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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Pipe dreams...
Similar to Apple's oft-rumored death/bankruptcy/buyout, the same thing can also be said for Novell - it just won't happen.

Here's why:
1) There are too many Novell-centric shops out there that can guarantee Novell business for decades to come.
2) Novell's management is very stubborn - unlike other companies, it's board and management are very much commited to making the company succeed. They don't sell out that easily.
3) Novell is in the middle of re-inventing itself, and spreading roots out into the Linux world - a transition that will take years to accomplish.
4) Novell is not in any dire straits. With over a billion dollars in cash reserves, and income in the green, Novell is actually profitable for a change.
5) Lastly, Sun's commitment to open source Linux is still cryptic at best. Will there, or won't there be any support for Linux? At $2Billion, that's an expensive bet for a company with such a limited amount of commitment to Open-Source Linux.
6) There are smaller, easier, and cheaper fishes for Sun to aquire outside of Novell - plus, they don't come with any NDS - centric baggage Sun will have to support.
Posted by Tex Murphy PI (165 comments )
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Solaris on x86 is a better bet
Sun wasn't willing to pay $200m for SuSE a few months ago (losing bid to Novell), but it is suddenly willing to pay $2.6bln for Novell just to get SuSE?

Red Hat dominates the Linux server OS today, while SuSE is a very distant 2nd. But if we think outside the box, there's a Linux-like alernative: Solaris x86.

Solaris x86 offers far more potential. Despite Sun's attempts to choke off Solaris x86 years ago, there are still alot of users running Solaris x86. Sun is far better off rejuvenating this installed base (e.g. upgrading to Opteron)and building ISV support around Solaris x86. Why would ISVs support Solaris?....

Well, the ISVs know that x86 with 64-bit extension platform will be a big growth market for the next several years. More importantly, if customer run an app on x86+64, they would over time migrate that app to true 64-bit. So if I'm an ISV, I need to get my foot in the x86+64 platform or stand to lose migratory customers in the future! So, ISVs gonna have to recompile their 64-bit CRM/ERP/SCM/database apps for 32-bit w/64-bit extensions platforms anyway. By defintion, there aren't many apps on 64-bit Windows (the OS doesn't even exist yet!), which leaves apps currently ported to Linux and UNIX ripe for re-compiling....Only one UNIX flavor runs on x86. Solaris. Sun has no competition here. All they have to do here is:

1. Build ISV support for Solaris x86
2. Qualify Solaris x86 on x86 and Opteron hardware. Developing their own Opteron boxes was a good move.
3. "Open source" Solaris.
3. Price Solaris x86 at or below what Red Hat charges for annual subcription.
Posted by (1 comment )
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purchasing Novell for that amount would be a bargain
Novell has plenty of things going for itself (certainly with others shooting themselves in the foot all of the time). Those who do their research well know this. So if Sun could purchase Novell for just $3B they would do their shareholders a big favor (provided Sun doesn't mess with this speeding up train). But I doubt that Novell's management will be so stupid to sell out that cheap. If ever. Since enemy and friends agree, Novell is a survivor simply because they have the right stuff that no-one else provides. Time and time again. Because if they didn't have that ability all along they wouldn't be were they're today.

Small hint: they just acquired Salmon. Well... maybe not that small... It's a whole new world out there.

Keep in mind the home state of Novell. If the forces of nature and all the other stuff that happened to them in the past couldn't break Novell then what will? Don't say others haven't tried their utmost best. You see, it's really about attitude that makes the difference. A difference that matters. A difference that makes the difference.
Posted by arthur-b (31 comments )
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Sun and Options
In response to the first post: The acquisition of Novell makes sense because Novell has an agreement with IBM. Suse linux was not the default IBM standard until Novell had it. Remember, Linux is given away free. It is not an asset. The contract with IBM is the asset.
Posted by David Arbogast (1709 comments )
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