Sun Also Rises in Boulder County

By Richard Martin, 6-02-05

The acquisition of Louisville, Col. high-tech powerhouse StorageTek by struggling Sun Microsystems is probably good news for Sun CEO Scott McNealy, still trying to find a path to profitability in the wake of the Internet crash, and for StorageTek shareowners. Whether it’s good news for StorageTek employees and the state’s high-tech economy is less certain.

Sun Microsystems announced this morning it would purchase Storage Technology Corp., known as StorageTek, for $4.1 billion in cash. That’s an 18 percent premium over StorageTek’s current share price, and the announcement boosted StorageTek’s share price by 17 percent in early trading on Wall Street. (Sun’s share price tumbled by more than 3 percent on the news.) For Sun, the StorageTek acquisition represents its first major acquisition since its earnings and its stock began tumbling from the dizzying heights of 1999-2000. Whether Sun, which lost almost $400 million in 2004, can prosper enough in the competitive data-storage business to turn its fortunes around is open to question, but it was clear that company had to acquire or be acquired.

For StorageTek, founded in 1969, the deal follows a year in which its revenue increased by 25 percent over 2003. The company has had a rocky history, filing for bankruptcy in 1984 and undergoing a massive restructuring just six years ago. The sale to Sun is likely seen by StorageTek CEO Patrick Martin as a relatively calm harbor in a business racked by narrowing margins and a storm of new technology in the last few years. The Wall Street Journal today reports on Pillar Data Systems, “a long-secretive Silicon Valley company� backed by Oracle billionaire Larry Ellison. Since 1999, according to the Journal, venture capitalists have poured $5.8 billion into 142 storage-hardware companies.

StorageTek has long been a mainstay of the region’s high-tech business scene, employing around 2,000 in the Boulder-Denver area (out of 7,100 worldwide). Colorado VC Brad Feld, managing director of Mobius Venture Capital (and a New West angel investor), sees the acquisition as good news for Colorado’s high-tech economy. While the deal inevitably will mean job losses at StorageTek, Feld writes on his business blog, “the talented folks will quickly end up in new roles at younger emerging companies, helping with the chronic talent shortage – especially on the engineering side – that we have in this region.�

Feld also points out that Sun itself is also a major high-tech employer in the area, with a large facility just across Highway 36 from StorageTek, and the San Jose, Calif.-based company “obviously just increased their commitment to the Boulder area through this acquisition.�

Those lamenting the loss of another independent high-tech company in northern Colorado may be trying to plug a leaky dike, anyway: StorageTek announced in March that it will create a subsidiary in India, where it has employed software developers since 2001. [End of article]