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

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

Summary: Updated: Oracle said Monday that it will buy Sun Microsystems for $9.50 a share in cash, or about $5.

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TOPICS: Oracle, IBM
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Updated: Oracle said Monday that it will buy Sun Microsystems for $9.50 a share in cash, or about $5.6 billion excluding 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- valued at $7.4 billion including Sun's debt - 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.

On a conference call with analysts, Ellison said that Oracle's acquisitions to date have been market leaders - PeopleSoft, Hyperion and Siebel. With Sun, Oracle said Java and Solaris are the keepers in the deal.

"More Oracle databases run on the Solaris Sparc than any other system," said Ellison, noting Linux was second. "We'll engineer the Oracle database and Solaris operating system together. With Sun we can make all components of the IT stack integrated and work well."

Regarding Java, Ellison said it wanted Sun so it could own the building blocks for its middleware.  Oracle's middleware is built on Java and the applications giant said it will continue to invest in the software.

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. Indeed, Oracle President Charles Phillips noted that the company is looking to offer everything from apps to the disk.

The data center gets (more) interesting

It's clear that Oracle is targeting the next generation data center---as is the rest of the industry. Here's the list of tech titans looking to remake the data center:

  • IBM;
  • HP;
  • Cisco;
  • Dell;
  • Oracle;
  • And a bevy of other players---Juniper, EMC, VMware---from various angles.

The technical side of this Oracle-Sun deal also is notable. Oracle's stack of IT stuff now includes:

  • Java;
  • Solaris;
  • Enterprise applications ranging from CRM to ERP to business intelligence;
  • The database (Oracle and MySQL);
  • The middleware;
  • The storage hardware;
  • Cloud computing services;
  • And servers.

Oracle's initial game plan is to focus on existing joint customers. That base represents a large data center pie. 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.

In the end, Oracle's acquisition of Sun won't change the company's overall game plan: Offer the customer a lot of product---apps, languages, middleware, databases---lock that enterprise in and collect the dough. 

The art of war

So what does Oracle really want with Sun?

If you subscribe to the art of war approach to the tech sector, Ellison's move to buy Sun makes a lot of sense. To wit:

  • Oracle gets to annoy IBM---and own Java---over a few pennies a share more than Big Blue was willing to pay.
  • Oracle gets to kill MySQL. There's no way Ellison will let that open source database mess with the margins of his database. MySQL at best will wither from neglect. In any case, MySQL is MyToast.
  • Sun has a big installed base. All the better to upsell applications into. 
  • Oracle's database runs on Solaris systems. Oracle fine tunes the systems, charges a premium and ditches the low-margin hardware. 
  • And speaking of hardware. Sun's manufacturing is outsourced so there isn't a lot of baggage---real estate, equipment and labor---to worry about. If Oracle decides to milk then wind down the hardware business it's relatively easy. 

And Sun was relatively cheap compared to Oracle's other acquisitions. The price was above the Hyperion buyout but below PeopleSoft and Siebel. 

Making Sun more efficient

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."

Catz said Oracle will fund the Sun purchase with a mix of cash and debt. Catz added that Oracle will "run Sun at substantially higher margins."

That statement is pretty heady given that Sun is losing money

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 could 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" and noted he was "thrilled" about the deal. 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.

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175 comments
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  • Bye, MySQL (nt)

    .
    honeymonster
    • Agreed. That was my first thought

      So it looks like my recent choice to move from mySQL to PostgreSQL for an FLOSS database was a good one.
      markdean
      • I doubt they'll get rid of it

        They'll use it to pull in the low end customers; Oracle needs something
        that reaches right down into the 100 person organisation. Their current
        line up are too beefy and expensive for those customers MySQL with
        some TLC could step in and fill that niche. Provide some sort of
        transition path which allows a gradual upgrade to the big Oracle
        database server once they've outgrown MySQL and they'll win long term
        customers over.
        Kaiwai
        • Did MS get rid of Access?

          I agree with you, Oracle with use MySQL much like Microsoft uses Access/Jet to get up sells every time an Access DB goes multi-user. Except that MySQL isn't nearly as crippled as Access, so the up sell will occur (roughly) when department-level databases grow to enterprise scale. MySQL will be alive and well in its niche, but any push to make MySQL an enterprise database is probably over.
          shis-ka-bob
          • Probably...

