Wondering about HP’s counter for 3Par. Dell’s offer makes sense: they’re building expertise and a high-margin business. Dell and long time supplier EMC are growing apart as Dell realizes that that the relationship is doing little for them – and a lot for EMC.
But HP? OK, they may want a replacement for their high-end Hitachi boxes. They might be thinking that 3Par’s architecture will be a useful bridge to its scale-out architecture offerings from IBRIX and Lefthand. Maybe they see a major opportunity in storage for their industry-leading blade servers.
But a $1.6B bridge?
3Par’s growth hit a wall this last year compared to the rapid growth of ’08 to ’09 – reaching $194 million for the year ended March 31. They also lost money due to some non-cash expenses such as stock-based compensation. Not bad considering the times, but not what Data Domain was doing either.
New product purgatory
Let’s say HP can take 3Par’s gross margins to 60% after the obligatory year in HP’s integration purgatory. Code reviews, testing and integration, part numbering, pricing, sales and service training. Figure 9-12 months before they start selling in earnest.
In the meantime 3Par sales and margins plunge. HDS customers go into fight-or-flight mode – and HDS sales rise. EMC and other competitor reps go into overdrive to unhook HP’s storage business. Company bloggers spread rumors, half-truths, maybe even truths.
All good fun. But how does HP monetize this massive acquisition?
The StorageMojo take
They have to grow the business. My back of the envelope SWAG is they have to grow it to over $1.5B in 3-5 years, assuming overall profitability similar to EMC’s last full fiscal year.
That’s 7x growth. Not impossible, but not easy either. HP’s sales force already has a lot on its plate.
The bigger issue: the high-end block storage business isn’t growing. It is one thing to grow in a growing market – much harder in a static or shrinking market. Customers already have vendor relationships and don’t see the shrinking market as strategic.
Yes, EMC, the bell weather of high-end block storage, is showing growth. But looking at the numbers it isn’t the base product that is driving the growth, but add-on like V-Max and new products like Data Domain.
The high-end block business is stalled, probably permanently. Partly that is due to the recession, but it also reflects the secular trend away from block, despite virtualization’s positive impact on block demand.
Thus HP – Donatelli, really – is placing a big bet on a slowing market. If HP/3Par can take a chunk out of EMC’s business, it may pay off. But it won’t be easy or quick.
Update: Dell updated their bid to slightly above HP’s, a strong signal they won’t go much higher. Expect HP to counter and close the deal. End update.
Courteous comments welcome, of course.
You’re saying high-end block business is stalled…please help a lowly programmer trying to become market-savvy figure out how this is so.
* Looking at NetApp’s y/o/y and market share growth, I have to wonder if EMC being stalled might just be an indicator of a sea change in the industry.
* Looking at V-Max and Left Hand and other such solutions, it also makes me wonder if EMC’s meat and potatoes may be wearing thin in the enterprise market.
* If your business is buying Big Honking Arrays today, the only reason it won’t be buying the same thing tomorrow is if it got the scale-out religion. Maybe clustered blocks is the new high end? I don’t see this as a stall so much as a shift, and again maybe EMC’s bulk is keeping them from shifting quite as nimbly as their competitors.
I’m just having difficulty wrapping my head around how high-end blocks could really end up being stalled for any length of time without collapsing in on itself.
I’ve reluctantly come to the conclusion that Dell+3Par makes some sense, even if they’re over-paying. But HP dropping that much coin on 3Par is a waste of cash.
3Par seems to have some innovative products out there, but the (admittedly anecdotal) problem is that they’re lacking the stability HDS/EMC enjoy. HP+HDS makes a lot of sense in my book, at least until Hitachi comes over to this side of the Pacific with a UCS type offering of their own.
To my mind, it’d make far more sense for HP to drop that coin on Brocade (but that’d just highlight the silliness of dropping money on 3Com last year).
Perhaps this whole 3Par thing is not well thought out on HP’s side and simply a company on autopilot……
Dell+3Par makes sense. HP+3Par just confuses the people spending way too much for EVA’s.
Why are people paying too much for EVA’s, they’re price competitive with other products in their sphere e.g. EMC-CX, HDS-AMS, Netapp-FAS etc. They’re lacking some of the deeper software integrations of EMC & Netapp, but not everyone needs those and they’re usually priced on top of the array cost ? Personally I think a HP would hit the ground running much faster than Dell could hope to, and also have quite a few synergies with existing product.
