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Come early December, Oracle will meet with European Commission regulators to urge their approval of its merger with Sun Microsystems. "Two people with knowledge of the matter" tell Reuters that "Oracle has asked for a hearing which has been fixed for December 10."

Should make for an interesting meeting given Oracle's refusal to take the EC's concerns about the future of Sun's MySQL database seriously. Certainly, it's difficult to imagine Oracle caving to the Commission's demands when it has criticized the group's findings as a "profound misunderstanding" of the database market and open source.

And if not that, then what? Would Oracle abandon the deal instead? That too seems unlikely because it would mean delaying CEO Larry Ellison's plan to transform Oracle into the next IBM. As Ellison said in October, "T. J. Watson's IBM was the greatest company in the history of enterprise in America because its combination of hardware and software was running most of the enterprises on the planet. We think with the combination of Sun technology and Oracle technology we can succeed and beat IBM. That's our goal."

Given the EC's concerns about the Sun acquisition and Oracle's refusal to address them, what other option is there?

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The European Commission on Monday formally dug in its heels over Oracle's planned acquisition of Sun Microsystems, but Oracle accused the regulatory body of "profound misunderstanding" in a rebuttal that declared its intention to fight the opinion.

The regulatory body issued a statement of objections about the merger, according to a Securities and Exchange Commission filing from Sun Microsystems. The open-source MySQL database software is the sole issue of concern in the matter, Sun said in the filing.

"The Statement of Objections sets out the Commission's preliminary assessment regarding, and is limited to, the combination of Sun's open source MySQL database product with Oracle's enterprise database products and its potential negative effects on competition in the market for database products," Sun said in the filing.

Oracle, though, fired back immediately, saying the objection "reveals a profound misunderstanding of both database competition and open-source dynamics." And indicating that other technologies are in limbo during the European deliberations, Oracle said, "Oracle's acquisition of Sun is essential for competition in the high-end server market, for revitalizing Sparc, and Solaris and for strengthening the Java development platform."

Meanwhile, the U.S. Justice Department reiterated its stance that the acquisition isn't anticompetitive. But given the gulf between Oracle and EC perspectives and Oracle's unwillingness to spin the MySQL software group off, it appears the matter won't be resolved soon.

MySQL is open-source software, meaning anyone may see, modify, and distribute the human-readable source code that underlies the software package computers actually run. Oracle's core database product is proprietary, meaning they don't grant those freedoms. MySQL is used widely at Facebook and Google among other companies, and competes to some extent with Oracle's existing products, arguably indirectly by expanding into newer markets to which Oracle's software isn't as well-suited.

Oracle castigated the commission in its statement:

It is well understood by those knowledgeable about open source software that because MySQL is open source, it cannot be controlled by anyone. That is the whole point of open source.

The database market is intensely competitive with at least eight strong players, including IBM, Microsoft, Sybase and three distinct open-source vendors. Oracle and MySQL are very different database products. There is no basis in European law for objecting to a merger of two among eight firms selling differentiated products. Mergers like this occur regularly and have not been prohibited by United States or European regulators in decades...

Sun's customers universally support this merger and do not benefit from the continued uncertainty and delay. Oracle plans to vigorously oppose the Commission's Statement of Objections as the evidence against the Commission's position is overwhelming. Given the lack of any credible theory or evidence of competitive harm, we are confident we will ultimately obtain unconditional clearance of the transaction.

The Justice Department, which is in Oracle's camp, detailed its reasoning in a statement from Deputy Assistant Attorney General Molly Boast of the Justice Department's Antitrust Division.

And though Boast pointed to the department's "strong and positive relationship on competition policy matters" with the EC, she also said, "At this point in its process, it appears that the EC holds a different view. We remain hopeful that the parties and the EC will reach a speedy resolution that benefits consumers in the commission's jurisdiction."

The Justice Department reasoned that there are other database packages available and that open-source projects can be forked by those who disagree with corporate sponsors' handling of the software.

