IBM to buy SUN ?
According to the Wall Street journal, IBM is in talks to buy SUN Microsystems for US $6.5 billion. This would be IBM’s biggest acquisition since Big Blue has bought the Canadian software company Cognos back in January 2008.
SUN’s stock has increased of 78% yesterday, meaning that Wall Street is taking the rumors pretty seriously.
This move would create an industry giant and would reinforce IBM on the server as well as on the software and services market. Synergy effects resulting from this acquisition would especially help IBM compete against HP on the server and storage market. SUN’s latest financial results were poor and even put in question the viability of the company itself. SUN’s customers can now be sure that one strong company will support them. On the hardware side, IBM’s and SUN’s blade market shares account respectively for 25% and 5% of the total. A consolidation of these portfolios could help IBM compete against HP’s unrivaled leadership on this fast-growing market. IBM and SUN already work together (Lotus Symphony, IBM’s collaboration suite, already integrates SUN’s open-source OpenOffice.org tools suite) and these two companies are known to be strong open-source advocates. However, this acquisition still raises lots of questions.
SUN develops (with Fujitsu) its own SPARC processor line for high-end, business-critical servers and IBM’s POWER processors are their direct competitors. Processor development is an extremely expensive process and I cannot imagine IBM maintaining two different processor lines within the same company and I assume IBM would eventually drop SPARC. So what about customers, especially in the financial and communication industries which have a big SPARC install base ?
AIX, IBM’s Unix, competes directly versus SUN’s operating system Solaris on SPARC, moreover, Solaris is a direct competitor to Linux on the mass market x86. SUN’s strategy toward Linux has always been from hesitant to hostile whereas IBM has always been a great Linux supporter. Big Blue will have to deal with a portfolio problem, as well as with internal cultural problems. Solaris’ users and admins are very loyal to it and SUN has put Solaris at the heart of its datacenter strategy. If IBM was to drop Solaris for AIX, this would mean a lot of frustration for the Solaris community.
Finally, on the database level, IBM’s DB2 and Informix compete versus MySQL and PostgreSQL (the latter not directly owned but pushed by SUN) and SUN’s open source application server Glassfish is a direct threat to IBM’s middleware technology Websphere.
A merger between SUN and Dell would have made more sense from a pure portfolio perspective :
- Dell has a strong blade and x86 portfolio
- it owns no business-critical line of servers
- it could have pushed Solaris on x86
- Dell has no footprint neither on the application, nor on the middleware, nor on the application layer.
Perhaps has IBM moved before Dell did, fearing an emerging third strong player on the datacenter market.
Even though SUN’s acquisition by IBM is not official yet, I think the two companies will have really a hard time until they are completely integrated. The two companies have different technology and business cultures and SUN’s products mostly directly compete with IBM’s. Furthermore, today’s economic climate will make things even harder, since Big Blue could loose a lot of energy for the integration instead of focusing on customers. Of course, both companies together can leverage their huge portfolio to create synergy effects, however, I doubt this would happen soon.
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Interesting post. I must admit I don’t really know what to think about the eventual purchase for the moment. IBM has gotten a lot friendlier with opensource recently, to the point of organising co-events with Canonical. The potential disparition of SPARC, solaris, mysql and eventually openoffice are a bit scary though; I wonder what IBM plans are with all that. I doubt they would let go all the technology they are buying though
Interesting point with DELL though; although they recently purchased equallogic (SAN business) – which competes directly with SUN’s new storage. I would disagree that they own no business-critical line of servers; although maybe not of the same quality as Suns, they are used on many large and quite critical systems. And Dell has never done software afaik, would have been a huge shift in their strategy. Last but not least DELL hasn’t been doing too well recently, I doubt they have the cash
Very eager to see how IBM would integrate sun, if that purchase was to happen. It’s a sad story as SUN invested huge amounts of money in R&D and is only starting to collect the fruits of that now, with ZFS, dtrace, and their new SANs/Openstorage… My hope was that they would pass 2009, being confident that money would come back after that. We’ll see what happens.
Hello Yann,
the OpenOffice.org project is unfortunately already in trouble according to this article; hence, the purchase of SUN by IBM could help it get more resources. Solaris is also having serious difficulties, even though some of its features are really cool, but I cannot expect IBM to invest in two direct competitors for financial and corporate culture reasons. However, this can be a glory day for the OpenSolaris community, that would finally escape the domination of Sun and be much more independent. The future will tell if they can get it to reach the same level of independence than the Debian project, for instance, without going under.
For Dell, when I wrote they did not own a business-critical line of server, I did not meant they were not able to build critical environments, but just that they only have a product line based on x86 processors, which are not as reliable or scalable as SPARC, POWER or Itanium processors. To add software in their portfolio would have been a smart move, since the last big margins in the IT industry are made with software
Now we know a little more about this merger, especially that Sun folks were even looking for a buyer for their company. As you mentioned, with the money spent into the R&D in the last years, they could have get back the results of their investments, but the crisis and SUN’s dependency on financial accounts have made it weaker for its competitors.
It seems that IBM has withdrawn its offer for Sun Microsystems yesterday
http://www.nytimes.com/2009/04/06/technology/business-computing/06blue.html?_r=1
Since IBM’s offer seemed to be much higher than Sun’s stock value, we now have the following possible scenarios :
- everything remains the same. It is unlikely to happen, but Sun could stay independent and still compete versus IBM, HP and Dell.
- the Dell option of a merger with Sun still remains possible. Let’s see if Sun and Dell are willing to work as one company
- HP comes back with Oracle and share the hardware and software businesses. However, this option seems a little odd. Sun’s value in the hardware is tightly coupled with the Solaris value proposition. I see not much value in taking over Sun’s storage without ZFS for instance.
- Cisco now entering the blade and hardware market could now become a threat to both HP and IBM by buying Sun
This story is anyway very exciting and I am looking forward to seeing the next moves in the industry !