The only thing that makes the HP bid make sense is if they are trying to keep Dell from becoming a serious competitor. It’s clear that Dell wants into the storage business in a serious manner. They’ve been buying up companies to build that business. 3Par is another piece. Perhaps HP wants to make sure they don’t achieve that status. That’s a lot of money for a competitive play. Or, perhaps they hope to drive the price up on Dell making it harder for them to monetize this. It’s a strategic risk.
So, now Dell’s upped the ante, and HP has rebid. So much for the ‘denial of a resource to Dell’ argument.
This is crazy. Though the main stake holders in 3Par will make out like bandits.
Whoever eats this company will have a really hard time making the money back.
I think the 3Par purchase is ridiculous. Multiprotocol storage with the likes of Netapp and EMC Unified storage is what they ( HP, IBM and DELL) need to pay attention to. CLoud adoption will be extended and adopted faster with protocols such as CIFS and NFS and not iSCSI and FC. The world of storage and efficiency as changed and become the center of how virtualization will be adopted. Both servers as well as Desktops. If I am Dell I buy Xiotech. The best storage platform in the industry with the right concept of how storage needs to be dealt with. IOPS and not Capacity. HP cannot get out of their own way and are looking for products to compete with NetApp and EMC. 3Par is not it. EVA has not has a significant upgrade in years. Dell Buy Xiotech and not 3Par……Dell with Xiotech and Equallogic technology would be a great market share gain. In my humble opinion !
Mario, you are right. Perhaps the Dell cash is enough to buy Xiotech and Compellent together instead of 3PAR. Both companies are settled in Eden Prairie / MN which minimizes management and integration efforts. Compellent was much faster in developing new storage features, Data Progression ( “Fluid Data” ) is from 2005 !!!
3PAR announced Adaptive Optimization / Autonomic Storage Tiering in March 2010 after loosing valuable time with endless discussions. The only remaining thing of interest is the 3PAR multi-controller architecture ( 2 , 4, 6 or 8 controllers ). But I think it is much better to implement such an architecture with InfiniBand ( and not with special-tailored ASICs which is wasting time and money ). The last example is IBM SONAS which uses DDN boxes with InfiniBand adapters.
The Register has an interesting rumor: http://www.theregister.co.uk/2010/08/27/friday_pigeon_poo/
Short version: HP’s EVA head engineers bailed. HP can’t bring people in to fix it, so they need to buy someone to replace EVA.
That’s a sensible story, but the rumor for the past year is that EVA is little more than a rebrand of HDS’s USPv line. If this rumor is the truth, it’d be far easier to just fully resell USPv, maybe with a new faceplate, and call it a day.
However, $1.8 billion lends a lot of weight to the Register Rumor.
HP rebrands USP/V and it’s not a secret. The HP’s line is called XP. EVA has nothing to do with USP architecture (from the architecture point of view).
EVA is a legacy product HP inherited from DEC/Compaq, and it’s no surprise that engineers who developed EVA dropped out of HP years ago.
Many of the original EVA developers bailed years ago, remember EVA was DEC/Compaq technology. However HP have continued to develop multiple generation’s of EVA and new features, but they do lag the competition in terms of functionality and scalability. This lack of scalability and dual controller design means they have to maintain two product lines, XP &EVA with no common management or festures. 3Par gives them a common architecture, features and management from midrange to high end. Also the 3Par architecture shares many of the good features of EVA, wide striping, ease of management etc and also has the added benefit of locking Dell out. BTW EVA was never HDS tech, EVA was ahead of it’s time for many years but lack of focus allowed it to fall behind.
Firstly all I can say is congrats to the 3Par guys – a good bunch who will evidently make out like bandits no matter how this concludes.
Secondly the EVA has started to smell foul for a few years. Great technology, and truly ahead of it’s time 5 years ago, but with no future road-map and most of the engineers who built the thing long since gone it’s a dead end path. I was very happy to see our last 3 EVA’s be retired about a year ago (replaced with…..3Par!)
