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Oracle, entering hardware arena, agrees to buy Sun for US$7.4B

Elizabeth Montalbano | April 21, 2009
Ellison said Java, Solaris were main reasons for acquisition

"We will be able to tightly integrate the Oracle database to some of the unique high-end features of Solaris, engineering them to work together and for the first time to deliver complete, integrated computer systems -- database to disk -- optimized for high performance, improved reliability, enhanced security, easier management and a lower total cost of ownership," Ellison said.

Sun Chairman Scott McNealy, who has shared a stage with Ellison on numerous occasions in the companies' more than 20-year partnership, said Sun and Oracle share many common interests that will make the union a symbiotic one for customers.

"From day one Sun has believed in openness and innovation," he said. "We both believe in the value of R&D, openness, standards, community [and] delivering a complete solution. ... Today marks the next big step in that effort."

Despite his optimism, however, the deal is undoubtedly a personal blow for McNealy, who came up alongside Ellison as a maverick of the technology industry. For years, the two led their companies as the more outspoken of Silicon Valley's executives, shooting barbs at their common enemy Microsoft and even at each other from time to time. Giving up a company he co-founded to Ellison could not have been an easy decision for McNealy.

Ellison said that Oracle tends to integrate acquired companies very quickly into the existing organization, and will do the same with Sun once the deal closes. The deal is subject to regulatory and shareholder approval.

Oracle said the Sun deal should bring the company more revenue in the first year than the company planned for its acquisitions of BEA Systems, PeopleSoft and Siebel combined. Sun should contribute $1.5 billion to Oracle's non-GAAP operating profit in the first year, a number that will increase to more than $2 billion in the second year, the company said.

For Sun, the deal will bring an end to CEO Jonathan Schwartz's efforts to turn the struggling company around. Sun's sales have been declining since their peak during the dot-com boom, as customers turned away from its pricey Unix servers in favor of x86 systems. Sun's share price has also fallen sharply.

Efforts to attract new customers with open-source software, and Sun's belated decision to enter the x86 market, have not paid off fast enough to give it the boost it needs.

With Sun on board, Oracle now will have to figure out how to navigate the server OS and hardware business. In addition to supporting Solaris for many years, Oracle also supports its software on Linux. Though Sun's hardware does not have the reach that its former suitor IBM's does, the deal gives Oracle a combined hardware/software business model more akin to IBM's, with which it now competes in the database market.

(James Niccolai in San Francisco contributed to this report.)

 

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