Oracle to set upon Sun in $7.5b deal

Call it a bolt from the blue if you will but, it is Oracle and not IBM, which will take over Sun Microsystems in a deal totalling about $7.4 billion or $9.50 per share in cash, bettering the Big Blue’s failed offer of $6.5 billion.   

While IBM’s play for Sun was seen as an attempt to have a stranglehold on the $85 billion global data centre business, particularly in the backdrop of the entry of Cisco Systems Inc, into the space, Oracle’s pitch for the systems integrator makes sense from an altogether different perspective — its software.

In fact rumours were rampant the moment the IBM deal fell through last month with the names of Cisco and Dell being bandied about while Oracle was also mentioned as a distant possibility.

However, the speed and the size of the offer are typical of Oracle CEO Larry Ellison who dished out a whopping $10.3 billion for PeopleSoft way back in December 2004 and later, another $8.5 billion for another business software maker BEA Systems in January 2008.

With the acquisition of the $13 billion Sun, the world’s second largest software maker will be catapulted to close to $40 billion in size with a total employee base of 1.2 lakh people and nearly 3.6 lakh customers almost close to that of IBM and even Microsoft.
In India, however, the combination will still remain a smaller player in terms of size.

Sun employs close to 1300 people in the country across its seven centres including the Indian Engineering Centre, while Oracle reportedly employs about 25,000 in over 20 centres including three R&D centres in Bangalore, Hyderabad and Noida, and also owns iflex Solutions.

SAP leads the enterprise software space in India but the combined Oracle-Sun entity would have an edge with the trend towards open source particularly the SME and government space in emerging markets, observed an analyst with an international research firm who did not want to be named.

“The acquisition of Sun transforms the IT industry, combining best-in-class enterprise software and mission-critical computing systems,” Ellison said in a conference call with investors.  

While the deal will make Oracle the only company in the world that can engineer an integrated system from applications to the disk, making system integration a cinch for customers, more importantly, Sun fits into its long-term strategy thanks to two software assets, programming language Java and the Sun Solaris operating system.

Oracle’s Fusion Middleware platform is built on top of Sun’s Java language and software Solaris is the leading platform for the Oracle database, which is Oracle’s largest business stream. But it is not clear how a proprietary software company that Oracle is, would reconcile with Sun’s open platform approach to giving away its software almost free.

At another level, on the hardware stack one is reminded of Ellison’s attempt in the late 1990s to drum up support for a network-based computer with Sun’s Scott McNealy making a case for a thin-client alternative to the Wintel (Windows+Intel) duopoly. While one did not hear much of Oracles drive for the alternative, Sun went on to push its own Sun Ray thin client systems.  Now that initiative could see a revival and pose a real threat to the duopoly.   

Interestingly, Oracle had made an entry into the hardware business late last year launching its first ever server products built by Hewlett-Packard that run Oracle software and designed to speed up Oracle databases running on them.  

The foray also fit with the overall drive towards cloud computing by IT companies. While it is not clear what would happen to the relationship with HP, it is clear the Sun acquisition also fits into the overall cloud initiatives.