) and Hewlett-Packard (
) are mired in a bidding war over 3Par (
), a leading provider of utility storage solutions for
Although the winner of this war will undoubtedly pay a heavy
premium for 3Par, we think the deal could benefit either company
handsomely in the long run. Our analysis follows below.
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 are Dell & HP chasing 3Par?
In revenue terms, Dell currently holds 12.7% 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
estimate is that the acquisition could boost Dell or 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-lines in the charts below to create your
own storage revenue forecasts for Dell and HP, respectively, and
see how they impact the stock prices for both companies.
Is 3Par worth $2 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, Dell or 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. If either HP or Dell fails to
acquire 3Par, it will need to duplicate the technology from
scratch, incurring heavy R&D costs and potential loss of
share in the emerging utility storage market.
You can see
our complete $17.04 stock price estimate for Dell
You can see
our complete $54.12 stock price estimate for