In the Advisor posting last week on IBM’s decision to pass on buying Sun we speculated that Oracle might pick up the pieces. It was no big surprise (to us at least) that it actually happened! We believe that this is just act one in a drama that will change the structure of the IT industry. The result will likely have a significant long-term impact on the JD Edwards community so we will continue to follow this story. At the very least, it is going to provide lots of drama and entertainment. It does not hurt that a number of very interesting characters have major roles to play.
Officially, Oracle is paying $9.50 a share in cash to buy Sun – almost exactly the amount Sun’s board turned down as too low from IBM. Part of the appeal to Sun may be that the deal could face less government anti-trust scrutiny. We think, however, that the main reason Sun took this offer was that key individuals preferred working for Oracle rather than IBM.
The potential benefits to Oracle are obvious – control of the evolution of Java, the ability to keep the open source mySQL from damaging Oracle’s database franchise, and ownership of the Solaris Unix variant OS. The obvious downside for Oracle is the need to take over a declining hardware franchise with little long-term prospect for profitability.
Oracle founder Larry Ellison has vowed many times to stay out of the hardware business. We do not believe that he had a change of heart. One way or another, Oracle is not likely to remain in the hardware business for long. Our best guess is that the hardware franchise will be sold off as soon as the deal gets by the regulators, most likely to HP. If it is not sold off, Oracle may find a way to put the hardware business into “harvest” mode. This means milking it for near term profit, cutting the sales force and R&D and then letting it quietly fade away.
Those who attended the last Oracle OpenWorld might remember that the one time Ellison broke his no hardware vow was to partner with HP to offer a high-end database appliance. At that time Oracle reiterated that it had no interest in becoming a hardware vendor and that HP was handling that facet of the joint offering.
As most of you know, Oracle and IBM have had a surprisingly strong alliance for a number of years. We will publish a note on this unusual arrangement in the next few weeks. Coming on top of Oracle’s acquisition of BEA the takeover of Sun has to add some additional strain to that alliance.
Stay tuned here for lots more speculation and analysis about the meaning of Oracle’s latest move and its impact on us. As always, your feedback is welcome.