"Several factors led the (Justice Department's antitrust) division to conclude that the proposed transaction is unlikely to be anticompetitive. There are many open-source and proprietary database competitors. The division concluded, based on the specific facts at issue in the transaction, that consumer harm is unlikely because customers would continue to have choices from a variety of well established and widely accepted database products," Boast said. "The department also concluded that there is a large community of developers and users of Sun's open source database with significant expertise in maintaining and improving the software, and who could support a derivative version of it."

Oracle is taking a hard line in dealing with European Union objections to its planned acquisition of Sun Microsystems, according to a Financial Times report Tuesday.

EU antitrust regulators are concerned that Oracle, which has a large business in proprietary software, won't be a good home for Sun's open-source MySQL database business. According to the report, Oracle is unyielding, offering no concessions to deal with the EU's concerns.

That stance could lead the regulators to issue a formal complaint objecting to the deal, and that move could occur within days, according unnamed sources in the story. Neither the EU or Oracle commented for the story.

MySQL's former chief executive, Marten Mickos, has urged the EU to approve the acquisition, but cofounder Monty Widenius has objected. Sun shareholders and the U.S. Justice Department have approved the deal.

Sun Microsystems plans to cut as many as 3,000 jobs, or about 10 percent of its global workforce, during the next year as it prepares for Oracle's takeover of the company.

The cuts, revealed on Tuesday in a filing with the U.S. Securities and Exchange Commission, represent the second major round of layoffs in a year for the server maker. Sun announced restructuring plans last November to cut up to 6,000 jobs this year, or 18 percent of its global workforce.

Those cuts were disclosed before Oracle announced its $7.4 billion bid for Sun in April, following Sun's rejection of overtures from IBM. IBM was still interested in Sun and somewhat blindsided by Oracle's move, a source told CNET News at the time.

The U.S. Justice Department approved the takeover in August, but the merger still requires approval by the European Commission, which is concerned that the deal could threaten competition in the database market in the European Economic Area (EEA), an association composed of 30 European countries. The Commission has until January 19 to make a final decision on the merger.

Meanwhile, the delay is causing financial turmoil for Sun's business. Oracle CEO Larry Ellison said at an industry gathering in Silicon Valley last month, "Sun is losing $100 million a month; we'd like to get this thing done."

The acquisition is part of a change in thinking for Oracle, which, at one time, eschewed mergers but has gone on a buying spree in recent years, gobbling up PeopleSoft and many other software companies. Ellison at one time specifically rejected the notion of buying Sun.

Sun said in the filing that it expects to take $75 million to $125 million in restructuring charges over the next several quarters.

An Oracle representative did not immediately respond to requests for comment.

Former MySQL leader Mårten Mickos on Thursday urged European Union regulators to approve Oracle's acquisition of Sun Microsystems and its MySQL database group, arguing that further waiting undermines the very competitiveness the EU is trying to protect.

In a letter to Neelie Kroes, the European Commission's commissioner for competition, Mickos said the regulators were correct to question whether Oracle buying Sun and its open-source database software would harm the market. But Mickos, who ran MySQL from 2001 until 2009, believes that the Oracle acquisition won't hurt competition--and that holding the acquisition up will:

"Every new day of uncertainty is potentially very harmful to the various businesses of Sun, reducing competition in the market. A delay in the closing of this transaction is therefore only going to work against the respectable goal that you set out to achieve when launching the probe into this acquisition," Mickos wrote in the letter. (See this separate post with the full text of Mickos' letter to the EU.)

Mårten Mickos, surrounded by inflatable MySQL dolphin mascots.

(Credit: Benchmark Capital)

It's not clear what effect Mickos' letter will have on the regulators, but Mickos knows MySQL's business well, and Oracle can use any help it can get in dealing with the acquisition. The U.S. Department of Justice approved the Sun acquisition in August.

Mickos, now entrepreneur in residence at Benchmark Capital, said in an interview that he no longer has anything financially to gain from the transaction. Instead, he's motivated now by trying to help the employees still at Sun--and moreover, its MySQL unit--urging rational discussion about the matter.

