Dell Buys Money-Losing 3PAR to Fluff Cloud Portfolio

written by:  Taylor Buley

Dell announced its pending $1.15 billion acquisition of 3PAR on Monday, sending the latter’s stock up 85% in mid-day trading.

“With Dell we combine a powerful, virtualized storage platform with an outstanding distribution network,” said 3PAR chief executive David Scott in a release.

Dell, which is the third largest computer hardware company by sales, is likely a welcome arrival for Fremont, Calif.-based 3PAR. The company appears to have lost money every year as far back as I can find financial filings.

3PAR makes computer storage systems for medium- to large-sized companies. Its purchase by Dell signifies continued consolidation among technology giants looking to offer one-stop “private cloud” offerings. (Companies use private clouds when they want their own virtualized IT infrastructure rather than use “public cloud” options provided by companies like Amazon and Microsoft.)

The storage company’s flagship products are so-called “clustered modular storage systems,” which are suited for virtualization because they can be swapped out and reconfigured on the fly (the “cluster” and “modular” part of their name) and are suited to be shared across users (a feature called “multi-tenenacy”). 3PAR’s main competition has been EMC and IBM, who dwarf 3PAR’s $1.1 billion market cap with a $38.7 billion and $160 billion market cap, respectively.

So far 3PAR management seems happy to sacrifice profits at the altar of growth. In the last three years the company has lost close to $15 million on close to a half-billion in revenue.

It will be interesting to see if that trend continues under Dell leadership. Dell should be able to bring with it certain operational economies of scale in terms of sales and research and development. In 2010 R&D expenses at 3PAR were $47.6 million, 24% of total revenue.

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