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Sun, Hitachi join forces on storage

The server giant signs a deal with Hitachi to cross-license technology and collaborate on software development.

Sun Microsystems will resell Hitachi Data Systems' high-end storage setup in a deal that puts pressure on EMC and Hewlett-Packard and that could help turn around years of trouble in Sun's storage business.

Under the three-year deal, Sun will sell HDS Lightning 9900 series storage systems that sport both Sun and Hitachi logos and use software from both companies, executives said Wednesday. Sun will position its existing T3 products as midrange and the HDS products as high end, Chief Operating Officer Ed Zander said.

The companies said the target of the deal is EMC, whose Symmetrix storage systems can attach to all the major server companies' products. "Forty-five percent of EMC revenue comes from attaching storage to (Sun) servers, and we want some of that back," said Mark Canepa, senior vice president of Sun's storage business, in an interview.

But EMC said the figure is actually 25 percent. And the company is successfully fighting to preserve its top position in the market, Pacific Growth Equities analyst Thomas Mancino said.

"If Sun really wanted to do something about this, they probably should have reacted three years ago," Mancino said. The proverbial horse isn't merely out of the barn, he said, "the horse is already in Nevada. The customers have already voted with their purchase orders."

The company that could get hurt more than EMC is Hewlett-Packard, which has been selling versions of the Lightning products since 1999 but is struggling financially, Mancino said.

Gartner analysts Josh Krischer and Stan Zaffos say the deal provides Sun with a high-end product that competes directly against EMC's Symmetrix.

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But Merrill Lynch analyst Thomas Kraemer thinks EMC will be hurt. "For EMC, this is clearly a negative," he wrote in a research report Wednesday. "We think there could be significant pricing pressure" on EMC.

The agreement was described by the two companies as a "multibillion dollar" deal, though specific financial details of the agreement were not disclosed.

The companies will work together in selling and marketing the Sun StoreEdge 9900 storage system, which is based on Hitachi Freedom Storage Lightning 9900 products. The companies will also distribute Hitachi storage software and Sun's storage management software.

The two are touting the move as a significant step in building their customers' competitive advantage by allowing them to combine their systems and services with data center storage systems.

The deal adds clout to Hitachi Data Systems' transformation from a mainframe company to a storage company, and boosts its position in its battle with EMC, the leader in the high-end data storage systems market. Sun, too, has been trying to catch up with EMC, as have other server makers, as storage systems account for a larger portion of sales of new computer products.

Hitachi Data Systems and Sun have been in talks for some time, as Palo Alto, Calif.-based Sun has been looking to enhance its own storage business after years of seeing EMC systems paired with its servers.

EMC has been cutting prices aggressively to retain market share, a process that has dissolved profit margins and fried EMC profit forecasts. EMC has been laying off employees in the gloomy economic climate.

Sun has been struggling for years to increase sales of storage products, particularly as storage components have grown more independent of servers and have accounted for an ever-growing fraction of the money spent on high-end computing systems.

When Sun debuted its T3 product in June 2000, it positioned the line against EMC's. Before that, Sun had hoped the Encore A7000 would fit the bill, but that product was a dud.

"The A7000 really did not materialize into anything you would consider to be successful," though Sun did benefit from getting engineers and storage software, Zander said in a conference call Wednesday. And he acknowledged that Sun has been trying to sell the T3 to large accounts, "We really did not have the high-end big box" customers wanted.

The Hitachi deal shows promise, though. "For Sun, we think this is a positive, as it fills a two-year gap in its storage product line," Kraemer said. However, a complete storage effort will require Sun to acquire more storage companies, he added.

EMC spokeswoman Anne Pace argued that because customers already could get Hitachi systems for Sun servers, the deal has little real effect on the competitive landscape. "In the last five years, they've had six different storage architectures. This is another attempt for them to get at our market share," Pace said.

Hitachi disagreed.

"Obviously it will be a good boost to our business," said Hitachi Data Systems Chief Operating Officer Dave Roberson. He declined to predict what fraction of Lightning sales is expected to go through Sun.

Sun dismissed concerns that its sales force would prefer to sell Sun's T3 line over the Hitachi system. "We believe the two product lines are quite complementary," Canepa said.

And the companies worked out a plan to make sure Hitachi salespeople won't conflict with Sun's when selling the Hitachi system, Canepa said. "We make it quite attractive for Hitachi sales reps. They make more money when the product is sold through Sun," he said.

But new products could shift the balance. Sun is working on a new version of the T3 aimed at use in high-end customers' data centers this fall, Zander said.