IBM eyeing acquisition of Sun Microsystems

Global technology giant IBM (NYSE: IBM) is in talks to buy Sun Microsystems (NASDAQ: JAVA) in a deal that would expand its server market share, the Wall Street Journal reported Wednesday.

IBM may pay as much as US$6.5 billion in cash for Sun, the newspaper reported on its Web site, without naming its sources. That amount of money would be nearly double Sun’s closing share price on Tuesday of US$4.97 per share.

Sun had revenue of US$3.2 billion last quarter, around US$1.2 billion of it from server sales. That put Sun in fourth place in the server market, behind IBM (US$4.9 billion, or 36 per cent of the market), Hewlett-Packard ($3.9 billion or 29 per cent) and Dell ($1.4 billion).

Sun also has a software business, although that brings in little revenue. It made just SU$42 million last quarter from sales of its Solaris operating system and associated management and virtualization software. In February it struck a deal with HP to expand distribution of Solaris, complementing deals struck in 2007 with IBM and Dell.

It has a lot of open-source software, including the MySQL database, which it hasn’t been able to monetize. It reported just US$81 million in sales of MySQL licenses and related infrastructure last quarter, after paying US$1 billion for the company in January last year.

A merger between IBM and Sun, if it came true, would have benefits for both companies, according to Nathaniel Martinez, program director in IDC‘s European System Infrastructure Solutions.

Regarding MySQL, “bringing IBM into the picture, with its services arm, could be something that could turn that into actual dollars in the future,” he said.

Sun also has a huge installed server base, and many of them are currently looking at migrating to Linux. A deal would be a way for IBM to grab Sun customers who are using RISC-based servers, Martinez said.

Also, IBM is working on making itself the choice for high-end servers, and customers using Sun’s Solaris operating system are high end and extremely loyal, according to Martinez, who also gives credence to speculation that it’s a competitive move from IBM in response to Cisco’s entry into the data centre on Monday.

But a deal of this size also comes with its fair share of challenges. There would obviously be products that overlap, according to Martinez, including areas such as servers, databases and storage, and wherever IBM has an office, Sun also has one, he said.

The different cultures at IBM and Sun would also be a challenge, but Sun’s technology focused culture could be a boost for IBM, which is more and more seen as a service provider, according to Martinez.

The Journal report cautioned that while the two companies are holding discussions, a transaction may not occur.

It isn’t the first time that rumors have surfaced about Sun being acquired. In the past there have been reports that Dell or Fujitsu Siemens could buy the company, Martinez said.

Officials from Sun and IBM in Europe declined to comment on the report.

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Jim Love, Chief Content Officer, IT World Canada

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