Oracle Vows Complete Data Center Systems With Sun Buy

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Less clear is the future for Sun's hardware product lines, especially its server products, and what the acquisition means for Sun's hardware channel partners.

On Monday, Oracle and Sun stunned the industry by announcing that Oracle will acquire Sun for $9.50 a share or approximately $7.4 billion. (The price is $5.6 billion minus Sun's cash and debt.) The companies expect to complete the deal this summer.

The news comes just two weeks after negotiations for IBM to acquire Sun fell apart when the two couldn't agree on a price. Published reports at the time said IBM was offering $7.0 billion for Sun.

IBM and Oracle are bitter rivals in database software and middleware and the prospect of IBM controlling such critical technologies as Java and the Unix-based Solaris must have put a scare into Oracle CEO Larry Ellison and the company's other top executives. When the IBM talks faltered, Oracle moved quickly.

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Java and Solaris "were instrumental in Oracle's decision to acquire Sun," Ellison said during a brief conference call Monday morning. Calling Java "one of the industry's best-known brands," Ellison said that Oracle's Fusion Middleware, the company's fastest-growing product line, is based on Java technology. "Java is the foundation of Oracle's Fusion Middleware and the single most important software asset Oracle has ever acquired," he said. "As a result of this acquisition, Oracle can continue to invest in its middleware business."

Solaris is the most widely used operating system for the Oracle database. By owning Solaris, Oracle can tightly integrate the operating system with its software products, including the Fusion Middleware and the Oracle database, Ellison said.

Buying Sun also gives Oracle possession of MySQL, the market's leading open-source database. Sun bought MySQL for $1 billion in February 2008.

As MySQL can be seen as a competitor to Oracle's cash cow database, just how Oracle will position MySQL is an open question. But Oracle does have experience with open-source software -- in 2005 it acquired Finland-based Innobase with its namesake open-source database software, and one year later bought SleepyCat Software and its open-source Berkeley DB database. Targeting MySQL toward smaller businesses and then upgrading them to the industrial-strength Oracle database could be a lucrative strategy.

While at first glance Sun's server and storage products might not appear to be a fit with the industry's second-largest software vendor, even those hardware products might serve Oracle's long-range strategy.

"We believe the best way to grow Oracle's overall business is for us to deliver a broader range of products and services to our existing set of commercial and government customers," Ellison said in the conference call. Referring to the success Oracle software already enjoys on Sun platforms, Ellison said: "Completely integrated computer systems, hardware and software, running both Oracle [software] and Solaris, should be even more popular and very profitable."

Ellison made it clear Oracle intends to compete with the likes of IBM and Hewlett-Packard for domination of the data center. "With the acquisition of Sun, Oracle is now able to make all the pieces of the technology stack fit together and work well -- storage, computers, operating systems, database, middleware and applications," he said.

Sun CEO Jonathan Schwartz said on Monday's conference call about the acquisition that combining the hardware and software assets of the two companies "creates a new leader across the entirety of the data center."

The Sun acquisition isn't Oracle's first foray into hardware. Last fall at the Oracle OpenWorld conference, Oracle unveiled an advanced database server (the HP Oracle Database Machine) and a programmable data storage system (the HP Oracle Exadata Programmable Storage Server) the company jointly developed with Hewlett-Packard. Sun's storage systems, which are based on much the same technology, according to Oracle, would help Oracle expand those product lines.

But hardware has become something of a commodity and Sun has struggled financially for years as it tried to make money from its server systems. Oracle will face the same challenges. One solution: Oracle Co-president Charles Phillips, also on the conference call, said that with Sun's hardware, Oracle could assemble preconfigured "ready-to-deploy servers" for vertical industry markets.

That view was echoed by reports from several industry analysts. "Oracle is positioned to disrupt the hardware and software business by creating an integrated 'data center appliance' that combines hardware and software -" Sun servers, storage and Solaris with Oracle database and middleware," wrote Technology Business Research analyst Stuart Williams. "The move could redirect hardware sales from vendors such as Dell and EMC who drive significant revenue around the Oracle software stack -- and position Oracle for additional sales of applications and business intelligence software."

Oracle and Sun made no comment about what role -- if any -- Sun executives such as Schwartz and Chairman Scott McNealy will play in the combined Oracle-Sun. The companies also have not made any comment about plans for integrating the companies and their workforces.

In an e-mail sent to all Sun employees early Monday, Schwartz would only say that "Details will be forthcoming as we work together on the integration planning process." But earlier in the note he said, "I do not consider the announcement to be the end of the road, not by any stretch of the imagination."

The Sun acquisition is the latest in a line of big-ticket acquisitions Oracle has made in recent years, including PeopleSoft, Siebel Systems, Hyperion and BEA Systems. Oracle Co-president Safra Catz also indicated that once the deal is approved, Oracle would move quickly to integrate Sun with Oracle. "As you know, we have a track record of integrating acquisitions very rapidly and this will be no different," she said.

The acquisition of Sun will add approximately $1.5 billion in annual revenue to Oracle's top line, Catz said during the conference call. Sun's board of directors has approved the deal, but it's still subject to approval by Sun's shareholders and government regulatory approvals.