"I couldn't live with the fact that I'm not taking action," Mickos said.

Mickos declined Oracle's advances when MySQL was independent, but he agreed to Sun's acquisition in 2008.

In September, the European Commission said MySQL was at the heart of its investigation of the Sun acquisition:

The Commission's preliminary market investigation has shown that the Oracle databases and Sun's MySQL compete directly in many sectors of the database market and that MySQL is widely expected to represent a greater competitive constraint, as it becomes increasingly functional.

The Commission's investigation has also shown that the open-source nature of Sun's MySQL might not eliminate fully the potential for anticompetitive effects. In its in-depth investigation, the Commission will therefore address a number of issues, including Oracle's incentive to further develop MySQL as an open-source database.

Oracle Chief Executive Larry Ellison said MySQL competes in a different part of the database market than Oracle's existing products and that Oracle has no plans to spin MySQL off into a separate company.

Mickos summarized his argument this way:

1. Oracle has as many compelling business reasons to continue the ramp-up of the MySQL business as Sun Microsystems and MySQL previously did, or even more.

2. Even if Oracle, for whatever reason, would have malicious or ignorant intent regarding MySQL (not that I think so), the positive and massive influence MySQL has on the DBMS market cannot be controlled by a single entity--not even by the owner of the MySQL assets. The users of MySQL exert a more powerful influence in the market than the owner does.

MySQL is used to power large-scale Web sites with many servers, a role for which Oracle's back-end database software isn't suited, he argued. It's therefore in Oracle's interest to boost the MySQL business, Mickos said.

As evidence for his case, Mickos pointed to Oracle's 2005 acquisition of InnoDB, whose database engine software is used within MySQL. "Oracle increased their investment in InnoDB since that time, making MySQL a stronger player in the market," he said.

And perhaps reflecting his new role at a venture capital firm, Mickos concluded with a note about the broader effect of the EU's actions:

"If...it becomes difficult or impossible for large companies to acquire open-source assets, then venture investments in open-source companies will slow down, harming the evolution of and innovation in open source, which would result in decreased competition," he said.

MySQL is in safe hands with Oracle, at least according to CEO Larry Ellison.

At an industry gathering in Silicon Valley Monday, the Oracle chief spoke about the legal clouds hovering over the Sun-Oracle deal. Although Sun is losing $100 million a month due to the delay in consummating the merger, he insisted that Oracle will not spin off MySQL just to win approval from the EU.

Interviewed at a Churchill Club event by former Sun and Motorola chief Ed Zander, Ellison maintained that despite EU concerns, Oracle's database does not compete with MySQL.

"MySQL and Oracle do not compete at all," said Ellison. "If you look at where we compete it's with DB2, Microsoft's SQL Server, Sybase, and a long list of others. We never compete against mySQL, it addresses very different markets."

Ellison pointed out that the U.S. Justice Department has already okayed the merger as pro-competition and that once the EU does its job, it will come to the same conclusion. He expressed the need to complete the deal quickly to keep Sun going and to save as many jobs as possible. "The longer this takes, the more money Sun is going to lose," said the CEO.

Ellison also addressed concerns that Oracle might jettison Sun's hardware business.

"We are keeping everything," said Ellison. "We're keeping tape. We're keeping storage. We're keeping x86 technology and SPARC technology--and we're going to increase the investment in it. Sun has fantastic technology. We think it's got great microprocessor technology--it needs a little more investment, but we think it can be extremely competitive."

The Oracle chief laid out his plans for the future of a combined Sun-Oracle. He sees the new entity as not a hardware or software vendor, but as a systems company. As a leading example to follow, he cited the old IBM.

"I would like us to be the successor to IBM," he said. "Not Gerstner's IBM. Not Palmisano's IBM. But when IBM was the dominant software company in the world and translated that to being the dominant systems company."

Now Ellison believes he can successfully compete with IBM. "We think with the combination of Sun technology and Oracle technology we can succeed and beat IBM," he said, "That's our goal."

