Oracle Corp. (NASDAQ: ORCL) ended it silence Thursday on its post-merger plans for Sun Microsystems‘s (NYSE: JAVA) Unix systems in an advertisement aimed at Sun customers to keep them from leaving the Sparc and Solaris platforms.
Oracle’s ad to “Sun customers,” makes a number of promises that includes spending more “than Sun does now,” on developing Sparc and Solaris, as well as boosting service and support by having “more than twice as many hardware specialists than Sun does now.”
Analysts see Oracle’s ad as a defensive move that doesn’t answer some of the big questions ahead of the US$7.4 billion merger with Sun. In fact, there may be a lot of room for skepticism and parsing of Oracle’s claims, despite their apparent black and white assertions.
Ever since Oracle announced in April its plans to acquire Sun, its competitors — notably IBM and Hewlett-Packard Co. — have been relentlessly pursuing Sun’s core customer base, its Sparc and Solaris users.
Among the top hardware makers, Sun registered the biggest decline in server revenue in the second quarter, offering evidence that this protracted merger may be eroding Sun’s value.
Oracle wanted the acquisition completed by now but the European Commission this month said it would delay its antitrust review because of “serious concerns” about its impact on the database market. Europe is allowing until mid-January to sort this out, which keeps the merger in limbo for another quarter.
Analysts point out that Oracle’s plans to spend more “than Sun does now,” may be a little hallow because Sun’s spending on developing Sparc and Solaris is probably at a low.
“The ad sounds convincing — but perhaps being a word nitpicker, the Sun does now’ might not mean much if Sun has drastically cut back due to plummeting sales,” Rich Partridge, an analyst at Ideas International Ltd., said in an e-mail.
“I think someone at Oracle suddenly realized that Sun was bleeding so badly that what would be left when Oracle finally got control would be worth a small fraction of what they paid and no one would buy the hardware unit,” Rob Enderle, an independent analyst, said in an e-mail.
Taken at face value, the ad seems to indicate that Oracle will keep Sun’s hardware and microprocessor capability and not spin it off, as some analysts believe possible. But Enderle said the ad’s claims do not preclude Oracle from selling its hardware division, and says the company “will have to support the unit for a short time after taking control; during that short time they can easily outspend Sun’s nearly non-existent budgets.”
Gordon Haff, an analyst at Illuminata Inc., said if it was Oracle’s plan to start on day one of the merger to shop the Sparc processor around, “would they have put this ad out? Probably not,” he said. “Does it preclude Oracle from changing their mind? No. Companies change their mind all the time.”
An erosion of Sun’s customer also hurts Oracle, because a lot of Sun customers are also Oracle customers, and Oracle doesn’t want its existing customer to go to IBM and move away from Oracle’s platform, Haff said.
Indeed, Oracle’s major competitive concern was indicated in the ad in a quote by Oracle CEO Larry Ellison: “IBM, we’re looking forward to competing with you in the hardware business.”
