A combined IBM-Sun could present a whole new competitive challenge to HP and Dell. With the purchase, IBM would get a much larger footprint in data centers worldwide, into which they can sell the entire IBM portfolio of products. This is a major reason behind HP’s purchase of EDS last year. The company would also get the lion’s share of the Unix system footprint and, assumedly, an inside track on replacing all of these systems over time. IBM would also get an interesting x86 gambit with ownership of IBM’s Solaris x64 operating system and virtualization products. This may be persuasive to ISVs and convince them to port to the O/S in greater numbers. A blending of AIX and Solaris that would run on RISC and x86 processors could be a very compelling combination for customers who are looking to simplify their environments.

IBM would have to quickly and clearly communicate their roadmaps and intentions concerning Sun’s product offerings and initiatives – or suffer the consequences. Customers hate uncertainty and will either sit on their wallets or use other vendors in order to avoid it. If there is a lot of confusion and ambiguity, expect HP and Dell (and now Cisco) to move quickly to capitalize on it… hell, even if there isn’t any ambiguity, the competitors will work to create it.We think most customers would take a ‘wait and see’ approach when considering the merged firm. While Sun has a very large installed base of customers, the vast majority of these customers do business with multiple vendors – chiefly IBM and HP. So in most cases, IBM is already a known quantity to these people; surely IBM would bend over backwards to make sure these customers are happy and comfortable with the new situation.  

If for any reason the transaction fails to close, Sun will probably be mortally wounded. There are few examples of failed transactions where the target company wasn’t badly tarred when the purchaser backed away. Enterprise customers are notorious for wanting stability from their vendors. If this deal falls apart, customers are certain to consider Sun’s long-term viability as being at least somewhat in doubt, and will factor these considerations into their purchasing plans. The blown deal is certain to result in Sun’s stock price dropping by at least 50% to $4 per share, and perhaps even free-falling to the $2 level. If IBM walks away, and HP, Dell, and Cisco aren’t potential white knights, then the only alternative for Sun is to grow or die. And that’s been shown to be a difficult job for Sun since the tech crash… in our current economy, it will be even tougher.