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Oracle Takes a Shine to Sun Microsystems
In a transaction valued at $7.4 billion, Big Red scoops up the software-and-services provider after Sun's failed negotiations with IBM.
Posted Apr 20, 2009
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The sun came out bright and early this morning in Silicon Valley. Today, Oracle has announced it will acquire Sun Microsystems for $9.50 per share in cash. The transaction is valued at approximately $7.4 billion, or $5.6 billion net of Sun's cash and debt. The acquisition means Oracle will now own computer servers, workstations, storage, software, and services -- an extension of Oracle's entree into the hardware business, which began when the vendor announced at Oracle OpenWorld 2008 its initial dive into hardware with the HP Oracle Exadata Database Machine.

During a morning investor conference call, Safra Catz, one of Oracle's presidents, compared the Sun acquisition to some of Oracle's other big-ticket acquisitions, noting that this new deal is larger than the acquisition of Hyperion Solutions, but smaller than the price tags for either BEA or PeopleSoft. Oracle, she said, believes this deal will be more profitable in per-share contribution in the initial year than all three of those other acquisitions combined. "We believe that we will be able to run Sun at substantially higher margins and we estimate this will add at least $1.5 billion in additional annual non-GAAP operating income, and growing from there," Catz said. In a prior statement, the president said that Oracle expects the profit to increase to more than $2 billion in the second year. She noted that an initial focus will be in serving both Oracle and Sun Microsystems' joint enterprise customers.

The deal with Oracle comes on the heels of Sun's reported merger discussions with IBM. According to the Associated Press, IBM most recent offer to buy Sun topped out at $9.40 per share, but acquisition talks fell apart earlier this month. (Neither of the Sun executives on the call -- President and Chief Executive Officer Jonathan Schwartz or Chairman Scott McNealy -- spoke of the failed IBM deal during the call with media and analysts.)

[Editors' Note: See blogposts from earlier today with excerpts from other coverage, and a guest-blogpost from CRM columnist Denis Pombriant, founder and managing principal at CRM consultancy Beagle Research Group.]

The excitement around Oracle's purchase comes mostly in two parts, according to company executives: Sun's SPARC Solaris processing system and its Java programming language. "Java is the foundation of Oracle's middleware and [the] single-most important software asset we have ever acquired," said Larry Ellison, Oracle's cofounder and chief executive officer, during the conference call. More Oracle databases are run on the Solaris operating system than any other Unix system, he added.

"With the acquisition of Sun we will tightly integrate Oracle databases to the unique high features of Solaris," Ellison said. "Engineered to work together enables us, for the first time, to deliver complete and integrated computing systems -- database to disk."  

According to Forrester analyst Ray Wang, aside from application synergies, the transaction holds new implications for Oracle in the technology world. "While Java and Solaris may appear to be the crown jewels in the deal, the real significance is the entrustment of other parts of the open-source stack with Oracle," he says. According to Charles Phillips, Oracle's other president, the acquisition makes Oracle the world's largest supplier of open-source software.

Assuming Oracle is able to use its newly acquired open-source tools and technologies effectively, Wang says, the company is now the steward of Sun's successful open-source parts, such as MySQL, which may help accelerate changes in the market. "These open-source components have been viewed as the alternative to the dominance of the Big 4 [software firms, sometimes known as] MISO -- Microsoft, IBM, SAP, and Oracle," Wang says. "Oracle also gains an innovation engine with the assets of Sun's Labs groups, which [pioneered] a series of innovations that include potential enterprise solutions for the virtual world."

With regard to MySQL, IDC analyst Mike Fauscette later twittered the result of a subsequent phone interview with Phillips, in which Fauscette said the Oracle executive stated the company's "current plan is to continue to offer MySQL as an alternative offering (they already have other open source products)."

Wang, of Forrester, also points out that Oracle has one of the best post-merger integration teams in the business. And it doesn't hurt that Sun and Oracle have been partners for more than 20 years, he says.

On the call with analysts, Phillips said that the integration of Oracle and Sun products and infrastructure holds many possibilities for innovation. He pointed out, as an example, the possibility to provide specific verticals with complete "industry-in-a-box" hardware-and-software solution sets. He also noted that, in terms of storage, Sun's Open Storage is similar to Oracle's computing product Exadata in that both products use standard servers. "We can now deliver a complete system for creating, managing, storing, achieving, and restoring data," Phillips said.

Phillips also noted that, by adding Java, Oracle will now oversee the word's largest software-developing community.

"This truly is a momentous day for Sun and Oracle and for the industry in which we combine the assets and innovations to create a new leader across the entirety of the data-center marketpace," said Sun's Schwartz. He later referred to the combination of Sun and Oracle as a "systems-and-software powerhouse."

News relevant to the customer relationship management industry is posted several times a day on destinationCRM.com, in addition to the news section Insight that appears every month in the pages of CRM magazine. You may leave a public comment regarding this article by clicking on "Comments" at the top; to contact the editors, please email editor@destinationCRM.com.

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