Intel's Otellini Bets On IBM-Sun Merger

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IBM is "in the hunt" to acquire Sun Microsystems and Intel's Paul Otellini "suspect[s] they'll get it." The Intel chief executive also thinks his company has "a really strong position" in an ongoing dispute over its x86 cross-license agreement with rival chip maker Advanced Micro Devices.

Otellini, speaking in a question-and-answer session Monday with employees that was included in an amended proxy statement concerning a new employee stock-option plan that Intel filed Wednesday with the Security and Exchange Commission, said, "Sun was shopped around the Valley and around the world in the last few months."

Answering a question as to whether Cisco's recent data center push was motivation for IBM to pursue an acquisition of Sun, Otellini said the "cheap Sun price" was likely the driving factor.

"A lot of companies got calls or visits on buying some or all the assets of [Sun]. It looks like IBM is in the hunt now. And at a hundred-and-some-odd percent premium, I suspect they'll get it," he said during Monday's presentation to Intel employees, the transcript of which was included in Intel's SEC filing.

"I don't think it had anything to do with Cisco. I think IBM is trying to consolidate architectures. IBM has the strongest Java license in the industry. By picking up Sun -- which is the creator of Java -- they really consolidate their position not just in Linux, but also in Java. I think the stuff on Solaris and SPARC is likely to see EOLs over time through the IBM acquisition. But [there is] no strategic reason for IBM to maintain that except to attempt to convert the very large Sun SPARC Solaris base to Power," Otellini said, referring to Sun's Solaris operating system and SPARC processors, competitors in the Unix server space with IBM's Power chips.

Would an IBM-Sun merger be good or bad for Santa Clara, Calif.-based Intel? Otellini hedged somewhat, saying, "I'd rather have Sun be independent I guess."

Otellini spent most of the presentation explaining Intel's proposal to change up its employee stock option program, which must be approved by shareholders in a vote scheduled for May. That plan involves an exchange of Intel employees' underwater options for a lesser number of new options at market price on the date of exchange. The top five Intel executives, including Otellini himself, cannot participate in the program, he said.

Intel would also provide employees with a special, one-time stock grant that "in effect doubles" their annual performance-based grant of stock options, and an increase in focal restricted stock unit (RSU) grants for hourly employees.

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