Oracle has announced plans to buy Sun Microsystems for $9.50 per share in cash in an overall value of $7.4 billion, or $5.6 billion net of Sun's cash and debt. The stated purpose is to combine the companies' respective enterprise software and mission-critical computing systems. Larry Ellison is quoted as saying, "Oracle will be the only company that can engineer an integrated system -- applications to disk -- where all the pieces fit and work together so customers do not have to do it themselves. Our customers benefit as their systems integration costs go down while system performance, reliability and security go up."
PR-speak aside, there are a few obvious tactical reasons for Oracle's pursuit and Sun's enthusiastic acquiescence. Simply put, Oracle wanted to acquire Java and Solaris. Rightly enough, Oracle considers Sun's Solaris operating system the leading platform for the Oracle database and sees opportunities in optimizing its database solutions for some of Solaris's special, high-end features. Oracle's focus on Java is considerably more strategic: Though it leverages Java heavily in its own Fusion platform, Oracle likely sees the Java partner/user ecosystem as one with enormous, if untapped, potential. Whether Oracle will be able to make Java more of a commercial success than Sun did is anyone's guess at this point.
That said, the deal carries nearly as many challenges as it does opportunities, particularly in the way Oracle's myriad system vendor partners -- now its competitors -- handle the news. Not about to burn any partner bridges (publicly, at least), Oracle vowed its continuing commitment to Linux and other open-systems platforms while stating that it will enhance its strong industry relationships. Oracle's support of its partnerships is a good idea as they are the primary source of the company's core revenues.
Beyond Oracle's entrance into what, by any measure, is likely to be a tricky competitive landscape, the deal highlights numerous questions and issues. Sun has reportedly been on the market for many weeks now, with IBM reported as the leading suitor. Oracle may have had only a couple of weeks to look at Sun prior to the deal's announcement, and it is worth asking whether the due diligence that can be undertaken let alone completed in such a short time will be adequate to the task. Oracle may have simply decided that any potential problems should simply be dealt with later or written off, but whatever the case the announcement appears to have been rushed.
The fact that Sun was on the block at all suggests that its problems made the company as much a turnaround candidate as one for acquisition. Why? This could be the subject of a lengthy discussion, but suffice it to say that Sun's scale-up systems' heritage made it difficult for the company to adapt effectively to the burgeoning market for scale-out systems. In addition, one of Sun's strengths -- its laser-focus on its traditional business model -- crippled the company's ability to deal with changing market conditions and opportunities. Witness Sun's handling or mishandling of the tape business that it acquired in the purchase of StorageTek.Charles King, President and Principal Analyst for research firm Pund-IT Inc., focuses on business technology evolution and interpreting the effects these changes will have on vendors, their customers, and the greater IT marketplace. View Full Bio