Sungard Files for Second Chapter 11 Bankruptcy
Sungard Availability Services has declared Chapter 11 bankruptcy in the United States, the second in the company’s recent history.
Sungard management cited a myriad of reasons for the drop in business in a Press releasesuch as rising energy costs and more organizations adopting a remote work strategy due to the COVID-19 pandemic.
The disaster recovery service provider, which did not respond to requests for comment, is selling data center recovery and failover capabilities to customers to maintain business continuity and rapidly replicate their technology infrastructure.
Sungard’s focus on temporary office space and office work continuity in colocation facilities at a time when enterprises were increasingly turning to cloud services made parts of the business model of the company out of step with the times, said Ray Lucchesi, president of Silverton Consulting. Lucchesi previously worked with Sungard as a consultant.
“They have the potential to break out of Chapter 11 over time,” Lucchesi said. “They have to look forward. In the last 10 years they have looked back, in my mind.”
The changes needed to keep the business going could require more profound reinvention than swapping service packages and removing some office buildings, said Marc Staimer, president of Dragon Slayer Consulting. Staimer also provided consultancy services to Sungard. Sungard’s legacy with backup and disaster recovery services for mainframe systems could emerge from the property management albatross as a new cloud business, Staimer said.
“If they want to succeed, they’re going to have to reinvent themselves, like Druva, as a cloud company,” he said. “All of their infrastructure is for a market that doesn’t exist.”
In the press release, Sungard said it will continue its ongoing operations and intends to honor existing obligations and contracts throughout its Chapter 11 filing. similar bankruptcy petitions in Canada and the UK through its subsidiaries.
Chapter 11 of the bankruptcy code in the United States allows a business to retain ownership of its assets and operate normally through a reorganization process while repaying debts and meeting creditor demands. The process is less a death knell for a company than a Chapter 7 filingwhich involves liquidating all assets to pay off debts.
Changes accelerated by the pandemic
Sungard’s disaster recovery service is available through the cloud and co-located data centers around the world. The company operates roommate sites in 45 locations, some of which double as on-site recovery centers, which allow Sungard customers to use prefabricated office cubicles, meeting rooms and conference spaces to continue operations during the process recovery.
Workplace recovery centers differentiated Sungard in the market, but have since become an “inherent challenge” to the company due to the current pandemic and the trend towards remote working, according to the company’s press release. Sungard.
The company previously completed a Chapter 11 bankruptcy filing in May 2019. The filing eliminated “more than $800 million in debt and infused $100 million in new cash,” but ultimately failed to resolve the cost of l maintenance of the property, according to the company.
“[The] process did not address issues inherent in the company’s operating structure, primarily unprofitable leases and underutilized space,” the statement said.
The adoption of cloud-native technologies, such as containers, and organizations’ focus on finding talent to modernize applications for the cloud — trends exacerbated by the pandemic — have made these office spaces ultimately redundant. best-case scenario, Lucchesi said.
“You don’t need office space anymore,” Lucchesi said. “Even these have moved, to some extent, to the cloud. The need for these services is diminishing.”
The disaster recovery protocols and standards the company follows are among the best in the industry, Staimer noted, but they require physical intervention from customers who are familiar with the automated features of the cloud.
“Just because they get it doesn’t mean they’re about to bleed,” Staimer said. “People won’t bring their tapes to [Sungard’s] data center.”
Yesterday’s technology today
Both Lucchesi and Staimer said Sungard prices its services higher than competing companies, and potential customers can replicate many of Sungard’s services through cheaper alternatives.
The company’s disaster recovery service also lacks modern automated cyber-resilience protections common in the cloud today, primarily to defend against ransomware, Staimer said.
Marc StaimePresident, Dragon Slayer Consulting
Most users could set up a service similar to Sungard’s using Equinix data centers for failover sites and selecting the cloud disaster recovery services they need in an increasingly noisy market. Lucchesi said.
“They’re impacted by cloud, they’re impacted by office closures, impacted by colocation facilities,” he said. “They saw the cloud as a threat to their business model.”
Sungard’s legacy as a mainframe recovery service has value for organizations that still use on-premises hardware, such as airlines or government organizations, Staimer said.
Staimer and Lucchesi agreed that Sungard could find a market niche by providing cloud services for mainframes – a market segment underserved by many cloud providers and disaster recovery services.
“New technology comes out, but old technology stays,” Lucchesi said. “It’s not like old apps are going away.”
Moving from such a wholesale business recovery to a managed cloud service would require the business to become leaner — and quickly, Staimer noted, because Sungard already appears to be operating on borrowed time.
“They’re going to have to get rid of a lot of assets or figure out what they want to be,” Staimer said. “I didn’t feel like they had that plan.”
Tim McCarthy is a journalist living on the North Shore of Massachusetts. It covers cloud and data storage news.