            They'll probably keep maintaining it, adding the occasional feature but I
            don't see them putting any major investment to make it scalable or
            enterprise ready. At the end of the day - they want a product that is
            good enough for that segment as so long as it doesn't cannibalise the
            high end.

            At the same time, however, there are very few service providers for
            MySQL so it'll be pretty much up to what Oracle is willing to provide. As
            'fun' as MySQL is, its never going to read the sort of scalability of Oracle
            without massive investment; something that will never occur because
            making money back would be so difficult.
            Kaiwai
          • How about forking MySQL?

            Couldn't someone out there fork MySQL and begin development on a fully open-source free database for the enterprise? Does MySQL's license permit this? If so, this seems like the logical next step. It would be a shame if MySQL died a lot death due to Oracle trying to protect its DB business.
            Tiggster
          • No need

            [i]Couldn't someone out there fork MySQL and begin development on a fully open-source free database for the enterprise?[/i]

            That database already exists, and it's called PostgreSQL. :)
            parrotta
          • Re: How about forking MySQL

            @parrotta Errmm... no. PostgreSQL is in no way MySQL fork.
            fadzlan@...
          • @fadzlan

            [i]Errmm... no. PostgreSQL is in no way MySQL fork.[/i]

            I never said that PostgreSQL was a MySQL fork. I simply stated that there was no need to grow MySQL into a "fully open-source free database for the enterprise" when PostgreSQL already fulfills that requirement -- AND more.

            I apologize for the ambiguity.
            parrotta
          • Not the same

            MySQL is a full function multi-user database that competes with Oracle (for the most part, I concede that most people looking at MySQL can't afford Oracle). MySQL is likely to get squashed.
            bmonster
          • I don't believe this is even Oracle and not IBM.

            But, this their forum to move and shake on. the thought of Selling off Sun's debdt makes me believe in My SQL and Microsoft as a larger stakes player ; even in proxy. I think Oracle just bought their way into the EU's profit for software program.
            Zurk_Orkin
        • When has Oracle ...

          ... been known for their TLC? Or Sun for that matter?

          [i]Their current line up are too beefy and expensive for those customers MySQL with some TLC could step in and fill that niche[/i]
          RationalGuy
          • You can TLC with an axe

            just hack where there are fewer nerves...

            Farewell MySQL... :(
            T1Oracle
          • Oracle won't kill MySQL

            Oracle will keep MySQL alive rather than alienate its established user base in the web application development realm. And because Oracle wants to represent itself as being friendly with the open source community (particularly the segment of the market that runs Oracle on Linux, even if those shops may also employ MySQL). But Oracle won't invest in beefing up high-end capabilities that would threaten its own franchise in the enterprise, and certainly the sales force won't push it in that direction. Those organizations who have adopted MySQL as a true substitute for Oracle will get steered back toward commercial DB options from Oracle.
            davidfcarr
          • Correct.

            Larry was never known for TLC.
            Your comment about "hack where there are fewer nerves" maybe the brain is a good place. The brain has no pain nerves so you can "lobotomize" at will.
            phatkat
        • It's called Postgresql...

          And yeah, it's a LOT better than MySQL, and more compatible with oracle's dev practices.
          Spiritusindomit@...
        • I'll second that: Low-end customers

          Perfect for the emerging home server market, and non-tech small business, too. Keeps the base package cheap and they can make a ton of $$$ for adding a warantee with customer service, etc.
          i1abnrk
    • I could see it both ways...

      Kill and and try to force people onto Oracle DB or give it away and sell the management tools. But looking at their flaky SqlDeveloper tool I don't think it would sell.

      MySQL has already forked I believe as one of the original guys on the project did not like how Sun was releasing code that was not ready. It may take another name but those in the know will know.
      storm14k
      • Kill?

        There is no way you can kill something that's open source. I am disappointed in that writer does not seem to understand this...

        As for future, who knows? It can go either way. I used MySQL in last century, hopefully I'll do so in this one too.
        tonci100
        • I agree

          MySQL was a thorn in Oracle's side; if they kill it, it will just grow in the wild again and come back to be another thorn. On the other hand, if they keep it they can direct it and integrate it into their middleware, making it an asset and keeping it out of the domain of it's big, $$$ installations. I have been recommending MySQL as a front end for large Oracle DBs for years now, I don't see why Oracle can't as well.

          In the words of Lynden B. Johnson referring to J. Edgar Hoover, "It's better to have him inside the tent pissing out, than outside pissing in."
          914four