Posted on 03/25/2009 5:50:03 PM PDT by nickcarraway
For Sun Microsystems Inc., a reported $6.5 billion acquisition offer from IBM Corp. — is being called a "Yahoo moment."
The company may be worth more than Armonk, N.Y.-based IBM (NYSE: IBM) is offering, but it also may be more money than Santa Clara, Calif.-based Sun (NASDAQ: JAVA) will be worth if IBM walks away from the table.
News of the offer came as competition for data center hardware is heating up and "Big Blue’s" offer is seen as an attempt to respond to San Jose, Calif.-based Cisco Systems Inc.’s (NASDAQ: CSCO) announced plans that it would enter the next generation data server market.
With the move, Cisco is poised to take on Sun and Palo Alto, Calif.-based Hewlett-Packard Co. (NYSE: HPQ).
Sun “is having a Yahoo moment,” said Rob Enderle, a veteran technology analyst and principal of San Jose-based Enderle Group.
The reference is to Redmond, Wash.-based Microsoft Corp.’s (NASDAQ: MSFT) attempt to buy Yahoo Inc. (NASDASQ: YHOO) last year. But unlike Yahoo’s fierce fight to remain independent, Sun has reportedly been actively seeking an acquirer.
“If they walk away from this deal, they could bid it up,” Enderle said. “HP might now find Sun attractive because IBM wants it… this could start a bidding war for Sun.”
Sun has taken a beating in recent years. Its server was favored during the dot-com era, but the company found its products being sold at bargain basement prices following the bust. Its servers are considered to be of the highest quality, and their prices match that reputation.
But concern about Sun’s viability has been heightened by the battering of the financial services markets, which long have gravitated toward the power and scalability of Sun’s servers. The $6.5 billion IBM is said to be offering was about double what the company market cap was worth the day before the acquisition talks were reported, but less than half what the company was worth a year earlier.
Owning Sun’s Java open-source platform would also give IBM a competitive leg up in an arena where Web capability is key.
“With Cisco entering the server space, (IBM) has been put on notice to double-down and aggressively compete against Cisco,” Enderle said. “IBM also is positioning against Microsoft, because if you have the more largely used tools, you have the competitive advantage.”
Faysal Sohail, managing director of San Francisco-based CMEA Capital, a venture firm with a large investment in software as a service — or SaaS — and data center technology, called cloud computing “the holy grail” for the data centers market. With HP acquiring assets on the networking side, and Cisco now going after the server side, IBM represents the final company of the trinity racing to become market leader.
“This has been a long time coming. IBM has servers and services, but not the software platform, and no networking,” Sohail said. “The way the landscape is shaping up, you have these three major players going after cloud computing, and they’re all trying to add pieces to be competitive.”
By acquiring Sun, IBM could add the critical parts it lacks with Sun’s open-source Solaris operating system, the open-source database MySql and the Java platform. By doing so it could become the leader in cloud computing.
“They’re missing the networking part, which is what Cisco provides,” Sohail said, “but HP, Sun and IBM are off to the races.”
At Fusion Storm, one of the country’s largest resellers of Sun and IBM products (and the largest IBM reseller in the federal government sector) Chief Technology Officer Vince Conroy said the possible acquisition would be great news for Fusion and great news for customers of both companies.
Fusion, based in San Francisco, said the acquisition has the potential to end Sun’s struggles and give IBM access to great open-source technology.
“Obviously we don’t know what the road maps or merger might look like, and if it does come about, it will take awhile to unfold,” Conroy said. “But it gives the combined companies dominance in the midsize server arena and great crossover market share.”
Conroy disputes the theory that Sun has priced itself out of the marketplace for new and emerging companies in need of servers. He said Fusion has several large Web 2.0 companies buying a large number of Sun servers, adding that Sun has competitive pricing in the data center server space.
“I don’t think it’s accurate to say they’re not price competitive. In certain markets maybe, but it is a highly competitive market between HP, Dell and Sun, and that market is increasing,” Conroy said.
As talk about the possible acquisition took on fervor, questions about possible antitrust issues surrounding the deal also arose. Analyst Enderle said he doubts an antitrust case would proceed.
