Until this morning, Dell (
) and Hewlett-Packard (
) were mired in a bidding war over 3Par (
), a leading provider of utility storage solutions for
enterprises. HP won that war today, paying $2.4 billion in
cash to acquire 3Par.
Below we highlight the significance of 3Par and explain how it
might impact HP's storage business in the future.
Utility storage primer
Utility storage is a category of data storage systems designed
for utility computing, a form of information technology in
which storage and computation are delivered as a metered service,
rather like a power utility. 3Par's unique storage technology
powers so-called virtual data centers for mid-sized to large
enterprises, including financial service firms, government
entities, hosted computing providers, and consumer-oriented
3Par's value proposition is based on the premise that unused
storage is wasteful. Conventional data centers typically use just
10% to 25% of allocated disk space. By contrast, 3Par's technology
allocates disk space only when applications need storage capacity,
reducing the total cost of storage by up to 50% according to the
As more enterprises shut down their in-house data centers and
turn to on-demand storage and computing services delivered via the
Internet, their storage needs become more variable and less
predictable. This makes 3Par a great fit for the cloud computing
era, which helps explain why HP and Dell are competing so fiercely
to acquire the company's proprietary technology.
Why were Dell & HP chasing 3Par?
In revenue terms, Dell currently holds about 13% of the total
disk storage systems market. HP's share is 18%. In recent
years, both companies have increased their storage market share via
acquisitions. But they still trail industry leaders EMC (
) and NetApp (
) in the fast-growing market for so-called open networked disk
storage, a technology that links data storage devices over the
Corporate data storage requirements have doubled every 18 months
in recent years, and we expect this trend to continue going
forward. We expect the open networked disk storage market to grow
at an even faster pace.
3Par's revenues have grown at an annualized rate of 67% over the
past five years, reaching $185 million in 2009. Our conservative
initial estimate is that the acquisition could boost HP's storage
revenues by $400 million in 2011, rising to $2 billion by the end
of the Trefis forecast period.
You can drag the trend-line in the chart below to create your
own storage revenue forecast for HP.
Is 3Par worth $2.4 billion?
Dell opened the bidding for 3Par on August 16, offering $18 per
share. By Wednesday, September 1, HP was offering $30 a share to
acquire 3Par, or $2 billion. Dell had until midnight Wednesday to
match this bid, but the deadline passed with no word from Dell.
On Thursday morning, September 2, HP raised its bid to $33
a share, valuing 3Par at about $2.4 billion. In a
, 3Par announced that it considered this offer "superior" to Dell's
latest bid of $32 a share and that it intended to dissolve the
original merger agreement with Dell.
$2.4 billion is a lot of money to pay for a company that posted
$185 million in revenues last year. However, we think the valuation
may be justified. Here's why:
By acquiring 3Par, HP will be able to sell packaged products
based around the company's storage solution. This will boost
revenues of other divisions, like services and software. We did not
factor this multiplier effect into our analysis above, which is why
our revenue estimate might be conservative.
3Par's technology is unique meaning that Dell will need to
duplicate the technology from scratch if it wishes to compete with
HP based on such technology. Dell will incur heavy R&D
costs to develop such technology and may potentially lose share in
the emerging utility storage market if it is unable to compete with
We have not yet updated our
$54 Trefis price estimate for Hewlett-Packard
to incorporate 3Par, but will be doing so soon.