In a move that could transform the IT industry, Oracle on Wednesday announced it has finalized its $7.4 billion acquisition of Sun Microsystems. Oracle held an all-day event to offer more details on its plans, which include delivering open and integrated systems where all pieces fit and work together out of the box.
Oracle's initial plans are to invest in Sun's hardware business, which includes adding 2,000 new sales and engineering professionals. The other side of the labor coin is that Oracle will lay off less than 2,000 of Sun's 27,596 employees over the next few months. Long-term layoff plans have not bee revealed.
Oracle will focus on UltraSPARC Solaris-based servers, along with storage and networking products and clustered offerings around Intel and AMD x64 solutions. Oracle also plans to continue supporting existing Sun product lines.
"Given their 20-plus-year history and numerous shared customers, surely Oracle 'gets' Sun's technologies and company culture in ways that other vendors cannot. Right? Maybe and maybe not," said Charles King, principal analyst at Pund-IT. "On the plus side, the pair's long, close association should aid their integration and help drive new and future synergies and product development. In other words, the pairing looks good technologically."
A Challenging Marriage
Despite the plus side, King said truly merging Oracle and Sun will have its share of challenges. For starters, there are sharp differences between the software and hardware businesses. Oracle has never demonstrated much understanding of the hardware business, King said, and a successful merger will depend on experienced people who not only have that understanding but who can also navigate the personnel issues on the Sun side.
There's also the challenge of Sun customers thinking UltraSPARC is on a short road to nowhere. In the short term, King said, falling faith in Sun hardware would impact
Oracle's bottom line -- not to mention undercutting Oracle CEO Larry Ellison's claims that Sun assets will become immediately profitable. Migrating to IBM, Hewlett-Packard and Dell systems also exposes customers to alternative database platforms, King noted.
"While the dangers here seem clear enough, Oracle's management of clients in past acquisitions has been anything but seamless, as a close reading of the PeopleSoft deal will attest," King said. "Finally, while much of the talk around the acquisition will focus on how Sun will be transformed under Oracle, it should be remembered that Sun will also be transformative to Oracle."
Sun's Impact on Oracle
As King sees it, the vision Oracle lays out for Sun's role in the future is vital as the integration moves forward. As always, there are many issues to navigate post-merger. For example, Oracle's decision to bring Sun's 4,000 largest and most profitable clients in-house could complicate its relationships with Sun's partners, King said.
King is also curious to see what position Sun founder Scott McNealy takes in the melded organizations in light of the important role he played with Sun's crucial public-sector clients. King is betting Oracle will use Sun's technology and human assets to better compete in the world of increasingly consolidated enterprise systems vendors.
"What will eventually define the success or failure of the deal is whether Oracle uses the Sun acquisition to evolve into an essentially new and more innovative organization," King said. "On that point, the jury is still out."