The Continuing Saga of Oracle-Sun

Yesterday, Marketwatch posted an interesting piece on the ongoing drama in Oracle’s bid to acquire Sun. Based on data from regulatory filings, Oracle was one of the three bidders. IBM was also in the mix, while the identity of the third is believed to be HP, though I wouldn’t be surprised if it was Dell.

Despite Larry’s proclamation of interest in Sun servers and the SPARC chipset, his initial plan was threefold: make a minority investment, acquire some of Sun’s software assets, and form “certain strategic relationships.” Based on Marketwatch and other news reports, it appears that Oracle’s first thrust occurred once word leaked out about IBM’s intentions.

On another note, this morning Oracle announced plans to buy Virtual Iron, a Lowell-MA provider of virtualization software. Terms were not disclosed. Virtual Iron has 2,000 customers spread across a wide array of industries. 

What do you think? Once the Sun deal closes, what does Oracle do with Sun’s hardware and SPARC? Will the Virtual Iron buy put more pressure on VMware?

Should IBM Pursue the Sun Deal?

Last December I attended a dinner in Manhattan that was hosted by Marc Benioff, salesforce.com’s founder and CEO. Near the end of the meal, Michael Dell stopped by the private room to say hello to Marc. At one point there were a handful of people left. Mr. Dell looked at me and said, “You’re an analyst; who’s going to buy Sun.?”

When I replied “Either HP or IBM” and offered some reasons why, he looked at me as if I was from a galaxy far, far away. Needless to say, I was ecstatic when The Wall Street Journal reported that IBM was preparing to acquire Sun.

This morning the front page of The Wall Street Journal reported “IBM Talks Teeter as Sun Board Splits,” and CNBC is now reporting that the IBM and Sun deal is off. According to the paper, current CEO Jonathan Schwartz favors the deal, while his predecessor Scott McNealy is against being acquired. The latter is not surprising given that Mr. McNealy often used IBM as the punch line when I saw him on stage.

While all tech stocks are down this morning in early trading, shares of Sun fell two points or 24% in the first half hour of trading. At $6.50 per share, Sun’s market cap is $4.83B. Believe it or not, Sun’s market cap reached $200B at the height of the Internet bubble.

If you have a few minutes, you should read Robert X. Cringley’s “Why IBM Needs Sun” from this morning’s MIT Technology Review. He brings up several points that I had not read elsewhere. For one, Sun has an annual R&D budget of $3B. That’s nearly a quarter of the company’s $13B in annual revenue. He also sees Solaris as a weapon/alternative for IBM in its ongoing battle with SCO.

What do you think? Is this a negotiating tactic for IBM? Will the deal get done, or will a competitor like HP or Dell step in? Add your voice here.