Tuesday, April 28, 2009

Oracle to acquire Sun Microsystems

On April 20, Oracle said it is buying Sun Microsystems in a cash deal the company valued at $7.4 billion ($5.6 billion net of Sun's cash and debt). This certainly puts IBM at a disadvantage, as their bid for Sun fell apart and now allows Oracle to compete with IBM in many new fields like server hardware. While a leading software company on its own merits, the acquisition of Sun by Oracle lends itself to some very useful (and profitable) systems integrations.

By becoming a new (bigger) giant in the industry, even Microsoft, the preeminent giant, has more to worry about with Oracle's new acquisitions giving new fuel to software competition with OpenOffice vs Microsoft Office, Java vs .Net, and MySQL vs MS SQL being the most interesting ones (Solaris versus Windows might not be so exciting).

Admittedly, after having mentioned these points, it still becomes apparent that Oracle has it's work cut out for them. Although they have now gained a strategic advantage to compete with the big boys (IBM, MS) they still have a lot of work to do to ensure that they keep the right pieces of the puzzle and determine what to keep and what to toss from the combined company. For instance, there is a lot of brand equity in Sun and continuing the use of both logos is implying the continuity of its business lines (if only to garner public support).

For instance, there is speculation that Oracle will sell off Sun's Hardware divisions to a partner like HP. Although analysts say that Oracle will do this to reduce "historic margins", I think that might not entirely be a good idea. There is a strategic advantage to being a one stop shop and entrenching your products with customers is an adtantage that IBM has and appreciates. It will be interesting to watch this play out.

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