The consolidation in enterprise technology is upon us. Once mighty Sun Microsystems is now reportedly; in talks to be acquired by IBM for a mere $6.5 billion. That is two quarters of revenues for Sun. If you factor in the $2.6 billion in cash and short term investments on Sun’s balance sheet, the true offer is closer to $4 billion. Sun’s shares jumped this morning 65 percent.
Sun’s main Solaris server business has been suffering for years from the onslaught of cheaper open-source Linux servers, which it now offers as well. But Sun still holds big presence in key industries. The play for IBM is to consolidate its server market share in the face of increased competition from HP (which bought IT consulting giant EDS last summer), and now Cisco (which is trying to expand into the server and storage markets). Sun’s commitment to open standards also meshes well with IBM’s philosophy. Remember, it owns MySQL. (Larry Dignan at ZDnet has a good analysis here).
The acquisition would create an even greater mish-mash of technologies under the IBM umbrella, but IBM has never had a problem selling incompatible systems. Sun also has a deep wealth of technology patents and engineering talent that IBM will be able to redeploy.
But if that is all that Sun has to offer IBM, any potential acquisition would just be tactical—a move to shore up market share in traditional data center sales until cloud computing changes the business entirely. In fact, Sun is planning on announcing today its own cloud computing offerings, which was recently bolstered by its purchase of Q Layer. Sun’s approach to cloud computing is to offer enterprises mission-critical cloud alternatives which can also play well with the public cloud offerings out there from Amazon, Google, Salesforce, Microsoft, and so on.
That transition will take many forms, from turning corporate data centers themselves into one large virtualized computer to offering true compute, storage, and database services in the cloud.