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Thursday, June 02, 2005

Sun's (SUNW) StorageTek Buy is Good - For Symantec (SYMC)

Sun bought StorageTek for $4.1 billion. The slides outlining the deal are here. My observations:
1. StorageTek is wildly more profitable than Sun and that should embarrass Sun. StorageTek generated $367MM in Op Cash Flow with $800K of R&D and G&A expenses and 7,100 employees v. Sun's $342MM (adj for MSFT cash payments) with $4.8Billion of R&D and G&A expenses and 32,000 employees. That's a ridiculous comparison that actually means this deal is good for Sun. In other words, they're so bad that buying StorageTek will make them look better just by financial engineering.
2. Sun's central deal thesis is that CIO's are looking for a systems approach that tightly incorporates storage to meet new record-keeping and regulatory demands. Where have we heard that before? Symantec's acquisition of Veritas, but nobody believes John Thompson. Expect Symantec to get a big boost as people decide who they would rather investin: John Thompson or Scott McNeally. My money is on Thompson.


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