In June 2005, long before most people ever heard of subprime, LIBOR, or credit default swaps, Sun Microsystems thought it was a grand idea to buy StorageTek for the princely sum of $4.1 billion. At the time, the thinking at Sun was to become more of a one-stop shop for its corporate clientele. On paper, at least, it sounded like a plausible idea.
But that was a veritable eternity ago. With the market's sudden meltdown in the last month, corporate spending--at least on Sun's products and service--has been hit especially hard. So it was that Sun warned this afternoon of a wider loss on lower revenue. The company said that it's going to lose 25 cents to 35 cents a share.
That figure includes a $60 million restructuring charge but not the potential goodwill impairment. Sales are expected to come in between $2.95 billion to $3.05 billion, as compared to $3.21 billion for the first quarter of fiscal 2008.
What really stands out in the warning is the paragraph devoted to a discussion of what largely was the StorageTek business. To wit:
Based on a combination of factors, including the current economic environment, Sun's operating results, and a sustained decline in Sun's market valuation, the company has concluded that it is likely that the fair value of one or more of its reporting units has been reduced below its carrying value. As a result, Sun is currently conducting an interim goodwill impairment analysis to determine the required amount of the non-cash impairment charge, if any. As of September 28, 2008, prior to the impact of this potential non-cash impairment charge, Sun's total goodwill balance was $3.2 billion of which $1.8 billion relates to reporting units that may be impaired.
Sun also paid about $1 billion to buy MySQL in January. A spokeswoman said Sun will publish final numbers on October 30, when the company holds its quarterly earnings call.
At the time of the StorageTek acquisition, a Forrester analyst by the name of Frank Gillett had this to say:
"Buying a company that is primarily tape technology today doesn't look like an exciting play for a forward-thinking company like Sun....It appears like they have some strategic stuff in mind in the long run, but I don't think that this acquisition is being justified on yet-to-be-announced technology. In the short run (the logic) is an open question."
Pretty prescient.
Twelve months ago, IBM Research began work on a project to develop an algorithm to help reduce the cost and requirements of virtual desktop storage.
To paraphrase Mel Brooks, it's good to be the R&D king.
On Tuesday, IBM, claiming to be the first vendor to crack the code on virtual desktop storage, is set to debut a technology at the VMWorld conference in Las Vegas that executives say reduces storage costs by up to 80 percent. Here's the relevant portion from the announcement about the Virtual Storage Optimizer:
The new phase of "cloud computing" gives end-users access to the critical information they need remotely, from any device, anywhere. IBM helps organizations benefit from this new model with its Virtual Infrastructure Access (VIA) services that give end users with Internet-enabled PCs and other devices the ability to access applications and data through a centrally managed computing environment. Until now, virtual desktop deployments have been hampered by the cost and complexity of managing storage, one of the most expensive hardware components of any virtual desktop environment.
Virtualization, anyone?
(Credit: IBM)Available beginning today, the new IBM Virtual Storage Optimizer solution for VIA directly addresses this challenge, helping businesses further optimize their virtual desktop environments, while saving time and money on storage requirements. Based on an algorithm developed by IBM Research, VSO dramatically reduces the large physical storage requirements associated with storing virtual images. The solution also allows organizations to streamline operations by creating new desktop images in mere seconds or minutes, a process which previously could take up to 30 minutes - a 75% reduction in the time required to create and deploy new virtual machines. This represents a tremendous operational savings for clients, and allows them to realize more immediate returns on their investments."
The important takeaway is that IBM claims to have resolved one of the biggest barriers in the way of the spread of storage virtualization: the cost and complexity of dealing with storage. It's not an insignificant consideration. Storage can turn into one of the--if not the--most expensive components of any virtual desktop setup. If IBM's technology lives up to the claim, that will go a long way toward allaying some of the lingering concerns about virtualization. Fact is, however, that two-thirds to three-quarters of IBM's customers have already incorporated "some sort of virtualization" into their operations, according to Jack Magoon, a business development executive in IBM Global Technology Services.
"Customers are almost universally aware of desktop virtualization technologies that are emerging...the majority of them have some sort of pilot or have tried something in their departments or are playing with it in some fashion," said Magoon. "We're in the phase where people recognize it's out there and they're trying to figure how and when to take advantage of it."
IBM currently has no plans to break out its VSO technology on its own. Magoon said it will be sold to customers as part of the menu of services available through IBM Global Services.
Despite the early kinks attending MobileMe, what's not to like about the concept? I'll include Live Mesh in the category, though Microsoft still remains in beta with the product. Synchronizing e-mail, calendars, and contacts--it's a fine idea. Unfortunately, nobody has figured it out to anyone's full satisfaction yet.
Maybe that will soon change as more companies with the means and the motivation offer cloud-based storage to consumers. One recurring rumor has Google planning an upcoming consumer service with "infinite storage" called GDrive. Take rumors for what they are worth, but given Google's (growing) cloud-centric history, it's not unreasonable to expect an announcement along those lines.
Meanwhile, another name with the bonafides is thinking about trying its hand.
Dell.
I recently caught up with Praveen Asthana, who directs storage operations at Dell. While cloud-based storage so far has had an uneven reception in the market, he says the initial consumer reluctance to store valuable digital files "out there" is receding.
"What convinces me about this is that people now are comfortable putting their photos onto the cloud," he told me. "When you read about someone's house catching on fire, what's the first thing they try and save? It's the photos and the memories."
Of course, Dell knows that it is not guaranteed to succeed where others have failed. If it were that easy, Xdrive would have turned into a money machine for AOL. Instead, the company is looking to dump the service only three years after acquiring it.
At this point, Dell is not offering more details other than to acknowledge that the idea is under consideration. Also, it is not clear whether the company would go it alone or in collaboration with another company. But Asthana still believes the change in consumer behavior is for real and that it suggests a shift that will involve the entire user food chain. "I think it will start with consumers," he says, "and then go right up to small and medium business, and then corporations."
Perhaps. After its acquisition of EqualLogic last year, Dell now sells a broad iSCSI disk array product portfolio. The thinking is that Dell would be able to successfully extend its expertise as a supplier of storage hardware into storage services. It's obviously more complicated than that, but Asthana's boss is no stranger to applying managerial lessons learned in one area to another.
Michael Dell has proved himself to be one of the savviest operators in techdom. He built a multibillion dollar business by figuring out how to sell commodity PCs, servers, and service quicker than most. Each time it stumbled, the company learned from its mistakes and moved on. Consumer-based cloud storage no doubt would be a stretch, but didn't they say the same thing at other points in Dell's history?
If the scenario comes true, it would make for one heck of a scorecard with Dell conceivably facing off against the likes of Google and Microsoft (as well Apple).But with more people participating in digital photography and digital music--and all the attendant storage demands that follow--there's ample room for companies that can get it right. Besides, Michael Dell knows how to pick his fights.
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