“Microsoft could move to block it, but I doubt they would because they’re under too much of a cloud themselves,” Enderle said. “If Google was trying to do it, then they might” seek court intervention.
I’d much rather see HP take over Sun than IBM.
-Yossarian
ex-IBMer (PowerPC chip designer)
ex-SPARC chip designer
Silicon Valley Survivor
Sun had a culture more like HP. Scott McNeeley was more like Bill & Dave. After the dot bomb implosion, Scott fought firing employees to the detriment of shareholders but I think he thought he was doing the right thing.
IBM like GE and some other NY state big corps are like a bunch of mobsters.
HP sucked while Carly ran it but she was an AT&T dialtone salesperson and another NJ AT&T/Lucent gangster. Lucent as she was leaving got nailed for inflating sales numbers.
Why would HP need to, other than to deny it to IBM? HP has just about everything but the bragging rights of claiming that they own Java.
I don’t understand why IBM would be wanting to take on Sun either, and for the same reason. SPARC isn’t needed by either company. Workstations can now be powered with Core x86 chipsets quite nicely.
This change in the industry has been a long time coming. Sooner or later, all these players had to know that cisco was going to venture out of the twisted pair and onto the desktop. Whenever I’d suggest doing this sort of thing 10 years ago at cisco, I was told “not yet” — not “no, that’s not what we do...” — so this has been coming for awhile.
And as for which outfit to take over Sun: If I had to choose one or the other, I’d have to come down on IBM’s side. Carly destroyed HP - they’re nothing but a PeeCee box maker now. Prior to Fiorina wrecking HP, I’d have said that HP taking over Sun or SGI would have been a natural fit. Not now.
That’s true — HP’s *old* culture was more like Sun’s. Now, I’m not so sure.
There should be a rule etched in stone somewhere: NEVER allow a liberal arts graduate to become the CEO of a company started by engineers. It has wrecked every single one of the instances where it has been tried. HP is one, Digital (DEC) is another example.
Yes, dittoes to what you say about IBM and east coast “mob” mentality. Except that Scott McNeeley was and is a big fan of brining in tons of H1-B engineers, so he’s not on my Christmas list either.
That H1B flood into Sun both hurt the engineering market, and I’ll bet my - ah, wait, I have nothing left to bet with - I’ll bet it had a lot to do with why SPARC lost its dominant position w.r.t. x86. Sun wasted TONS and time and money on projects like millennium that would have benefitted from a smaller but rock solid engineering team.
Robert Palmer at DEC. Hp was great then wrecked by Carly and a improved a little but it is not Dave or Bill’s HP.
I think McNeeley, Von Bechtolsheim and Bill Joy tried to emulate the good HP stuff.
The German guy and Joy are incredibly bright engineers like Bill and Dave.
I’m thinking it has to do with Java. IBM has been going after MS with Linux support. I think OpenSolaris and Java are prime factors in this deal.
Then IBM would have AIX, Linux, Windows Server, and OpenSolaris to support. What a nightmare.
Completely agree.
Yeah Sun blew it. Like Ford when they were printing $15 billion a year on Expeditions and Explorer SUVs. Sun had incredible people like Joy and von Bechtolsheim. Scott was more worried about lowering his golf handicap at his second (more like first) home at Pebble Beach. He is a scractch golfer aka possibly the best CEO golfer. He probably could have turned pro. Also he played a lot of hockey in leagues while running Sun.
Sad.
Yeah Scotty was big on H1-Bs - they also killed Motorola. MOT nuked the place and turned it into Mumbai and it killed MOT.
I once had some minor dealings with GE and IBM corporate. GE were the most arrogant creeps you ever met. This was at HQ in CT. The experience with IBM were possibly worse. Some really devious stuff that felt like the Sopranos.
When a company takes over another company, they are not obligated to support the new stuff they acquired.
CA proved that.
> Scott was more worried about lowering his golf handicap
Not to mention his stupid pi$$ing match with Microsoft - Java a Windows Killer indeed ...
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