Sun Microsystems Inc. cemented its commitment to OEM supplier Procom Technology's network-attached storage (NAS) line.
In a cash transaction valued at approximately $50 million, Santa Clara, Calif.-based Sun agreed to purchase all intellectual property rights relating to the Irvine, Calif.-based company's NAS offerings.
Procom and Sun have had an existing software licensing agreement in place since April 2004. Procom technology currently ships with the Sun StorEdge 5000 appliances.
"Fifty million dollars is nothing to Sun -- it's McNealy's green fees for a month," said Charles King, principal analyst with Hayward, Calif.-based Pund-IT Research. "If you've already sold solutions on Procom, it's better to bite the bullet and buy them than lose the line. It would cost $50 million for Sun to develop the technology themselves."
The struggling Procom was ripe for purchase; its stock recently de-listed from Nasdaq. If Sun hadn't scooped it up, one of its competitors would have.
"One reason to buy [your] supplier is to keep your competition from doing so," Clay Ryder, president of the Union City, Calif.-based Sageza Group said. "Sun has made the commitment to Procom's NAS technology. The last thing it would want is EMC, HP, HDS or IBM to go buy the company."
Ryder added that Sun may have realized it can't make the sales in the low-end because it doesn't have the additional storage technologies. That could have hurt them in a market that is increasingly solution focused. "Sun has been mired in the tar pits for a long time," he said.
Observers agree that both companies made out on the deal. But it was clearly a smart move by Sun as it refines its overall storage strategy.
Diane McAdam, senior analyst and partner at Nashua, N.H.-based Data Mobility Group, said this move is part of a progression for Sun toward a more rounded storage offering.
"They went high end in the partnership with HDS Lightning and TagmaStore products and then the 6920 product for the mid-tier storage. This is another piece in the expansion of their storage footprint," McAdam said.
The transaction is subject to customary closing conditions, including regulatory approvals and the approval of Procom's shareholders. The acquisition is expected to close in June 2005.
Neither Sun nor Procom could be reached for comment.
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