September 4, 2010 | In: Technology

Which Company Is the Next 3PAR?

Now that the 3PAR war is over after DELL walked away from the bid, one has to wonder, who is the next 3PAR?

DELL really wanted 3PAR, that’s why they went through this bidding war with HP to buy this company, but they lost it, as I predicted it. So DELL now wants to buy a company that is similar to 3PAR, so who are the potential candidates in this area?

Some investors think it’s Quantum, but let’s be honest, although Quantum produce hard disks, their target markets are completely different than 3PAR’s: Quantum is focused on individuals, 3PAR is focused on enterprises. It might be that with tweaking the company would become another 3PAR, but I don’t think DELL wants to wait that long (otherwise it wouldn’t have fought for 3PAR). Western Digital and Seagate are the same story as Quantum, although they’re much more expensive.

So who else? 3PAR’s main competitors in the same niche are:

– EMC: Market Capitalization is $41 billion. Almost 2 times that of DELL. DELL has ti find a very big goldmine somewhere with gold already extracted and ready to be sold in order to buy EMC. So EMC is out of the question.
– IBM: IBM offers the whole solution, just like DELL, and is not really a company dedicated for storage. So, there is no way that this is an option (unless IBM goes insane), and of course, IBM is almost 7 times the size of DELL by market capitalization.
– Hitachi Data Systems: Now this is the most intriguing options. Hitachi Data Systems is privately held though, but for sure the sale of this component will prop up Hitachi’s stock.

Let us examine in more details the last option, Hitachi is a 100 year old Japanese company that is known for its appliances, but not very well known for its computer products. Now selling the data storage unit would make sense for Hitachi, and would also make sense for DELL. Hitachi’s data storage unit might be internally valued at around $300 million as the company’s whole market capitalization is $18.9 billion, and again, the data storage unit is not very well known, so this makes sense. In fact, Hitachi was a close watcher of the 3PAR fight, and it made an important decision based on that, which is taking its data storage unit public (they made this decision on September the 1st, one day before the bidding war between DELL and HP ended, what a coincidence!). Hitachi says that the emerging company should be valued for about $3 billion (10 times what I think the data storage is internally valued), claiming that this number is based on the revenue of its last 12 months, and the value of its competitors, Seagate and Western Digital. But we know that Seagate and Western Digital (market capitalization of $5.27 and $6.10, respectively) are not really Hitachi’s main competitors, but 3PAR is (or was). Not mentioning 3PAR as the main competitor is similar to Hitachi telling the world (or maybe just DELL): “Oh, we didn’t know 3PAR was bought by HP for $2.4 billion”. This is ridiculous, Hitachi knows that DELL would be surely after their data storage unit after they lost 3PAR, and now they want to make this part of their business look like it’s worth 10 times more than what it really is.

But DELL won’t pay $3 billion for Hitachi, nor $2 billion I think, probably $1.5 billion is an acceptable number.

Hitachi is trading at 37 times EPS, so if it’s valuing its data storage unit the same way it’s currently being valued, there is a problem…

There is one last factor that comes into play, which is that 3PAR now belongs to HP, so DELL might have a problem buying from 3PAR directly now, or 3PAR might have a problem selling to DELL…

I think DELL is now screwed in all cases, and has to either buy the unit from Hitachi at a highly inflated price, or make a deal with Hitachi to integrate their data storage solutions into DELL’s enterprise solutions…

HP really played it beautifully…

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