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Sungard files second Chapter 11 bankruptcy

Sungard Availability Services cited pricey colocation centers and COVID-19 as business challenges that led the company to file for bankruptcy in the U.S., Canada and the U.K.

Sungard Availability Services declared Chapter 11 bankruptcy in the U.S., the second in the company's recent history.

Sungard leadership cited a myriad of reasons for the business slump in a press release, such 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, sells data center recovery and rollover capabilities for customers to maintain business continuity and quickly replicate their technology infrastructure.

Sungard's focus on temporary office spaces and continuity of office work at colocation facilities during a time when companies increasingly turned to cloud services made parts of the company's business model fall out of step with the times, said Ray Lucchesi, president of Silverton Consulting. Lucchesi previously worked with Sungard as a consultant.

"There's potential for them to get out of Chapter 11 over time," Lucchesi said. "They have to look forward. For the last 10 years, they've been looking back, in my mind."

The changes needed for the company to continue might require a deeper reinvention than swapping around service packages and shedding some office buildings, said Marc Staimer, president of Dragon Slayer Consulting. Staimer has also provided consultant services to Sungard. Sungard's legacy with backup and disaster recovery services for mainframe systems could spin out of the property management albatross as a new cloud business, Staimer said.

"If they're going to succeed, they're going to have to reinvent themselves, like Druva, as a cloud company," he said. "Their entire infrastructure is aimed at a market that doesn't exist."

In the press release, Sungard said it will continue current operations and intends to meet existing obligations and contracts throughout its Chapter 11 filing. The company filed similar bankruptcy petitions in Canada and the U.K. through its subsidiaries.

Chapter 11 of the bankruptcy code in the U.S. allows a company to maintain ownership of its assets and operate normally throughout a reorganization process while paying off debts and meeting creditor demands. The process is less of a death knell for a business than a Chapter 7 filing, which involves liquidation of all assets to pay off debts.

Pandemic accelerated changes

The Sungard disaster recovery service is available through the cloud and colocated data centers globally. The company operates colocation sites in 45 locations with some doubling as Workplace Recovery Centers, which allow Sungard customers to use prefab office cubicles, meeting rooms and conference spaces to continue operations during the recovery process.

Workplace Recovery Centers differentiated Sungard in the market, but have since become a "challenge inherent" to the company due to the ongoing pandemic and remote work trend, according to the Sungard press release.

The company previously completed a Chapter 11 bankruptcy filing in May 2019. The filing did eliminate "more than $800 million in debt and infused $100 million of new liquidity," but failed to ultimately resolve the cost of property upkeep, according to the company.

"[The] process did not solve for challenges inherent to the Company's operating structure, mainly uneconomical leases and underutilized space," the release 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 such office spaces ultimately redundant in the best of times, Lucchesi said.

"You don't need an office space anymore," Lucchesi said. "Even those have moved, to a certain extent, into the cloud. The need for those services is shrinking."

The disaster recovery protocols and standards the company follows are among the best in the business, Staimer noted, but they require physical intervention by customers who have become more familiar with the automated features of the cloud.

"Just because they get it doesn't mean they're on the bleeding edge," Staimer said. "People are not going to bring their tapes to [Sungard's] data center."

Yesterday's tech 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, mainly to defend against ransomware, Staimer said.

They're going to have to shed a lot of assets or figure out what they want to be. I did not get the impression they had that plan.
Marc StaimerPresident, Dragon Slayer Consulting

Most users could piece together a similar service to Sungard's by using Equinix data centers for failover sites and selecting the cloud disaster recovery services they need from an increasingly noisy market, Lucchesi said.

"They're getting hit by the cloud, they're getting hit by offices closing, hit by colocation facilities," he said. "They saw the cloud as a threat to their business model."

Sungard's legacy as a mainframe recovery service holds 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 sector of the market underserved by many cloud providers and disaster recovery services.

"New technology comes out, but the old technology sticks around," Lucchesi said. "It's not like the old apps ever go away."

Making such a shift from wholesale business recovery to a managed cloud service would require the company to become leaner -- and quickly, Staimer noted, as Sungard already appears to be operating on borrowed time.

"They're going to have to shed a lot of assets or figure out what they want to be," Staimer said. "I did not get the impression they had that plan."

Tim McCarthy is a journalist living on the North Shore of Massachusetts. He covers cloud and data storage news.

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