Ellison also countered the claim that HP and IBM have taken advantage of the regulatory confusion to steal customers from Sun.

"IBM said it's got 250 customers from Sun," Ellison said. "What does that mean? I don't think there's a single example of any customer who replaced all their Sun machines with IBM. Solaris is way better than AIX, and Sun machines are faster than IBM's and they cost less."

How much longer will Ellison extend his 32-year career at the helm of the company he co-founded? "I'll go for five more years and see how it's going," he said.

The $7.4 billion Sun-Oracle merger has been in a holding pattern since the EU opened an in-depth investigation earlier this month. The EU has given itself a deadline of mid-January to render a final decision, potentially putting the deal months behind its original closing date of mid August.

Oracle is touting its alliance with Sun.

(Credit: Screenshot by Stephen Shankland/CNET)

Oracle isn't letting a pesky EU investigation stand in the way of its planned acquisition of Sun Microsystems.

Larry Ellison, the software giant's chief executive, is joining Sun's server chief, John Fowler, to show off some new Sun hardware running Oracle's software on Tuesday. The companies are touting their "partnership" with a jointly branded "Exadata" system shown in a Webcast invitation sent to press and published by both Oracle and Sun.

"You are invited to attend an exclusive webcast event where Oracle CEO Larry Ellison will unveil an innovative new product, the world's first OLTP (online transaction processing) database machine with Sun's brand new FlashFire technology," the invitation said. "Don't miss this opportunity to learn firsthand how the partnership between Oracle and Sun can benefit your business now and in the future."

Sun has been working on systems that take advantage of solid-state drives (SSDs), which use flash memory to store data rather than traditional hard drives with rotating platters that can store data in tiny magnetic patches. One advantage of such systems is that it's easier to retrieve data scattered in different locations over a drive, which can make reading and writing data faster. However, flash drives cost much more per gigabyte to store data than traditional hard drives.

Notable here is that Oracle is helping preserve the value of the asset it hopes to acquire. As Illuminata analyst Jonathan Eunice observes, Oracle is trying to counteract IBM and Hewlett-Packard programs to steal away Sun customers who might be hesitating over Sun's current limbo and its inevitable future changes.

Oracle is of course a software company, and one of its biggest challenges in acquiring Sun will be embracing hardware as well, even if it's in some subordinate role that mostly serves as a delivery vehicle for the software. Hardware still takes immense resources to design, qualify, test, manufacturer, and support to compete on the level of IBM and HP.

Tuesday's event telegraphs that Oracle does indeed care about Sun's hardware. So do marketing missives proclaiming that Oracle plans to spend more money developing both servers with Sparc processors and Sun's Solaris operating system than Sun does today.

Oracle doubtless is frustrated by the EU's intransigence, which centers on the open-source MySQL database software that competes with Oracle's own core database product. But it's doing the best it can to keep Sun's hardware business alive.

The European Commission's decision to further probe Oracle's acquisition of Sun Microsystems has raised both questions and speculation.

Oracle said in April that it would acquire Sun, a server maker and software company whose assets include the open-source MySQL database. The deal has been approved by the U.S. Justice Department and by Sun's shareholders.

But the European Commission, the regulatory arm of the European Union, announced last week that it was opening an in-depth investigation into the $7.4 billion planned takeover, saying that a preliminary probe raised the specter of threats to competition in the database market. Oracle's enterprise software lineup includes the company's proprietary database applications.

The Commission has until January 19, 2010, to make a final decision on the Oracle-Sun deal.

But are the EU's regulators really concerned about the open-source future of MySQL? Or is there a larger agenda at play here?

Certainly, the in-depth investigation didn't come as a shock, says Gartner database analyst Donald Feinberg. "Nobody was surprised that this happened because this is coming from the organization that slapped Intel with a big fine and that went after Microsoft with a vengeance."

I recently spoke by phone, in separate conversations, with Feinberg and his Gartner colleague George Weiss to get their views on the Commission's action. This condensed Q&A folds together their responses.

