Hewlett-Packard (HP) Co. raised the stakes in the competition to acquire storage array vendor 3PAR today, making a $1.6 billion bid that surpasses the $1.15 billion offer Dell Inc. made last week for 3PAR.
Dave Donatelli, HP's executive vice president of enterprise servers, storage and networking, said he's looking for 3PAR to take HP heavily into cloud storage if it closes the deal. Dell would not comment on whether it would make a counter offer, which could turn 3PAR into the Data Domain of 2010. EMC and NetApp battled for the deduplication backup vendor last year, with EMC winning at a price tag of $2.1 billion.
As with Dell's proposed acquisition of 3PAR, Hewlett-Packard's bid would alter the storage landscape and raises questions about its product platform.
Although 3PAR's flagship InServ T-Class storage system is positioned as an enterprise play, Donatelli said during a call with financial analysts that it can also be considered a midrange platform. He said HP would maintain its OEM deal with Hitachi Data Systems for its enterprise XP system, which is the same system that Hitachi sells as the USP V. That means 3PAR may end up replacing HP's midrange EVA line instead.
And while 3PAR is known for its thin provisioning, Donatelli pointed to its multi-tenancy capabilities for shared storage and tiering software as making it a good fit for service providers and cloud storage. 3PAR sells modular systems that can be clustered to scale, unlike the monolithic systems with mainframe connectivity that it competes against, such as the EMC Symmetrix, Hitachi Data Systems USP V and IBM DS8000.
"It plays beyond only the high-end market," Donatelli said of 3PAR. "It plays in the mid-tier and the high end and also in incremental spaces, particularly server provider and cloud-based storage. There's always some degree of product overlap. I view that as a positive. It makes sure you have a seamless offering, and you don't have any competitive gaps."
Hewlett-Packard's storage market share has been shrinking and its midrange EVA platform is the biggest underachiever. HP's earnings report for last quarter showed storage revenue increased 10% with the high-end XP product up 20%, the LeftHand iSCSI SAN platform growing in "triple digits" and EVA declining 3%.
Nonetheless, StorageIO Group founder and senior analyst Greg Schulz said buying 3PAR would present a product positioning problem for Hewlett-Packard.
"It's somewhat of a conundrum for HP," Schulz said. "If HP were to get 3PAR, it's more of a problem or challenge for HP than it would be for Dell. Do they keep Hitachi on the higher end or not? EVA is getting long in the tooth and they can use 3PAR to replace EVA, but how do they preserve all the EVA footprint out there? They'd have to end-of-life EVA or have two competing products."
HP's Donatelli also denied that his firm's bid was a reaction to Dell's, and admitted Hewlett-Packard made a previous offer for 3PAR.
"We've been working on this deal for some time," he said. "It's been part of an active M&A process."
When Dell said it would buy 3PAR, the acquisition price raised speculation that another bidder was in the picture and HP was considered the most likely one.
"Like Dell's decision to go after 3PAR, we believe HP's decision to counter makes sense given a lack of a proprietary high-end storage strategy," Stifel Nicolaus financial analyst Aaron Rakers wrote in a note to clients today, pointing out that 3PAR could help bring cloud service provider customers to Hewlett-Packard.
StorageIO Group's Schulz said he expects Dell to make a counter offer, but doesn't see it getting into a prolonged bidding war.
"Dell could come back with another offer and HP could do a counter offer, and Dell would be absolutely smart to walk away," he said. "Dell would have to put its head between its legs and say 'We lost that deal,' but it would come out a winner because it lives to play another day. Dell has other opportunities for an acquisition or another OEM deal. Now HP has to digest 3PAR, and figure out where to position it against XP or EVA."
Hewlett-Packard has been more aggressive with acquisitions historically, but Dell has ramped up its interest in storage deals since it acquired EqualLogic in early 2008 for $1.4 billion and became the iSCSI SAN market leader. This year, Dell acquired the technology of clustered NAS vendor Exanet and bought primary data reduction startup Ocarina Networks. Last week Dell executives painted 3PAR as another piece of its growing data storage portfolio.