The Impact of Oracle-Sun
An in-depth analysis of the $7 billion-merger reveals its potential to reshape the IT vendor ecosystem.
By Bruce Guptill, Saugatuck Technology
May 06, 2009
In the early hours of April 20, Oracle Corp. announced that it had reached an agreement to acquire Sun Microsystems for $9.50 per share. The announced price was slightly more than the $9.40 per share that IBM was said to have offered Sun earlier in April. The $7.4B deal values Sun at approximately 50 cents on the revenue dollar.
We cannot emphasize this enough: Oracle buying Sun changes the shape of the IT industry, in effect creating a new, full-line hardware, software and services Master Brand - the first since the merger of Sperry and Burroughs to create Unisys. The IT landscape will be forever changed as a result.
The Rationale Behind the Deal
The match of Sun with Oracle is not surprising. Sun has had a strong relationship with Oracle for many years. And Sun has been known to be seeking a buyer and/or major investors for at least three years, most visibly earlier this year with IBM.
But as we have noted in published research over the years, the Sun deal is the latest and largest iteration in Oracle's acquisition-centered growth strategy to become an ever-more-influential IT Master Brand (see Research Alert RA-197, "Oracle Acquires Siebel as Master Brand Strategy Emerges," 14 Sept. 2005; and Strategic Perspective MKT-328, "Oracle-Hyperion: Saugatuck Impact Assessment," 14 March 2007).
And while Sun is first and foremost a hardware vendor, the key for Oracle is Sun's software business. Oracle Chairman Larry Ellison specifically mentioned in a Monday conference call that Sun's Java programming language and Solaris operating system were the main attractions for Oracle. Ellison labeled Java as "the single most important software asset we have ever acquired."
Saugatuck agrees, especially as regards Java. In addition to being a de facto industry development standard, Java is also key to Oracle's own software development, from database to applications to middleware. As influential as Oracle has been in software markets, the acquisition of Sun and Java places Oracle in a central, core role when it comes to software industry direction.
Oracle also gains significant presence and influence within open source movements and communities. Along with IBM, Sun has been one of the two most visible and influential IT Master Brands in open source. Sun has not only championed and promoted open source software development and its inclusion into commercial software, it has opened Java, acquired MySQL and its LAMP-stack-standard open source database, and opened the Solaris operating system. Oracle has long seen the opportunity inherent in both using open source in its own offerings and in influencing the growth and direction of open source software development (see Strategic Perspective EVT-287, "Will Oracle Kill Open Source? The Bold Move Against RedHat and the Future of Enterprise Open Source," 30 Oct. 2006).
While Sun's Solaris operating system is often seen as a "non-growth" OS, (see Research Alert RA-183, "Sun Opens Solaris Source Code - But Will That Help?" 16 June 2005) it has a significant presence in several key vertical industries worldwide, specifically financial services, government, academia, and high-performance computing. Thus Oracle adds to its presence and influence in several IT markets that so far are seeing continued growth through the global recession.
Oracle of course gains significant revenues and market presence well beyond Sun's software business. While accounting for losses and shifts between operating groups obscures the bottom line somewhat, Sun's annual server and storage hardware revenues are estimated at between $7B and $9B, with storage growing while servers remain relatively flat. While Sun has so far been unable to turn around its flagging hardware businesses, they are still quite substantial in terms of revenue and market presence and do present significant revenue opportunities if managed effectively. Storage in particular is a booming business that should add to Oracle's bottom line.
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We cannot emphasize this enough: Oracle buying Sun changes the shape of the IT industry, in effect creating a new, full-line hardware, software and services Master Brand - the first since the merger of Sperry and Burroughs to create Unisys. The IT landscape will be forever changed as a result.
The Rationale Behind the Deal
The match of Sun with Oracle is not surprising. Sun has had a strong relationship with Oracle for many years. And Sun has been known to be seeking a buyer and/or major investors for at least three years, most visibly earlier this year with IBM.
But as we have noted in published research over the years, the Sun deal is the latest and largest iteration in Oracle's acquisition-centered growth strategy to become an ever-more-influential IT Master Brand (see Research Alert RA-197, "Oracle Acquires Siebel as Master Brand Strategy Emerges," 14 Sept. 2005; and Strategic Perspective MKT-328, "Oracle-Hyperion: Saugatuck Impact Assessment," 14 March 2007).
And while Sun is first and foremost a hardware vendor, the key for Oracle is Sun's software business. Oracle Chairman Larry Ellison specifically mentioned in a Monday conference call that Sun's Java programming language and Solaris operating system were the main attractions for Oracle. Ellison labeled Java as "the single most important software asset we have ever acquired."
Saugatuck agrees, especially as regards Java. In addition to being a de facto industry development standard, Java is also key to Oracle's own software development, from database to applications to middleware. As influential as Oracle has been in software markets, the acquisition of Sun and Java places Oracle in a central, core role when it comes to software industry direction.
Oracle also gains significant presence and influence within open source movements and communities. Along with IBM, Sun has been one of the two most visible and influential IT Master Brands in open source. Sun has not only championed and promoted open source software development and its inclusion into commercial software, it has opened Java, acquired MySQL and its LAMP-stack-standard open source database, and opened the Solaris operating system. Oracle has long seen the opportunity inherent in both using open source in its own offerings and in influencing the growth and direction of open source software development (see Strategic Perspective EVT-287, "Will Oracle Kill Open Source? The Bold Move Against RedHat and the Future of Enterprise Open Source," 30 Oct. 2006).
While Sun's Solaris operating system is often seen as a "non-growth" OS, (see Research Alert RA-183, "Sun Opens Solaris Source Code - But Will That Help?" 16 June 2005) it has a significant presence in several key vertical industries worldwide, specifically financial services, government, academia, and high-performance computing. Thus Oracle adds to its presence and influence in several IT markets that so far are seeing continued growth through the global recession.
Oracle of course gains significant revenues and market presence well beyond Sun's software business. While accounting for losses and shifts between operating groups obscures the bottom line somewhat, Sun's annual server and storage hardware revenues are estimated at between $7B and $9B, with storage growing while servers remain relatively flat. While Sun has so far been unable to turn around its flagging hardware businesses, they are still quite substantial in terms of revenue and market presence and do present significant revenue opportunities if managed effectively. Storage in particular is a booming business that should add to Oracle's bottom line.
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