Analysts split on HP and Dell’s 3PAR battle

After another day of bid and counter-bid in the battle to gain control of 3PAR analysts are split on who will eventually win, but all agree that the battle has become crucial for both companies.

“Both HP and Dell have very good reasons why they can’t afford to lose this,” Andrew Reichman, senior analyst at Forrester told V3.co.uk.

“It’s the only top tier storage vendor operation left to acquire.”

Dell is after the company because it is looking to transition into the enterprise server space and storage was a major gap in its portfolio. While the company sells plenty of servers it needs to move into selling large total solutions if it is to become a "mega-vendor", he explained.

There is also the question of the amount of effort Dell has put into buying other components of an enterprise offering, such as Perot Systems.

“They bought the garnishes, but now they need the entrée,” he said.

From HP’s perspective storage has traditionally been the weakest part of its offering to large enterprise he said, but by staying in the battle in such an aggressive manner the company would have difficulties walking away at this stage.

“They’ve really said our existing product set is not adequate. It’s tough to say we don’t need it.”

Part of the reason both companies are being so aggressive comes down to the underlying value of the technology, IDC’s vice president of storage Ben Woo told V3.co.uk.

Storage is the growth area in the enterprise market, with virtualisation slowing growth on server sales, and all the major players have to have an offering to survive.

Dell is currently relying on partners like EMC to supply sections of its overall enterprise offering while HP is using Hitachi systems which, while st ill very successful, are getting long in the tooth. Neither situation is ideal and both would benefit from the buy, although Dell would see a benefit first.

“Dell has no intention of integrating 3PAR, it’ll simply allow it to expand, the amount of integration needed is almost non-existent,” he said.

“HP will need to do a lot more integration with the company along the way before they see more solid results, but it will also see some immediate benefit.”

As the amount being offered increases daily both companies will be facing questions as to a top limit that can be paid for 3PAR and still be justified.

“I don’t think either company is going to have any problem coming up with the funds,” Rob Enderle, principal analyst at the Enderle Group, told V3.co.uk.

“But they’ll have a hard limit on how far they can go.”

He added that board support was crucial in a deal like this. Dell’s founder and chief executive has expressed personal support for the deal whereas HP was being run by a caretaker chief executive and that could make HP cautious on such a large investment.

The political facts of life may also be important the deal. Reichman pointed out that the deal could be crucial to the future of HP’s David Donatelli, head of HP's Enterprise Servers, Storage and Networking division. A successful resolution in HP’s favour would win him many friends on the board, but a botched job could be a personal disaster.

“Some of conventional wisdom seems to be that he’s driving the push, but making a decision like this has probably been led by Ann Livermore, his boss,” Charles King, principle analyst at Pund-IT told V3.co.uk.

“It’s very curious to see HP moving forward so aggressively in this in the absence of a leader.”

He continued that as the amount to be paid for 3PAR rises then institutional shareholders and board members would start to get increasingly nervous about seeing a return on their investment.

One financial wild card in Dell’s favour could be unconfirmed press reports that Dell in fact already has a stake in 3PAR, possibly as an initial investor. If true, this would give it an edge since a proportion of the cost of the acquisition would flow straight back to Dell.

All of the analysts were asked for their personal opinion as to who would eventually win the bidding war and take ownership of 3PAR. The final score was three to one in Dell’s favour, mainly down to the view that Dell needs the company’s technology more and it being the seemingly preferred option of the 3PAR board. Several pointed out that key 3PAR employees left HP to join the company.

“3PAR has a lot of HP history, but I don’t think that’s an advantage for HP,” Reichman concluded.