IBM and Sun: On Again, Off Again Relationship

Well, you had to see this one coming. The NY Times is reporting that IBM has now withdrawn its $7 Billion acquisition offer for Sun Microsystems. This is after IBM lowered its offer from $10 per share to $9.40. Sun, reportedly was "OK" with the deal as long as IBM would make guarantees not to walk away from the deal. Why would Sun want a guarantee that IBM would not walk away from the deal? Because of exactly what has happened. Think about it...how does the market view Sun now? How do customers view Sun now? A.M. Sacconaghi (interviewed in the NY Times article) hit the nail on the head... "For I.B.M., given its size, this was never a transformational deal, but in Sun’s case, it’s an extremely material event. This leaves Sun in a tough situation,Sun was on a path to selling itself, and this will inevitably raise questions in customers’ minds, no matter what Sun says, about its commitment to a go-it-alone strategy.”

Personally, I don't think we've heard the end of this deal. IBM really doesn't want Sun to fall into HP, Dell, or Cisco's hands. Sun really doesn't want to go-it-alone until another suitor arrives.

Last time I posted a blog on this deal, I described what this meant for other server vendors in this market. Given this situation, let's do that again.

• Hewlett Packard:  There's not a lot for HP to be gained by buying Sun. HP's server line is superior. It's storage line is competitive to Sun. And, HP's software division is the management leader. HP isn't really into applications the way Sun is, so taking on Java would be a stretch. BUT -- HP could play a little chess. HP could feign interest in Sun, thereby driving Sun's price back up, and scaring IBM that they perhaps made the wrong move. IBM might then come back to the table and Sun would be off the market again. HP would make IBM spend a little more cash than they wanted. In the server market, it's dog-eat-dog. If you can get your competitor to spend a few extra bucks so that they can't use it against you, you do it.
• Dell: <sigh>....For Dell, it doesn't get to look any better than this. If IBM and Sun are truly on the outs, and Sun's perception in the market is headed downward, then now is the time for Dell to get Sun. This is now the 3rd time I've blogged about this [1,2]. Dell needs to stop moving down market into PCs and gadgets and start thinking enterprise. The margins are better, the customers have deeper pockets, and Dell's brand needs a credibility boost. Dell, do yourself a favor and throw your hat into the ring.
• Cisco: I would say "See Dell" and be done, but Cisco actually has even more to gain than Dell. Dell, compared to Cisco, has a much more well-rounded enterprise portfolio. Cisco is in need of rack servers, storage, server customers, service people with server knowledge, etc, etc, etc. Cisco can't afford to build their server product portfolio organically. That would take too long. Cisco simply can't compete in many enterprise accounts without a more well-rounded portfolio. Will enterprise customers who need rack servers, storage, service, and blades buy the blades from Cisco and everything else from other vendors? No. Cisco's strength is its brand. Scooping up Sun would prove to the IT industry that Cisco is a player to be reckoned with and not a flash-in-the-pan.
• Fujitsu: Fujitsu gets a reprieve from having to buy SPARC from IBM. Plus Sun is now their new best friend since Sun will need the revenue. Fujitsu needs to put their SPARC exit strategy into motion. Fujitsu, meet Intel and AMD, they have nice chips.
• AMD and Intel: These two shouldn't get too excited about Sun coming back. Its only a matter of time before something happens. AMD, just like Fujitsu, time to figure out that Sun exit strategy.

[posted by: Drue Reeves]

Comments

[cheap computers]

IBM was sure to 'consolidate' a great number of things. And I'm sure any remnants of Sun left after this process would have been IBM-ized. And I do say that with a great deal of negative connotation ... Our choices for 'iron' and 'OS' variety in the IT space would have been reduced as I'm sure overalpping server lines would disappear, as well as perhaps an OS.
...
We'd have lost one of the most innovative enterprise I.T. companies ever. Say what you will about their ability to turn it into large $$$, but Sun has come up with some of the most innovative ideas the server-related I.T industry has seen since their inception.

[refurbished computers]

Personally, I don't think we've heard the end of this deal. IBM really doesn't want Sun to fall into HP, Dell, or Cisco's hands. Sun really doesn't want to go-it-alone until another suitor arrives.

Last time I posted a blog on this deal, I described what this meant for other server vendors in this market. Given this situation, let's do that again.

I continue to believe a joint HP/Oracle deal would make the most sense, but whoever ends up acquiring and dismantling Sun is going to have to first get over having to give a big cash pay-out to the Sun senior management team that dragged the company into its precarious present position

[cheap computers]

I believe IBM keenly understands co-location. They've given me hardware that I can easily carve into
multiple LPARs per physical frame, which allows me to consolidate workloads. The technology is very forgiving and flexible--as workloads grow and change, it's very easy to use a dynamic LPAR operation and make the adjustment.