August 2, 2004 9:14 AM PDT

Sun mulls buying Novell

Sun Microsystems is toying with the idea of buying Linux seller Novell, saying that springing for the $2.64 billion company would hurt rival IBM.

"With our balance sheet, we're considering all our options," Sun Chief Operating Officer Jonathan Schwartz said in an interview Sunday regarding the possibility of acquiring Novell. "What would owning the operating system on which IBM is dependent be worth? History would suggest we look to Microsoft for comparisons."

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Glenn Edens, director, Sun Labs
IBM famously relied on Microsoft for an operating system for its personal computers. Schwartz said in a Sunday blog posting that IBM relies on Novell's SuSE Linux as an ally to keep No. 1 Linux seller Red Hat from growing too strong.

But several factors could reduce the likelihood of such an acquisition. First, though Sun has cash and marketable securities of $7.61 billion, Novell isn't cheap, with a market capitalization of $2.64 billion as of July 30.

And the Santa Clara, Calif.-based company had an opportunity to buy SuSE Linux for much less in 2003--indeed, Sun made an offer that Schwartz said forced Novell to increase its $130 million bid. Novell ultimately paid $210 million, receiving a $50 million investment from IBM as part of the deal.

In addition, Sun's Java Enterprise System server software heavily overlaps Novell's software line. Schwartz said Novell's non-SuSE products are "far less interesting."

Novell and IBM declined to comment on Sun's speculation.

The possible acquisition, word of which came on the eve of the LinuxWorld Conference and Expo in San Francisco, was first reported by the Wall Street Journal.

Since taking over as Sun's No. 2 executive, Schwartz has worked on several radical changes at Sun--for example, bringing its server software to rival operating systems and bringing its Solaris version of Unix to Intel's Itanium and IBM's Power processors.

Acquiring SuSE Linux, which runs on IBM's Power servers and mainframes, could speed Sun's effort to spread Solaris to other servers, Schwartz said.

Eventually, Sun plans to make Solaris open-source software.

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