HP acquires 3Par: Now what?

Last week, I blogged about the 3Par bidding war and how I thought that HP would prevail.  Yesterday, Dell refused to match HP’s latest offer and so unless something crazy happens, HP is now the proud owner of 3Par for the rock bottom price of $2.4B!  The price is more than double Dell’s initial bid of $1.15B and is more than EMC paid for Data Domain.  In order to justify these high bids, Dell and HP must have thought that 3Par could create strong business value.  Now that HP has prevailed and is on the hook for $2.4B, they must execute the transaction and show how 3Par can drive incremental revenue and profits.  Let’s look at some ways HP could leverage 3Par to meet these goals.

Revenue growth is a key metric that will be used to assess the success (or lack thereof) of the 3Par acquisition.  In order to accelerate top line growth, HP cannot just replace EVA and XP sales with 3Par; they must find new avenues for the technology.  Some options include:

  • Managed Service (Cloud) providers:  3Par developed unique technology to address this market and 7 of the top 10 infrastructure-as-a-service providers relied on their storage.  HP must continue to pursue managed service providers including HP’s own ES division (formerly EDS).  The credibility and relationships that HP brings as an computing infrastructure provider could enable them to accelerate market penetration and establish an integrated leadership position in this hot market.
  • Net new customers: HP must leverage their existing brand and market presence to aggressively sell 3Par technology.  3Par was an early supporter of VMware’s storage APIs and HP could position the new technology as a VM optimized storage platform which would align nicely with their blade server agenda.   To be successful, they must find new opportunities where these message would resonate. 
  • Improved competitive positioning: The new technology could allow HP to battle more effectively with competing storage providers.  In this scenario, HP does not necessarily need to create new opportunities, but be more competitive in existing ones.  For example, if today HP wins 30% of competitive situations then you would expect that to increase with 3par.  If their win rate increased to 60% then they would double their revenue.  However, this improvement will take time and will likely be less impactful than the first two.

Revenue growth is critical, and must be considered in the context of profitability.  Profits impact the bottom line and represent the difference between the revenues generated and associated costs.  Every sale (assuming that it is profitable) generates margin, and so net new revenue will increase margin dollars.  However, HP has an opportunity to improve margin percent or, alternatively, reduce costs.

As previously discussed, replacing EVA and XP sales with 3Par will have a limited revenue impact.  However, there is potential for margin improvement by replacing XP sales with 3Par.  XP technology is manufactured by Hitachi Ltd in Japan and HP purchases complete arrays which they re-brand and deliver to end users.  Thus, HP’s cost for the XP is higher than it would be for a wholly owned technology like EVA and now 3Par.  The result is reduced profitability on XP sales.  If HP could replace XP sales with 3Par technology with no revenue change, then you would expect margins to increase which would translate into bottom-line profit improvement.  Thus, HP has a near term incentive to convert XP business into 3Par business and aggressively promote 3Par in lieu of XP.

In summary HP has made a substantial statement about the potential for 3Par by bidding over $2B for the company.  They clearly believe that they can drive increased revenues and profits by integrating the technology into their storage portfolio.  This post highlighted some areas where HP could recognize immediate benefits; however, it is yet to be seen whether HP can realize these gains.  Their success depends on the ability to effectively integrate 3Par’s technology and people into its storage group.

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2 Responses to “HP acquires 3Par: Now what?”

  1. I agreed with you on why HP would win and I agree with you here. I have some thoughts on the cultural elements: http://chapmancentral.wordpress.com/2010/09/03/3par-for-the-course/

    The switch-over in the sales funnel will be interesting to see. They are going to want to get this out there as soon as possible, and the relationship between EVA and 3Par sales guys will be like Avamar and Data Domain guys just after the merger bravely trying to pretend they loved each other all along 🙂

  2. Hi and thank you for your comment.

    You bring up a great point on the cultural element. It is a natural challenge when smaller companies are acquired by large ones and your parallel to Avamar/DD is spot on although I prefer the contrast between the EMC rep selling the DL3D 1500/3000 and the DD guy. We certainly live in interesting times and it will be intriguing to see how HP digests 3Par.

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