to start."
He also outlined a rationale for what he called "the largest acquisition in Sun Microsystem's history," writing several paragraphs about the following five key points:
- "the financials were compelling"
- "because when we compete, we win"
- "because it expands our mutual opportunity"
- "because data is here to stay"
- "because it broadens our channel opportunities"
Sun's stock was up about 1% this week, apparently reflecting a wait-and-see attitude by the market toward this acquisition. Sun's stock has drifted downward about 28% so far this year, after spiking up a similar amount in the latter stages of 2004.
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