Sun Micro Would Offer IBM Open Source, Cloud, High-End Servers
18 Mars 2009 - 9:21PM
Dow Jones News
A takeover of Sun Microsystems Inc. (JAVA) by International
Business Machines Inc. (IBM) would offer Big Blue some significant
advantages in rounding out its product lineup as it faces down
Hewlett-Packard Co. (HPQ) and others in the data center market.
Specifically, IBM could benefit from Sun's work as a leader in
open-source software and could enlarge its opportunities in cloud
computing with Sun's recent foray into the growing segment. And
while IBM has moved away from selling hardware to focus on software
and services, Sun's high-end servers could provide IBM the
opportunity to quickly expand its market share in the area.
"The rumors that IBM is making a bid for Sun Microsystems might
be causing waves, but after the storm the market will find that the
two companies align well," said Jeff Goldman of Celent, an IT
consulting firm.
In recent trading, shares of IBM fell 1.7% to $91.37, while Sun
shares surged 79% to $8.93.
IBM's plans to acquire Sun Microsystems in a deal valued at
roughly $8 billion, first reported by The Wall Street Journal early
Wednesday, will primarily provide IBM the opportunity to turn a
wealth of open source software into revenue, combining it with its
own profitable software and services businesses.
Leveraging open-source software has remained a stumbling block
for Sun and Chief Executive Jonathan Schwartz, but IBM has
traditionally had more success in monetizing its own intellectual
property, said Barclays analyst Ben Reitzes. Owning Java and
Solaris, two of Sun's prized pieces of software, brings IBM an
additional revenue stream for its software business, as well as
added services work.
"From a systems perspective, this puts IBM in a very strong
position for their software and the professional services that go
along with it. It would give them a leading presence," Goldman
said.
On the hardware side, Sun's high-end servers have lost market
share as customers turned to machines from Dell Inc. (DELL) and
H-P. But the company still garners roughly 10% of the server market
share, with particular strength selling into the financial-services
sector.
In 2008, IBM took home nearly 32% of server market revenue, and
a Sun deal would give it access to an additional slice of the
market.
Several analysts said it's likely that Sun's servers based on
its proprietary Sparc chip will be phased out over time, and IBM
will likely be able to transition Sun's customers to IBM machines,
adding to cost savings and pushing back against server behemoth
H-P.
"The eventual conversion of Sun customers to IBM Unix machines
would not only help IBM's sales but potentially increase the
utilization of IBM's own chip making operations," Reitzes said.
Additionally, Sun's recently announced foray into cloud
computing with its Sun Cloud product, expected this summer, gives
IBM an angle of attack on the growing cloud computing market.
Already other tech giants such as Amazon.com Inc. (AMZN) and
Microsoft Corp. (MSFT) have begun to roll out products allowing
customers to store and manage data at off-site data centers,
lowering overhead costs. IBM plans to step into the market as well,
though details are still sketchy on its platform.
However, a combined Sun and IBM may be able to benefit from the
disparate markets each will likely target, adding to a fuller
customer base as the cloud computing market grows.
Dave Douglas, head of Sun's recently established cloud computing
business, wouldn't comment on the veracity of takeover reports, but
said in an interview with Dow Jones Newswires that he expects IBM
is focused on building from its relationships with large,
established customers, whereas Sun will at its outset target
smaller start-ups and finding customers in its Web development
community.
-By Jerry A. DiColo, Dow Jones Newswires; 201-938-5670;
jerry.dicolo@dowjones.com