Q: Since the EU/EC said they were further investigating the Sun-Oracle deal, there's been speculation as far as their motives. One of the EC's stated reasons is they're concerned that once Oracle has control of MySQL, there may be less incentive to further develop the product. Do you see that as the EC's motive, or do think there's more to the picture?
Feinberg: I think their statement that they're expanding their investigation proves that not only don't they understand anything about open-source software, but it proves beyond a shadow of a doubt that there's another agenda. If Oracle did what you just said--let's say they took the product, put it on the shelf, and didn't develop another line of code for it, Monty and Maria DB would become the new MySQL overnight. That's what open-source software is about. It has nothing to do with MySQL and everything to do with the fact that an open-source software product can fork anytime. If Oracle did nothing with the product or tried to destroy it, they would not be successful. You're talking about a product that has momentum in the marketplace. Now the problem is measuring that momentum in the marketplace. But the fact of the matter is they cannot destroy the product.

Q: And this is simply by virtue of the fact that it's open source?
Feinberg: Exactly. If Oracle decided to stop developing the Oracle DBMS, that would be the end of it because nobody else has the source code. Nobody else could do it. But the beauty of an open-source project is it's open source. Anybody can take it and move in the direction they want to move in. If you want to have an open-source product like MySQL, and Oracle is not going to nurture it and develop it and enhance it, then it will fork off and go somewhere else. So the whole premise the EC has, that Oracle could damage MySQL under the assumption that it's the leader in open-source DBMS, is wrong. Oracle will not do that. That would be a really stupid move, and Oracle's not stupid. Clearly the EC is using that for their agenda to look for ways to stop this deal. They're looking for ways to stop this deal because of other European companies who are putting pressure on the EC. The Commission is doing this on the part of the EU, and everybody else out there, including IBM and [Hewlett-Packard].

Q: What is the motivation for the EC itself?
Weiss: We have a pretty common position in Gartner that there is either a misunderstanding or lack of knowledge on the part of the EC where it feels open source can be used as a competitive threat in the market. ... That commission is there to protect the European vendors and opportunities for European common market members. There are vendors with databases that would find Oracle an intimidating presence and may be competing with Oracle not only on the database level but also on the applications level.

Feinberg: It's a political agenda. And although it's pretty strong, for a lack of better term it is the re-emergence of protectionism by a governing body of some organization. The EU is looking for how it can protect the companies in Europe.

Q: Can you give some examples of the companies in Europe?
Feinberg: SAP. Bull. Software AG. Fujitsu is Japanese, but it's big in Europe. There are many European companies that will get stiffer [competition] if Sun is invigorated, which is what would happen if Oracle buys them. Any hardware vendor that competes with Sun today is going to have a tougher time in the future, and the EU is trying to manage that, and they're wrong because that's not their job.

Q: How does the EC gather information or advice to make technology decisions like this?
Feinberg: Honestly, I don't know. You're talking about MySQL, whose revenues are about 0.4 percent of the DBMS market, and there is no other valid measure. Downloads are not a valid measure. The majority of the downloads of MySQL are done at the university and college level by students who use it every day. You can't take downloads and extrapolate that to people using the product commercially. The only measure that is accurate and valid is revenue from support. Now I will grant you that there are a lot of people using it without buying support. So that number, 0.4 percent, is incomplete. However, change it to an order of magnitude of difference, let's say, 4 percent of the market. It's still nothing. The market today is $18 billion that we're comparing this to.

Q: What about the comment from the EC that they see Oracle's databases and MySQL on a fairly even keel as if one competes with the other in the same market?
Feinberg: Not close. Oracle's more in the back office. Data warehousing. MySQL is a minuscule use of data warehousing. Oracle is one of the major vendors. So in data warehousing, they don't compete. In transactions systems, they don't compete. The only place where they overlap is in some of the non-mission-critical applications and in the Web-enabled applications where MySQL is much stronger than Oracle. By the way, my understanding is that part of the reason for these unfair-competition laws is a fear of lack of innovation. If somebody has a monopoly, they don't have to innovate. They can just collect money. Oracle released 11g R2 last Tuesday, the new release of their DBMS, and it's loaded with new functions, some of which are pretty major. So the argument about no new innovation goes away completely. The question that should be asked is not if MySQL gives them an unfair advantage in the market, but does it change the competition between Oracle and IBM, Oracle and Microsoft, Oracle and Sybase? It doesn't affect any of that. I'm not going to say that MySQL isn't going to take away some IBM, some Microsoft, and some Sybase low-end applications. But it doesn't change the major competition in the market for this stuff at all.

