IBM CEO Sam Palmisano’s horoscope for all of last week must have read “don’t leave the house”.  Perhaps the worst week during his tenure began Sunday night the 11th when Sun founder Scott McNealy and Oracle CEO Larry Ellison kicked off OpenWorld with an all out assault on IBM.  The two of them were like a professional wrestling tag team as they found a variety of creative moves to slam IBM to the mat. 

Early this year IBM had carefully done its due diligence before making an offer to buy Sun.  When McNealy and the Sun board turned it down, Oracle rushed into the void and bought Sun for what appeared to be only a slightly higher price.  It seems safe to surmise that McNealy did not want the company he founded to fall into the hands of those who had done the most to subject Sun to the embarrassment of a forced fire sale. 

As reported here multiple times before, Oracle and IBM have been enjoying a long period of peaceful coexistence.  Watching Oracle succeed in buying Sun for essentially the same price that it bid must really gall IBM’s senior management team.  It responded with an all out attack on the increasingly vulnerable base of Sun customers.  The resulting campaign was obviously successful enough to really annoy Ellison since it diminished the value of Sun after the price had been set.  The ambush at OpenWorld was his response. 

Palmisano must now strongly regret not closing the Sun deal.  Oracle has been transformed from a sometimes friend and cordial competitor into the most serious threat IBM has faced in many years.  In an era when IBM continues to narrow its market focus by exiting lower margin businesses, Oracle has suddenly decided to make a run at becoming the kind of one stop shopping vendor that IBM was a few decades ago at the height of its power.  It is not yet certain that Oracle will succeed, but along the way an enormous amount of heartache for IBM is almost certain. 

If the Oracle attacks were not enough, the week ended with Bob Moffat, the executive that ran IBM’s hardware business being arrested for insider trading.  The allegation is that he passed information obtained during IBM’s abortive attempt to acquire Sun on to a hedge fund manager.  Moffat has been suspended from all duties at IBM. 

Moffat’s arrest was a huge shock to me personally.  I have had the opportunity to spend quite a bit of time with many IBM executives including Moffat over the past 20 years.  In almost every case the people I dealt with at IBM were impressive and conducted themselves admirably.  IBM impresses me as the least likely place where something like this would occur.  If the allegations are proven to be true, I have to believe that this was an aberration – one employee deciding for unfathomable reasons to ignore IBM’s strong cultural focus on ethical behavior. 

Financially, IBM is having a great year having announced strong Q3 results and followed up by projecting even better performance in Q4.  Instead of celebrating this great accomplishment, Palmisano now has to survey all the damage caused by the failed attempt to acquire Sun. 

This coming week I will be at IBM’s Information on Demand conference and will report on what I discover.  Hopefully, next week is a far better one for IBM than last week was.

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