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Oracle + Sun? Really? Interesting... PDF Print E-mail
Tuesday, 21 April 2009 00:00

In a big surprise to most industry watchers, Oracle has swooped in and made what looks to be a successful bid to purchase Sun Microsystems. In the press release, Oracle is offering a pretty big number ($7.4 billion), about $500 million more than what IBM was prepared to spend, and considerably more than Sun’s market cap just a few months ago. The premium over IBM’s bid startles me a bit; I would think that given IBM’s backing out of the deal (along with Sun’s current market cap), that Oracle could get a much better price – maybe as much as $1 billion better. Details on the story here.

Taking Larry Ellison’s comments at face value, it looks like Oracle is planning on holding onto most, if not all, of Sun’s stuff. We can assume that he definitely wants the software assets – Java, MySQL – but does Oracle really want to get into the hardware wars? Do they want to invest billions in supporting, developing, and pushing boxes? Most of the people I’m talking to right now believe that Oracle is going to keep some parts of Sun, but part out most of the rest of it to others. The stuff getting the heave ho, according to industry insiders, is most likely the proprietary HW assets – like SPARC64 and UltraSPARC-related stuff. They are also expecting Oracle to sell off the StorageTek stuff along with the rest of Sun storage. This might garner some quick bucks to defray the cost of the deal.

But I’m not so sure.

Larry Ellison has always been an appliance guy. He likes the appliance approach and has spent some money to pursue it in the past with his HP Exadata boxes and even with his thin client stuff years ago. I can build a case for keeping most of Sun’s stuff and trying to put together offerings that bundle Oracle SW with Sun HW. They can definitely do this and cut customer TCO through price breaks; but would the overall deal hit Oracle’s revenue and margin goals?

All we know now is that Oracle expects to make money on this deal, and make money soon. They’ve put a stake in the ground by saying they expect to earn an additional $1.5 billion the first year after the deal closes – a damned ambitious target to say the least. While this won’t be easy in the current environment, it’s not impossible either. We need to keep in mind that Sun has an enormous installed base of boxes out there – many of which are candidates for upgrading. Moreover, while Sun hasn’t been doing very well financially, their losses aren’t all that bad right now. Given some pruning of the product set (and probably headcount too), plus renewed customer faith in the viability of the brand, Oracle might be able to get the Sun unit operating in the black for the first time in years. No matter what happens, it makes the server wars much more interesting, right? And that’s good for all of us.

 

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