Why HP and Dell are willing to overpay for 3Par and who will win? (1)

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Agrees Wedbush Securities analyst Kaushik Roy.

However, both Roy and Brookfield Investment Management Inc.'s Joel Levington feel HP's and Dell's offer for 3Par, which has incurred losses in the past few quarters, are "insane" and "exorbitant."

3Par, founded in 1999, reported revenue of only $53 million and lost over $1 million in the last quarter. Before Dell and HP announced their interests, its stock traded a bit over $10, which means that the market was unwilling to put a premium value on its assets and revenue.

But "It's not about valuation at this point," Roy claims.

So what is it about? Why are HP and Dell willing to overpay for 3Par?

To understand this, we need to look into what 3Par does. The Fremont, California-based company builds high-end systems that help companies store and manage their data efficiently, using features such as dynamic tiering and thin provisioning, in multi-tenant cloud-computing environments.

According to industry tracker IDC, the data storage market is poised for strong growth. The amount of data generated each year is growing at an average of 60 percent, pushing potential market sales to $25 billion in 2014 from its current expected size of $21 billion for this year, IDC said.

Both Dell and HP are trying to depend less on the weak consumer market and focus more on bigger profits in the corporate sector where IT spending is seeing a resurgence following a lull during the financial crisis.

Hence, both are trying to boost their investments in cloud computing and virtualization technology and by doing so, they hope to take advantage of corporate demand for services that help manage the flow of data and information over the Internet and corporate networks.

In this regard, a key technology is "thin provisioning," which 3Par has. The technology enables scaling up or down data storage space as per user's needs at any given moment and will help Dell or HP use expensive storage hardware more efficiently by sharing it among multiple customers.

According to Levington, "One of the growth areas in technology is in the enterprise storage space" and 3Par's products "fit well in there."

Agrees Roy. Whoever acquires 3Par will steal a march over the rival in challenging Cisco Systems and IBM in the data center products and services business that generate higher margins than PCs, Roy said.

"The rulebook is being thrown out the window in terms of Enterprise IT generally," DealBook quoted Simon Robinson, the research director for the storage practice of the technology research firm 451 Group, as saying.

"It is not sufficient to have a few strong products - you now have to have end-to-end product capability," Robinson said.

But between Dell and HP – who needs 3Par more? And who will win the bidding race?

Click   here   to find out.