Oracle buys Sun; Now owns Java; Becomes a hardware player;

Oracle said Monday that it will buy Sun Microsystems for $9.50 a share in cash, or about $7.4 billion including debt, in a deal that plunges Larry Ellison & Co. into the hardware market. The company added that the acquisition of Java “is the most important software Oracle has ever acquired.”

Sun Chairman Scott McNealy (left) with Oracle chief Larry Ellison.

With the move Oracle also becomes a full-fledged hardware player. Oracle has been dabbling with the storage appliance with HP, but the acquisition of Sun puts the company in an entirely different realm. Oracle and Sun have been long-time partners.

Ellison said in a statement:

“The acquisition of Sun transforms the IT industry, combining best-in-class enterprise software and mission-critical computing systems. Oracle will be the only company that can engineer an integrated system – applications to disk – where all the pieces fit and work together so customers do not have to do it themselves. Our customers benefit as their systems integration costs go down while system performance, reliability and security go up.”

That pitch sort of sounds like Apple’s approach on the consumer side. Apple’s strategy is to integrate hardware and software to make things easy. Oracle with Sun appears to be the Apple of the enterprise.

However, Oracle’s purchase of Sun is really about the Java. Oracle’s middleware is built on Java and the applications giant said it will continue to invest in the software.

As with Oracle’s other acquisitions, Ellison plans to make its target more efficient and squeeze better profits. Oracle said the Sun deal will add at least 15 cents a share in non-GAAP earnings in the first year of the deal closing. That equates to $1.5 billion in Oracle’s non-GAAP earnings. Oracle president Safra Catz said the Sun deal will “be more profitable in per share contribution in the first year than we had planned for the acquisitions of BEA, PeopleSoft and Siebel combined.”

That statement is pretty heady given that Sun is losing money.

The technical side of this Oracle-Sun deal gets really interesting. Sun’s stack of IT stuff now includes:

• Java;
• Solaris;
• Enterprise applications ranging from CRM to ERP to business intelligence;
• The database;
• The middleware;
• The storage hardware;
• And servers.

My hunch is that Ellison saw the possibilities of integrating hardware and software with Oracle’s Exadata database machine. Ellison boasted that the Exadata machine has seen strong demand on Oracle’s earnings conference call.

For Sun, Oracle provides an exit from troubled negotiations with IBM. Big Blue was interested in Sun but bailed when the two sides couldn’t agree on price. Oracle stepped up and was willing to pay the $9.50 a share Sun wanted. Meanwhile, regulatory concerns won’t be much of an issue since Oracle hasn’t been a hardware player—until now.

In addition, Oracle saves Sun management from what ourcecould have been a complete debacle following the IBM takeover talks. The Sun board had been split on the IBM deal. Today, it’s all roses. Sun Chairman Scott McNealy said the Oracle-Sun marriage was a “natural evolution.” Sun CEO Jonathan Schwartz added that the Oracle takeover will advance innovation in the marketplace.

It’s needless to say, but Sun’s board approved the Oracle purchase unanimously. The deal is expected to close in the summer.

Source: http://blogs.zdnet.com/BTL/?p=16598