No sooner had I finished posting my blog post on Cisco’s Unified Computing strategy and its implications, I saw that IBM is in talks to acquire Sun for $6.5 billion. Sun has over $2.5 billion in cash, so the entire Sun business is valued at $4 billion.
I had expected a spate of acquisitions to happen, but not so soon. Not IBM acquiring Sun. My take was that it would be either EMC or Dell or HP acquiring Sun.
Here’s my analysis assuming that the news is for real and that it is not one of those rumor balloons:
IBM gets more share in a shrinking UNIX server market. IBM is already doing a good job with Linux (IBM’s overall market server market share is 31%) and doesn’t need the extra 10% market share coming from Sun. I have already said here that with Cisco entering the server space the already low margins could even get lower. So, IBM with a server margin (around 10%) buying Sun for just the servers doesn’t make compelling logic.
Maybe IBM is eyeing Sun’s MySQL database! It makes sense, but IBM has its own DB2 and it also has Informix. So, adding MySQL to their product portfolio makes limited sense.
Java may be the crown jewel in Sun’s assets, but it hasn’t made money for Sun. I wonder how IBM will make it sing.
The rest of Sun’s products — storage, SOA stack, professional services none of them are compelling enough.
- No compelling next generation chip architectures from Sun.
Clearly there’s little strategic fit from a technology standpoint or from a marketing standpoint for IBM to acquire Sun.
Maybe there are some new initiatives from Sun in the cloud computing space. But Sun has not been investing in any kind of cutting edge architecture for a long time.
One possible reason for this rumor balloon to gain credence is that this move could thwart other vendors like HP, Dell or a Cisco to acquire Sun. It doesn’t make any sense, because they could enter the bidding fray themselves. My own thinking is that a Dell or a Cisco may have a better fit with Sun’s products, channels and even culture.
Some analysts seem to believe that after acquiring Sun, IBM may sell the hardware and license the Solaris business to Fujitsu. This seems too far fetched to me.
Most importantly, Sun doesn’t offer any great networking product or technology — something that IBM needs to counter Cisco’s Unified Computing proposition.
So, I will be surprised if this deal goes through. But in the world of M&A, value perception is entirely different and a lot lies in the eyes of the beholder.
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