Q: Whatever the EC decides about this merger, MySQL is still out there. Wouldn't it pose a competitive threat either way?
Weiss: The only thing the EC may think about is "What if all the users of MySQL are suddenly invaded by an Oracle salesperson who says pay up?" Let's say Oracle creates certain anticompetitive practices in which they try to corral all of these millions of users on the MySQL database to be Oracle customers. Through open source, the only thing you pay for is the subscription support that you either want or don't want, regardless of what Oracle would like you to do. That's why you rarely see a very large monetized open-source vendor in the marketplace. Red Hat may be one of the largest. Maybe Sun could have been considered the largest because they have Open Solaris and Open Office. But in general, vendors have not been able to monetize open source into a billion-dollar business. If Sun couldn't do it, I don't know if Oracle could just because they happen to own another DBMS and then can create a multibillion-dollar business out of this at the expense of European markets.

Q: We've been hearing that IBM and HP have been using the confusion and uncertainty (about the eventual outcome of the planned Oracle-Sun merger) to their advantage. Have you been hearing the same?
Feinberg: Oh yes, absolutely, and not just IBM and HP. But all the hardware vendors that compete with Sun are trying to get Sun users to switch from their hardware platforms on the basis of the turmoil and uncertainty. I don't think it's a valid argument personally, but it's a good marketing technique. Part of the premise is that Sun is losing money like crazy. They had negative 40 percent growth last quarter. There's no question in my mind that this is going to affect that and make it worse. And at some point Oracle has to ask the question, do they still want to buy the company?

Q: Can they still back out at this point?
Feinberg: I don't know the terms of the agreement. It might cost them some money to back out. But of course, Oracle can back out. What happens if Oracle backs out is that Sun's in big trouble. ... With the negative growth they've had, with the uncertainty in the market, with the lack of confidence in Sun, if Oracle backs out of the deal, Sun's left hanging with nothing. So I think it would be devastating to Sun. And who would benefit? All the hardware companies out there, including the European hardware companies.

Q: When the EC says it's conducting an in-depth investigation, what further information can they gather that they don't already have?
Weiss: I don't know because anything that could have been documented out of the DOJ as far as due diligence could have been made available to them. There's lots of information with regard to the different forks that have occurred in MySQL. The only thing that remains is to aggregate this information and understand the working processes and business models that go on in open source and specifically in MySQL. It really would not take a whole lot of technical information; it would be more a business model understanding of how open source works.

Q: Is there anything Oracle can do or say to the EC in a situation like this?
Feinberg: The only thing that Oracle can say is: "Look at our track record. We bought InnoDB. It's an open source product. At the time it was used under a majority of MySQL installations and it still is. If we were doing something wrong with that product, people would stop using it." In fact, Oracle's enhancing it. They have not raised the price in the commercial end of it, and they're giving great support. They also bought a company called Sleepycat a couple years ago and acquired a DBMS called Berkeley DB, which is an open-source product. It's still sold by Oracle. It's enhanced by Oracle, and the customers are being supported by Oracle. So Oracle has bought two open-source products in the DBMS space and has not hurt either of them, but has in fact enhanced them. I suspect that most of the PeopleSoft people out there are getting great customer support today. Look at Oracle's track record of supporting their acquisitions going back to their first major acquisition. They bought a DBMS called RDB from DEC back in the early '90s. They still have people using RDB, and Oracle is still supporting it. It's not open source, but they didn't get rid of the product and didn't hurt the users.

