Oracle Will Buy Partner Sun Microsystems for $7.4 Billion
After a false start with IBM, Sun Microsystems has agreed to be acquired by Oracle for $7.4 billion. Oracle sees long-term advantages to acquiring two key Sun software assets: Java and Solaris.
Java is one of the most widely deployed technologies in the computer industry. Oracle called it the "most important software" it has ever acquired. Oracle Fusion Middleware is built on top of Sun's Java language and software.
Oracle expects the Sun acquisition to contribute more than $1.5 billion to its operating profit in the first year alone, and increase to more than $2 billion in the second year. That would make the Sun acquisition more profitable in per-share contributions in the first year than its acquisitions of BEA, PeopleSoft and Siebel combined.
Optimizing Oracle's Database
With the acquisition, Oracle will hold rights to the Sun Solaris operating system, which is the leading platform for the Oracle database, Oracle's largest business. With the acquisition of Sun, Oracle said it can optimize its database for some of the unique, high-end features of Solaris.
"The acquisition of Sun transforms the IT industry, combining best-in-class enterprise software and mission-critical computing systems," said Oracle CEO Larry Ellison. "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."
Oracle and Sun have been industry pioneers and close partners for more than 20 years. Sun sees the merger as a natural evolution of this relationship. In fact, Sun CEO Jonathan Schwartz called it a fantastic day for Sun's customers, developers, partners and employees across the globe.
"From the Java platform touching nearly every business system on earth, powering billions of consumers on mobile handsets and consumer electronics, to the convergence of storage, networking and computing driven by the Solaris operating system and Sun's SPARC and x64 systems," Schwartz said. "Together with Oracle, we'll drive the innovation pipeline to create compelling value to our customer base and the marketplace."
Plans for Sun Hardware
Dana Gardner, principal analyst at Interarbor Solutions, said Oracle is a much better match for Sun than IBM. What's more, the merger creates a meaningful long-term counterweight to Big Blue's size and influence around the world. Where there were potential antitrust concerns with IBM acquiring Sun, Oracle's acquisition sets the stage for greater competition with IBM for productivity and value in technology.
For all the talk about Sun's software, though, Oracle didn't mention any plans for Sun's hardware business. "Oracle has made it pretty clear that it doesn't want to be in the hardware business and that it prefers to partner with hardware providers," said Gardner, who is betting that Oracle will spin off Sun's hardware assets and either partner with or sell them to a company like HP.
"Customers and users of Sun will now breathe a sigh of relief," Gardner said. "The way in which Oracle handled its acquisitions over the years has shown that the company wants to take care of these customers. This is as good an outcome as we could have had."
Sun's board unanimously approved the transaction. It's expected to close this summer, subject to Sun stockholder approval, certain regulatory approvals, and customary closing conditions.