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Sun To Be Acquired by Oracle

In a move that will have significant ramifications on software development, open source and enterprise datacenters, Oracle today said it has agreed to acquire Sun Microsystems for $7.4 billion, or $5.6 billion net of cash and debt.

The deal caught observers off guard: Even after negotiations by IBM and Sun reportedly fell apart, many believed the two might come to terms. At the time, Oracle did not appear to be interested in making a bid.

Nonetheless, Oracle is a major stakeholder in Sun's key assets, Java and Solaris. Java is at the heart of Oracle's Fusion middleware, which the company says is its fastest growing business. By acquiring Sun, Oracle becomes a key steward of Java.

Oracle will also gain the popular open source MySQL database. How much Oracle will push MySQL moving forward remains to be seen. "I doubt they would use MySQL to drive profits out of their own space," said Forrester analyst Jeffrey Hammond in an e-mail. "I'd expect them to continue to support it, but position it as an on-ramp to their own databases instead of adding advanced features to it outright as Sun was doing."

Other questions remain, Hammond noted, including the impact on the two companies' Java tools, app server and middleware businesses.

Perhaps most unexpected is the fact that Oracle will become a major player in the hardware and Unix operating system business overnight. More Oracle databases run on the SPARC-based Solaris than any other platform, said Oracle CEO Larry Ellison on a call early this morning announcing the deal. Linux is the second-largest platform for Oracle databases, which Ellison said "remains extremely important to us."

The company was not believed to have an interest in going into the hardware business until now. Oracle indicated today that it intends to use Sun's hardware business to offer integrated systems that include its software portfolio, servers and storage.

"With the acquisition of Sun, we will be able to tightly integrate the Oracle database to some of the unique high-end features of Solaris," Ellison said. "Engineering the Oracle database and the Solaris operating system to work together enables us for the first time to deliver complete and integrated computer systems, database to disk, optimized for high-performance, improved reliability, enhanced security, easier management and a lower total cost of ownership."

Sun has a large storage business while Oracle has made its own moves into high-end storage with its Exadata offering which, through a partnership with Hewlett-Packard, offers a platform for data warehousing.

Oracle Co-President Charles Phillips said customers at its periodic meeting with large CIO customers last week welcomed the Exadata launch and encouraged the company to further its move into the datacenter. "They are asking us to step into a broader role by delivering a highly optimized stack from app to disk, based on standards," Phillips said.

Philips said Oracle will also target offering vertical industry appliances "with a complete industry in a box." Oracle will also be able to let ISVs deploy their applications on Solaris-based Oracle appliance, he added.

Oracle is estimating that Sun will add at least $1.5 billion in non-GAAP operating income in the first year "and growing from there," said Oracle Co-President Safra Catz.

Pending Sun shareholder approval, the deal is slated to close this summer.

About the Author

Jeffrey Schwartz is editor of Redmond magazine and also covers cloud computing for Virtualization Review's Cloud Report. In addition, he writes the Channeling the Cloud column for Redmond Channel Partner. Follow him on Twitter @JeffreySchwartz.

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Mon, Apr 20, 2009 femtobeam Anonymous

Great news! Now, if Larry Ellison can expand into the advanced hardware and prevent a manufacturers backdoor of components, he will be in a position to bring back the lost US market share in communications hardware.

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