Saturday, April 11, 2009

ibm buying sun ;not so shocking



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BM has opened talks of buying Sun Microsystems, if done it will create an interesting consolidation of the software, server and storage markets.

According to the Wall Street Journal IBM is ready to shell out a price of $6.5bn. Sun is currently capitalised at $3.7bn ($4.97/share), but its share price has persistently fallen since the heady days of the dot com boom and has under-performed that of its computer systems competitors over the last few years, making it a much less expensive purchase now that it would have been three or four years ago.

both being big players in the server, storage and systems software markets,this deal happens to be a big talked about one.

Sun has been hawking itself around the industry recently, looking to be bought, with HP also mentioned as one potential buyyer. If true, this confirms the perception that Sun has been impoverished by CEO Jonathan Schwartz's strategy of moving into open source software and relying for revenue growth on converting Solaris, Java and MySQL developers' into purchasers of Sun's servers, storage and services.

Unfortunately for Sun execs and investors, the free software download conversion rate into revenue dollars has been derisory, with Schwartz having promised soon-come blue revenue skies for what seems like years. Sun has continued to make money but its revenues have under-performed compared to its peers, and the company has been forced to go through rounds of restructuring and staff cuts - the most recent in January - to try and keep costs in balance with revenues.

Activist investor Southeastern Asset Management became Sun's biggest shareholder recently and some of the recent restructuring efforts have been thought to be influenced by this. Schwartz has consistently said he wants to work with this investor to increase shareholder value.

Selling Sun to IBM would give Southeastern Asset Management a profit on its investment and could be what it has been working for all along, and why it ponied up investment dollars in the first place.

There has been widespread industry speculation about Sun's future as analysts and commentators wonder how sustainable has been the board's and investors' faith in the Schwartz-led company and its strategy. But the fit of Sun's vast portfolio of assets into potential purchaser's businesses has always been a problem.

So why would IBM want a company which, at first glance, fits awkwardly into its portfolio of systems and services?
Sun product overview

Sun makes proprietary Sparc RISC servers, x86 servers and has storage and networking hardware, its Open Solaris operating system and allied software, its recently-acquired MySQL open source data base business, the massively popular Java software line, and its services business.

It has its own server chip design business and has persisted with this, in conjunction with Fujitsu, devising a line of multi-core processors to try and keep its servers ahead of the commodity x86 price/performance curve. IBM has its own RISC PowerPC chips which overlaps with Sparc. It's possible that the Sparc chip business will be offloaded to Sun partner Fujitsu, with the Sparc customer base being transitioned to PowerPC or x86 systems.

Sun's servers will overlap with IBM's PowerPc servers, and their users would surely be transitioned to IBM's own kit with the Sparc server line heading to the proprietary server cemetery. This transition will be eased by Solaris running on both Sun and IBM servers.

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