Maybe if they do get 3Par they will leave it alone and the first ‘improvement’ they do won’t be to force the 3Par guys to adapt to HP servers and MSA disk shelves – like the past storage purchases of HP have been forced to do 😉
You are all focused on what HP needs or doesn’t need in terms of products. No. This is not about whether they needed 3PAR products. HP clearly no-bid that one. What HP needs is a containment strategy around Dell and its march up the enterprise food-chain. That is what this is about. The 3PAR evaluation strategies are very different between Dell and HP. Taking 3PAR out of play, at least temporarily thwarts Dell business goals. This is part of a business chess game, not a technology game. And, unless you believe 3PAR is an imperative key to cloud storage, then this is about both potential acquirers looking backwards, not forward.
If this whole bit of lunacy is an attempt to “contain Dell,” Dell should let HP choke on the bone and pick up Compellent instead. It would be a fine buy.
San Diego CA
Joe Kraska – Well said. Sounds like a plan. And if we really want to be Machiavellian about this – wouldn’t be interesting if something like that was in Dell’s executive minds all along – after-all they could count on 3PAR’s advisors working really hard to create a bidding contest. Perhaps the path is now clear (HP-free) to circle and get Compellent. Certainly it is a more modern architecture and probably better suited to future storage opportunities.
Seems like EVA-line is dead. Max 8 SSD drives, max 1TB FATA drives (no hard drive vendors manufacture larger ATA drives).
RIP EVA. I never liked the technology anyway.
I’m with Robert Gray on this one in that HP buys 3Par to thwart Dell.
Dell is looking a right mess on so many levels lately, without good strategy, or plain freshened – up execution, they may even implode. While Dell supposedly wants up the food chain, little goes on in their mainstream. So HP is taking a long dated out of the money option on being able to soak up PC/low end server volume and potentially increase non – materials margins same time. At HP’s scale, even $2Bln premium isn’t such a bad option, if Dell can really be hurt. Or just made to look bad, such is the life of a public company.
Dell is looking especially bad on the desktop exactly where the margin is or should be, at least from support contracts. HP and Lenovo are iterating designs for trading floors: HP’s diminutive 200 series, Lenovo just came out with a custom thin dual socket w/s to cram 4 instead of three units under a standard trading desk. Engineering which Dell isn’t doing. That said, i’m planing to test ATI RG220 cards to shift a small floor’s compute where it can be silenced and to use normal desks for fraction of the price and floorspace reqs. (and even then, the Lenovos are space efficient in rack config and have novel cooling)
Admittedly, much of Dell’s recent woes are reported to me, not direct experiences. But lately Dell failed a crucial test: i was able to build a (fairly heavily loaded) workstation myself for less than Dell’s online price, including factoring the 40% discount i expect for phoning a rep. If you need redundnancy and spare parts on tap anyway . . . Some years back Dell stopped being my go-to, when they configed a w/s with an adaptec card which couldn’t reinitialise a removed drive in an array. Drive removed under advice no less. Yup, it was labelled PERC on the BOM. LSI (original PERC rebrand) firmware wouldn’t have hosed my array. The only nice looking kit they have IMO is the 895 AMD 6100 boxes. EqL storage nice too, but i don’t see how they shift those to small businesses if they can’t use keen destop prices as the thin end of the wedge with smaller shops. / rant
Anyhow, HP closed 3Par at $2.4Bln.
I believe acquisitions are market share, not tech, for the time being. Someone then has to go for growth and realise that 50 – 100 headcount companies not in tech or finance themselves cannot afford even the time to negotiate software licensing for storage, let alone the costs and frankly insane capacity charges. This is totally what Oracle should do. Free DBMS license – feature with every online TB. Why not? At this level of staffing it’s hard to get an Oracle rep to call you back 🙂
It’s rather sad how little the founders got from the over $2 billion sale: $40 million and $20 million from what I read.
Still, they’re lucky that HP nearly doubled Dell’s initial offer.
Seems like a stupid waste of money to me. Hp has just barely gotten Lefthand products out the door after how long? Ibrix has vanished into the HP rebrand engineering hell and almost a year later has yet to re-appear. Emails go unanswered, current customers cannot get support, future customers already went elsewhere. This is typical of their acquisitions in our experience.
How does HP figure that, other than blocking Dell, this was a good purchase? Time spent in transition will destroy a good deal of 3Par’s customer base and send them to the very competition they want to compete against? Poor judgement and an overly large payout for FAR too much risk I say. But we will see. In a couple years.