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Mon 6 Jun 2005 04:00 AM

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Channel reacts to Sun-StorageTek deal

Middle East channel partners have greeted Sun Microsystems’ blockbuster US$4.1bn cash bid for StorageTek with a mixed reaction, claiming that the deal opens up significant new sales opportunities for Sun in the fast-growing storage arena, but also throws into doubt several of StorageTek’s existing OEM relationships.

Middle East channel partners have greeted Sun Microsystems’ blockbuster US$4.1bn cash bid for StorageTek with a mixed reaction, claiming that the deal opens up significant new sales opportunities for Sun in the fast-growing storage arena, but also throws into doubt several of StorageTek’s existing OEM relationships.

Jocelyn Al Adwani, partner and director of business development at storage specialist STME — a company that started life as StorageTek’s regional representative in the Middle East — commented: “It is generally a positive reaction as it is a good partnership due to little overlap and the fact that it gives Sun the ability to address a fast-growing market. Server margins continue to erode so the ability to provide more of the total infrastructure solution along with services is vital in order to grow revenues and increase market share.”

Christian Kroker, managing director at Dubai-based StorageTek partner enigmatis, added: “To us it makes sense for Sun to do this. First of all, Sun already has an OEM relationship for their mid-range and high-end tape libraries from StorageTek.”

“The whole storage business has been growing distinctively faster than the server business lately and we expect huge growth over the next years. Increasing value in that sector and removing dependency from OEM vendors thus seems to make a lot of sense for Sun,” he added.

Sudhakar Suryanarayan, sales manager at StorageTek distributor StorIT, said: “The deal came as a surprise. One more surprising acquisition in the storage space after that of Veritas by Symantec.”

“Sun will benefit from StorageTek’s expertise on storage,” he added. “In the future we will be using a single word to define both areas — network computing and storage management. These two entities will merge.”

While it remains very much a case of ‘wait and see’ in terms of the channel implications of the deal, one area that is of immediate concern is the impact this deal will have on the carefully balanced area of vendor alliances and global OEM relationships. “We have to watch for the reactions from Sun’s OEM storage partners and StorageTek’s OEM partners as well,” said Suryanarayan.

Understanding what the deal means for Sun’s product portfolio moving forward and how the deal will impact the existing OEM relationships that StorageTek has as both a customer and a supplier remain high on the channel’s list of concerns.

“We will certainly see a much stronger Sun offering in the tape space, which I am positive about,” added Kroker. “It will definitely give us the strong portfolio we had, but under a single brand. On the other hand we won’t be able to position the products with non-Sun customers that easily anymore. It would actually be great to get the products under the Sun label, but for them to also retain the old StorageTek brand.”

“We also need to take a wait-and-see approach to the disk storage. Here StorageTek had some much more compelling offers than Sun and at much more attractive prices. But since that was an OEM agreement, I am not sure what they will be doing, which leaves a huge question mark in our business plans,” he added.

Graham Porter, marketing manager at Sun Middle East and North Africa, claims that there is no reason for the current OEM landscape to change: “I think the OEMs will continue. In this industry there are always many OEM deals behind the scenes and I don’t think there is any question of suddenly telling OEM partners that they are not welcome.”

Whatever the impact on StorageTek’s existing OEM relationships, especially with HP, Sun believes that the expanded product portfolio that the deal creates will be welcomed by customers looking to source more of their IT requirements from a single vendor capable of providing a complete solution.

“We talk about the storage attach rate at Sun,” said Porter. “This is the percentage of times that when we sell server solutions we attach storage too. Globally the figure is around the 35% mark and in this region it has been around the 45% mark. I think that with this deal the storage attach rate is likely to go up.”

“When you look at StorageTek, it has a 97% attach rate for services. This is also a key area for us and we will look to grow our service business even more in this region. Services takes you away from being seen as a pure product vendor towards being seen as a solution provider,” he added.

StorageTek already has more than 200 clients in the region, and cross-selling into this existing customer base will be a top priority for Sun once the transaction has been concluded.

“Datacentre customers want more products from fewer vendors — ‘one throat to choke’ if you will,” added Porter. “For partners in this region, the deal gives them a wider portfolio that answers more of the needs of the datacentre managers. Sun and StorageTek already have a number of common partners in this region that will form a strong channel.”

With the Sun-StorageTek deal not expected to close until late 2005, it remains business as usual for both vendors and their channel partners until then. “Until then we are officially two separate companies and we have to respect the legalitities of that,” added Porter. “So it is not a case of us getting together and colluding and stitching up deals. That will not be happening. Only when the deal closes can we sit down with David Beck at StorageTek Middle East and really start looking at the customer base.”

Despite splashing out US$4.1bn cash for StorageTek, do not expect Sun to step off the acquisition trail just yet. The company has consistently repeated its desire to be a consolidator in the global IT space and still has some US$3bn in its war chest.

“The acquisitions are probably not over yet,” concluded Porter. “There could still be something big in the pipeline and it will need to logically fit with what Sun does, which is network computing.”

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