Oracle's new acquisition of Sun Microsystems will allow it to compete on a broader level against IBM, Sun's previous acquisition suitor. By acquiring Sun, Oracle will be able to expand its end-to-end offerings and further drill into the capabilities of Java and Solaris, which already provide the foundation for many of its solutions, as well as compete more heartily against IBM's DB2 database middleware.
April 20 announcement that it plans to purchase Sun
, in a deal worth roughly $7.4 billion, or $9.50 a share, will
create a multi-arena competitor to IBM and
other IT giants such as Hewlett-Packard, Dell and Cisco Systems.
was reportedly in discussions to purchase Sun
for $6.5 billion, potentially
allowing Big Blue to swallow up even more market share in the enterprise server
hardware and software areas, when that deal collapsed in early April.
According to Reuters reports at the time, IBM
even raised its offer to $9.50 a share, over $7 billion, before talks failed.
Neither company confirmed publicly any cause for the collapse, nor that they
were even in discussions over a possible acquisition.
However, the language of the Oracle-Sun announcement led Charles King, an
analyst with Pund-IT Research, to suggest that Sun found Oracle's terms more
"One thing that was interesting in the announcement was that Sun regards
this as a merger rather than an acquisition," King said in an interview. "On
one level, that's simply word choice, but it also suggests that Sun is entering
this deal with a level of autonomy that they might have felt was absent in
acquisition talks with other folks."
"It's politically correct speech," King added, "but it implies that Sun is
going into this deal as an equal partner as opposed to a company that's down on
Sun had been struggling amidst a global recession and a contracting server
and data center market, with losses of $209 million in the fourth quarter of
2008. This financial weakness also led analysts to conclude that Sun
would have a relatively limited pool of suitors from which to choose.
Oracle, on the other hand, enters today in a strong competitive position on
a number of fronts. According to IDC, the
company had 44.3 percent of the relational database management systems (RDBMS)
market in 2007, the last full year for which the research firm has figures. By
contrast, MySQL owned some 0.2 percent of the market. The top five players in
that arena, controlling some 90 percent of the market share, were Oracle, IBM,
Microsoft, Sybase and Teradata.
On top of that, Oracle has spent much of 2009 already in an acquisition mood
despite the recession, purchasing a number of companies including mValent
a group that produces configuration management solutions, and Relsys
, which develops drug safety and risk management
Acquiring Sun will nonetheless give Oracle the opportunity to expand on its
end-to-end offerings. With the deal in place, and expected to close at some
point this summer, Oracle now owns Java and Solaris, both of which already
provide the foundation for several key Oracle products.
"Engineering the Oracle database and the Solaris operating system to work
together enables us, for the first time, to deliver integrated computer
systems, database to disk, optimized for high performance," Larry Ellison, CEO
of Oracle, said during an April 20 conference call. He also suggested that the
integration of the database and Solaris would translate into improved
reliability, security and cost controls on the client side.
A Sun acquisition lets Oracle head IBM
off at the proverbial pass with regard to database middleware, a vital
component of both company's overall business strategy.
"Of all the Sun partners who might have been threatened by an IBM-Sun
deal, if Oracle wasn't at the top of the list, they certainly were in the top
two or three," King said. "IBM's DB2
database middleware is a large and serious competitor for Oracle; by buying
Sun, Oracle can more effectively guard against Sun's customers being ported
over to DB2."
The acquisition will likely give Oracle advantages in the hardware arena.
"We see Oracle competing more for mindshare in the hardware space," Ray
Wang, an analyst with Forrester, wrote in an e-mail, "putting it in front of IBM
for end-to-end deals. With the Sun acquisition, that came has changed.
"The deal puts Oracle on a continued path to acquiring deeper components of
the enterprise computing stack," Wang added. "While Java and Solaris may appear
to be the crown jewels in the deal, the real significance is the entrustment of
the other parts of the open-source stack with Oracle."
These "other parts" include MySQL, which despite its lack of market share
compared with Microsoft and IBM is still a
name as an open-source alternative. On top of that, Oracle gains access to Sun
Microsystems Laboratories, with their pipeline of enterprise-solutions products.