Thursday, June 02, 2005

The good, the bad and the ugly

Sun announced that it is buying StorageTek in an all-cash deal valued at $4.1 billion! Sun had hinted earlier that a large deal was coming and it again repeated today that more will follow.

Today's deal had all the 3 ingredients with the breakup being -
- good : Sun finally did something useful with its cash!
- bad : Sun overpaid ...
- ugly : ... to buy a second-rate target!

Sun would have been better off taking a smaller bite going after Dot Hill, Advanced Digital Info or Overland. By going after this large a target, Sun has left no room for error. Moreover this deal will force HP to make a deal of its own, most likely Network Appliance that will mean increased competition for Sun to deal with. This could be the swansong!

I own Network Appliance (NTAP), Advanced Digital Info (ADIC) and Dot Hill (HILL) shares. Dot Hill shares took a hit today as it will lose out due to this deal.

Advanced Digital Info and Overland remain attractive. Dot Hill has now turned more speculative.


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