SAN JOSE, Calif. – How can a company that has never shown a profit and had flat 2010 revenues of less than $200 million suddenly become worth $2 billion? That's the story of the 3Par bidding war, and it speaks volumes about the dynamics of today's computer industry.
Hewlett-Packard and Dell, the industry titans that want to acquire storage systems maker 3Par, are hungry giants. They are strangely shaped ones, too, a mile wide and an inch deep.
HP has revenues of $114 billion spanning everything from netbooks and home printers to the massively parallel servers, storage arrays, switches and services needed to build the largest data centers. For all its breadth, the company eked out profits last fiscal year of just $7.6 billion or about 6.7 percent of sales.
This thin giant is on a reduced R&D diet. It spent $2.8 billion on R&D in its last fiscal year, just 2.5 percent of sales. HP has been trimming R&D significantly in absolute and relative dollars since it spent $3.6 billion or 3.5 percent of sales on R&D in 2008.
Yet this $114 billion giant must grow to keep investors and Wall Street happy and grow a lot to have any impact on its multibillion dollar top and bottom lines. Its archrival in the current bidding war, Dell, is even hungrier and leaner.
In a sign of how thin these times are I am told for the last several years the word at HP is no more ASICs. Dell would only laugh at even the thought of designing its own chips.
Dell's revenue peaked in 2008 and 2009 at about $61 billion, then fell sharply to $52 billion in its last fiscal year, below 2006 levels. Profits took a plunge as well, down a billion dollars to $1.4 billion, a slim 2.5 percent of sales.
The Texas computer maker has already sliced R&D to the bone. For the last three years it spent about $625 million or a slender 1.2 percent of sales on R&D, not unusual for the highly outsourced company.
So when a well-managed, medium-sized company with a novel technology and a significant customer base comes along, it's a luscious treat. 3Par sells modular storage boxes that can be stacked in a pay-as-you-go fashion to compete with refrigerator sized arrays from storage giants EMC, Hitachi Data Systems and IBM.
The 3Par systems scale better than systems most other small and medium-sized companies offer, and they can be optimized for many parameters including virtualization, a hot button for new data centers, said Rick Villars, president of storage systems research at International Data Corp. Indeed, its boxes can include a mix of serial ATA, Fibre Channel or flash drives. And while others use file storage, 3Par supports block data, helpful for large data centers, he said.
3Par's latest annual report indicates those features are embedded in an ASIC now in its third generation, a proprietary mesh system backplane and an operating system and set of storage applications and tools. The chips and software are backed up by 32 U.S. patents.