Tom Petrocelli's take on technology. Tom is the author of the book "Data Protection and Information Lifecycle Management" and a natural technology curmudgeon. This blog represents only my own views and not those of my employer, Enterprise Strategy Group. Frankly, mine are more amusing.

Monday, August 23, 2010

Computer Industry Goes Zoom Zoom

You would think that last week’s announcement that Dell was acquiring 3Par for US$1.15B was news enough. Ha! Intel then raised eyebrows by announcing the acquisition of McAfee for US$7.6B. Now, comes Monday morning and HP raises the stakes against Dell by sending in their own and bigger bid for 3Par. It’s nice to be loved. Somewhere in all this, Hitachi Data Systems announced that they had acquired the Intellectual Property and core engineering team of Parascale, a cloud software company. Too bad for them. What should have been a sweet announcement was lost in all the noise.
So, what the heck is going on here? On the one hand, this is actually not that surprising. Computer tech companies tend to throw off lots of cash so they have a lot sitting around for acquisitions. Most of these big companies can thus afford to buy expertise or market share. This is especially true when you are coming out from the bottom of the market. Best to build up the arsenal before the economy really picks up.
This is an industry with a tradition of letting smaller companies trail blaze new technology and markets then get their payoff from a big company. In the long run this is cheaper and less risky for big companies but profitable for small ones. More unusual are the Googles and Microsofts who start in a garage and end up a behemoth. That’s the myth of computer tech but not the reality. What is not a myth is that deal making gives folks like me something to talk about. So here’s the talking about part.
Intel-McAfee Makes for Secure Communications
The Intel-McAfee deal has a lot of pundits scratching their heads. It’s a lot of money for a company with a big consumer business. McAfee’s revenue would barely be a rounding error for Intel. In 2009 Intel’s revenue was 18.5 times McAfee’s (~US$35B vs. US$1.9B). $1.9B is nothing to sneeze at but it will be a long time before a McAfee revenue stream makes up for the money Intel paid for it. What McAfee has going for it is lots of core security technology. More importantly, it’s spread across all aspects of the digital world – web, mobile, desktop, and server. Combined with Intel hardware and chips and you have a much higher revenue generating business than McAfee alone. It’s like having your cereal with fruit and milk. It’s part of a complete breakfast. It also well positions Intel for the long term. This is an example of the Gestalt principle – the whole is way better than the sum of the parts.  Besides, people said similar things about EMC’s RSA acquisition and that has worked out well for them, right?
3Par Bid Up by HP
I wasn’t that thrilled about Dell’s acquisition of 3Par, except insofar as it worked well for the 3Par folks (nice folks). I’m both more and less thrilled about the HP bid along the same lines. It’s better for 3Par financially, so I’m more thrilled. It’s makes less sense for HP though. Unlike Dell they have a coherent storage story, reputation and brand going back decades, as well as an extensive product line. Do they need 3Par? At least with Dell, 3Par would be a prominent part of the line up. They might have even kept their name, like Equalogic did. With HP, they will be absorbed. It’s hard to see what this deal adds to the HP product mix that they can’t get or build more cheaply. I doubt they need 3Par’s customer base really. Perhaps it’s just a way to keep Dell from becoming a serious competitor in storage. Perhaps. Generally, I don’t like this for HP but do for 3Par investors. It will be interesting to see how high this one gets bid up. There could be crazy amounts of money tossed around here.
HDS Goes Parascaling Up In The Clouds
The cloud is about software. It sells hardware but doesn’t exist without software.  Parascale provides software that makes storage and servers into clouds. I don’t know enough about Parascale to say if it worked or was particularly good software. Assuming it worked just fine, then this is the kind of technology play that I like. It adds immediate value, helps move hardware, has broad, future potential in an emerging market, and is a deal that is easy to do. It’s kind of conservative but conservative often pays the bills.
Bye Bye to OpenSolaris
There were also a bunch of other, smaller announcements too. One that is significant was that Oracle will be dropping support for the OpenSolaris project. This is sad since there was a vibrant community around OpenSolaris. It was not, however, unexpected. Oracle has nothing to gain by supporting an open Unix product. In the end, this will be good for the Open Source community. There are already too many Linux and Unix projects and variants diluting the talent pool. Do we really need OpenSolaris and FreeBSD and OpenBSD and NetBSD and Darwin and so on and so on. Not really. So, while I understand how this bothers some people and generates a lot of “what else will Oracle kill?” questions (Don’t worry it won’t be Java or MySql. They generate revenue) it’s really for the better. Time to move on.
I must admit, all this activity is exciting. It’s rare that this industry gets a week like this. Deals are usually more evenly spaced out. It’s like NASCAR for computer geeks.

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