Can Oracle make sense of Sun's hardware?

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Deal described as highly complementary

By Tom Sullivan | San Francisco | Tuesday, 21 April, 2009

Oracle is taking a leap into hardware with its buy of Sun Microsystems. And so the question: can software-centric database and applications vendor Oracle succeed with Sun's hardware business?

"I'll hand it to Larry Ellison, that man can shop," said Laura DiDio, principal analyst at research and consulting firm Information Technology Intelligence Corp (ITIC). "This deal is very, very complementary for Oracle. It gives them instant credibility with hardware, virtualisation, open source, storage, and cloud computing."

Industry acquisitions in the tech realm and elsewhere, however, are filled with stories that begin with promising credibility and end in anything but. Compaq's purchase of the former giant Digital Equipment (DEC) tops that list. For Oracle, adding Sun's technologies to its collection means stepping into fields where it's not been before, namely hardware.

Even though Sun's hardware sales have flagged ever since the first dot-com bubble burst earlier this decade, the company's servers still have a massive installed base, said Chris Ingle, consulting director for IDC's European Systems Group. It will eventually give Oracle a good opportunity to convince those customers to upgrade to new systems in the coming years. "There's a lot of money there," Ingle said. "There's a lot of loyalty there."

There's also a history of Sun's Solaris and hardware servers being the leading platform for Oracle's database. And tightening that relationship is appealing, said Andre Preoteasa, director of IT at alcoholic beverage company Castle Brands, "especially after the next generation of hardware comes out. I would think the hardware would be optimised for Oracle databases or at the least the possibility of Oracle troubleshooting the hardware in addition to the software."

But Oracle's vision of a seamless flow from the hardware to an operating system to applications may be harder to realise because businesses often use heavily customised applications, and it's rare that a few appliances and accompanying software are ready to go to work out of the box, IDC's Ingle said. That integration is also where vendors make most of their money, he added.

Whether Oracle can succeed in the hardware fray depends on how it proceeds with Sun, ITIC's DiDio said. "Sun may have had marketing problems over the last several years, but they have excellent technology and superior support. If Oracle leaves the technology alone — like Hewlett-Packard did with Compaq — if they let Sun be Sun, they should be able to thrive," DiDio added. "What you wouldn't want to see Oracle do is scatter its energies."

It's too early to tell exactly what Oracle will do with Sun, but Forrester Research vice president Ray Wang said that "despite scepticism, Oracle has made [prior] acquisitions work from a financial perspective, with year-over-year quarterly profit growth that has generally been well above 20 percent."

Part of the reason for that success, Wang said, is that Oracle has two former investment bankers among its top corporate ranks. "Oracle has one of the best post-merger integration teams in the business. Oracle has been able to add new companies and their stream of revenues while keeping costs down."

Indeed, Oracle has been on a buying spree for the last several years, acquiring high-profile software companies BEA Systems, JD Edwards, PeopleSoft, and Siebel. Oracle on Monday agreed to pay $9.50 per share, or about $7.4 billion for Sun. Just two weeks ago, Sun rejected a buyout offer by IBM, saying its price of $9.40 per share, which totaled about $7 billion, was too low. At the time, many industry analysts speculated that Sun would struggle to find another buyer and ultimately be forced to agree to a much lower price.

"What's amazing is the elasticity, the speed with which Sun shifted from one suitor to another," ITIC's DiDio said. "That was faster than Madonna."

Jeremy Kirk of the IDG News Service and Rob O'Neill of Computerworld NZ contributed to this report.