Q: Do you think the EC is going to drag this out to the very end?
Feinberg: The only way they won't drag it out to the very end is if they yield to the market pressure, which they've got to be getting. I would suspect even Sun customers out there would like to see it done soon. So there's got to be market pressure for them to get it done earlier, and unless they yield to that, I think they will drag it right out as long as they possibly can. I don't think we'll see a solution to this until January or February. The only exception being if Oracle backs out, which they would probably do sooner rather than later.

Q: Do you think Oracle will stick it out?
Feinberg: My opinion is yes, I think they will. But again, you're giving into the political side of it, which is hard to predict. You have to ask yourself if Larry Ellison and Charles Phillips (Oracle's CEO and co-president, respectively) just get so fed up with this whole thing that they throw their arms up in the air and say it's not worth it. I would suspect the frustrations have to be running pretty high inside Oracle right now.

Q: If the EC doesn't approve this merger, what would mean for Sun and for Oracle?
Weiss: One scenario is that Oracle walks away from the deal. If MySQL is forced to be divested, or the EC exacts a certain toll from Oracle in penalties for monopolistic positions, Oracle will probably walk away. Sun is then thrust back again on its own looking for a suitor. We know Sun had suitors prior to Oracle. But it's unlikely anybody's going to help Sun out and acquire them like Oracle. That puts some difficult decisions for users on what to do if Oracle cuts Sun loose. Many of them are skeptical about what Oracle will do with Sun anyway. My sense from talking to the users of Sun equipment is that every day is burning a hole in their pockets in their willingness to purchase more Sun equipment. The longer it's postponed, the longer the users have to wonder whether this deal will go through and what the European Commission is going to do with the decision.

Server sales around the world dropped to $9.8 billion for the second quarter of the year, a fall of 30.1 percent from the same quarter in 2008, according to an IDC report released Wednesday.

The latest downturn marks the fourth consecutive quarter of lower sales and the weakest quarterly server revenue since IDC first started tracking the market in 1996.

Quarterly server shipments also fell 30.4 percent from 2008's second quarter and 26.5 percent from the first quarter of 2009, according to IDC's Worldwide Quarterly Server Tracker. The global recession is still forcing enterprise customers to hold off on server purchases, IDC said.

All three classes of servers tracked by IDC were hit by weaker sales for the quarter. Revenue for high-end enterprise systems tumbled 32 percent from the second quarter of 2008. Sales of midrange enterprise machines dove 28.1 percent, while volume systems slumped 30 percent. This marks the third consecutive quarter that all three segments showed a sales drop.

"Over the past four quarters, the worldwide server market has experienced significant revenue deceleration in all geographic regions as the economic recession has deepened," said Matt Eastwood, group vice president of Enterprise Platforms at IDC. "Fewer servers have been shipped over the past four quarters than at any time since 2005 and it is clear that the worldwide server installed base is aging rapidly."

In terms of market share, IBM again hit the top of IDC's list with a 34.5 percent slice of the market on server sales of $3.4 billion. Hewlett-Packard came in second with a 28.5 percent market share based on revenue of $2.8 billion.

Uncertainty about its future may have led to poor results for Sun Microsystems. The company, which has sealed a deal to be acquired by Oracle, sold only $981 million worth of servers in the quarter, for a 10 percent cut of the market. Sun suffered the highest revenue decline on the list, with a drop of 37.2 percent from the year-ago quarter.

"Non-x86 servers did poorly for the quarter overall, and since Sun's business is largely exposed to that segment it suffered because of it," said IDC research analyst Daniel Harrington. "Without a doubt there were also negative effects on their business due to 'Sun Attack' programs launched by both IBM and HP in an effort to go after those uneasy customers. I think you are starting to see the first signs of that in these numbers."

With an economic recovery in sight, IDC is forecasting a brighter future as customers begin to test the waters with new server purchases.

"In the weeks and months ahead, IDC believes that IT customers around the globe will begin to focus on the future once again," said Eastwood, "making strategic computer platform decisions for the next business cycle, and driving more predictable server demand as market conditions stabilize in the second half of 2009."