There's been a lot of speculation that Oracle purchased Sun for its software assets like Java, Solaris, and--although this point has seen more debate--MySQL. Even those of us who viewed the acquisition as a serious play by Oracle to become a full-fledged system vendor figured those systems would be mostly x86. That's not to say Oracle would kill SPARC processor development and servers outright--the installed base is too large and profitable--but it would be a business to milk, not to invest in.
However, Oracle CEO Larry Ellison, writing in an e-mail interview with Reuters, claims to have big plans for Sun's server business--including its in-house processor design capabilities.
Ellison begins by stating that "we are definitely not going to exit the hardware business." It doesn't get much more definitive than that as to Oracle's overall strategy of being a systems company.
What Ellison has in mind here is integration. He goes on to write that:
While most hardware businesses are low-margin, companies like Apple and Cisco enjoy very high-margins because they do a good job of designing their hardware and software to work together. If a company designs both hardware and software, it can build much better systems than if they only design the software. That's why Apple's iPhone is so much better than Microsoft phones.
Those are fair points. And Oracle has itself experimented with hardware/software integration such as the Exadata Storage Server that uses HP hardware.
At the same time, the idea that you can be in the server business and only sell into the profitable niches strikes me as a notion that Oracle may not want to depend upon too much. (Cisco has made similar statements with respect to its Unified Computing System.) The history of the system vendor business going back at least a decade suggests that the most successful companies have supply chains and partner networks that allow them to sell pallets of small servers in addition to a smaller number of highly profitable large ones.
Ellison then goes on to make it equally clear that he's not interested in just bundling software and hardware but deeply optimizing the hardware when he writes: "Once we own Sun we're going to increase the investment in SPARC. We think designing our own chips is very, very important... Right now, SPARC chips do some things better than Intel chips and vice-versa."
By way of background, Sun's CMT SPARC chips are designed around a philosophy of handling many tasks in parallel even if it means that individual tasks may run somewhat slower than on a chip with fewer but more powerful cores. This approach lends itself well to workloads that involve a lot of relatively independent activities--such as Web and application servers. It also lends itself to very power-efficient designs.
But Ellison isn't just arguing that SPARC is good for some things and x86 is good for others. He's arguing for hardware that is truly optimized for Oracle software.
Some system features work much better if they are implemented in silicon rather than software. Once we own Sun, we'll be able to plan and synchronize new features from silicon to software, just like IBM and the other big system suppliers. We want to work with Fujitsu to design advanced features into the SPARC microprocessor aimed at improving Oracle database performance.
There remain plenty of questions about how large Oracle's investments will be and how much it will tilt toward its own processor-server-operating system-middleware-applications stack. It will, of course, continue to sell software to run on HP, IBM, Dell, or wherever else it can garner license revenue from.
However, on the face of it Oracle has grand visions for its Sun acquisition that go well beyond selectively mining some key software assets and milking the rest. Oracle's purchase of Sun was the latest example of the general shift back to a more vertically-integrated computer industry going on. This latest interview with Ellison makes that point again--with exclamation points.
Update at 7:25 a.m. PDT: Updated stock information added and headline updated.
Sun Microsystems shares soared more than 10 percent in premarket trading on Thursday, following a Bloomberg report that the struggling hardware maker was interested in resuming merger talks with IBM.
Sun climbed nearly 10.8 percent to $6.79 a share in premarket trading. But as the markets opened for regular trading, Sun's shares settled back to a more modest uptick of 2.77 percent to $6.30 a share. The broader markets were mixed.
Either way, its stock remains a ways off from the $9.27 it reached when reports first surfaced it was in buyout talks with IBM.
Sun is reportedly expressing interest in resuming talks with IBM, if Big Blue will raise assurances that it can and will close the deal, according to Bloomberg.
Antitrust experts have previously noted that a Sun and IBM merger would likely face intense scrutiny by U.S. and European regulators.
IBM holds nearly 32 percent of the worldwide server market, based on 2008 factory revenue, and Sun has a 10.1 percent share, according to IDC. Combined, the two companies would account for nearly 42.1 percent of the overall $53.3 billion server market.
And if U.S. antitrust regulators, for example, express concerns over a deal, it could take six months to a year before they issue a final decision on whether to block a merger or let it go through, noted one antitrust attorney.
When companies are concerned their merger may ultimately face a tough time reaching closure, it's often reflected in a higher break-fee, noted the antitrust attorney.
"The price that a party demands for a break-up fee is known to kill deals," the attorney said.
That's because break-up fees can reach hundreds of millions of dollars.
Such was the case for prospective buyer EchoStar Communications back in 2002. The satellite TV company , to Hughes Electronics, after federal antitrust regulators said they would block the $25.6 billion merger.
In the wake of reported merger talks with IBM, Sun Microsystems executive vice president John Fowler talked about Big Blue as a rival.
Sun Microsystems executive vice president John Fowler
(Credit: Sun Microsystems)Fowler, in a phone interview Friday, discussed IBM as a competitor in the server computer market and the competitive differences between Intel and Advanced Micro Devices.
"IBM is obviously a classic competition space where we bring to bear all of our technology innovation," Fowler said. "In this particular case, how we've incorporated and done networking technology, how we've incorporated and done flash (memory). The fact that we have an open operating system that runs across our RISC platforms and our x86 platforms and that we have an open storage offering on the 7000," he said.
Fowler continued, "Those are all great discussions to go have with IBM customers. Those are all things that IBM just doesn't have and represent a significant amount of value."
In a question about comparing IBM--which also offers a RISC architecture server platform (PowerPC) as well Intel and AMD--to other competitors like Hewlett-Packard and Dell, Fowler said: "They (IBM) are more similar (to Sun) than the others and interested in more of the same things."
And how does Sun compete with larger rivals? "We have for decades now innovated in a marketplace where companies like HP and IBM have been consistently bigger than us. What we do is incorporate new technologies or invent new technologies more quickly," he said.
Fowler also spoke of some of the differences between Sun offerings on AMD and Intel platforms. He began by saying that a recent Intel Nehalem server chip announcement covers only two-socket (a socket accommodates one processor) servers and that Intel's product is an "entry level" product. "It's a solid product but it really applies to the volume entry-level systems in the world today," he said.
Fowler continued: "Obviously, AMD and (Sun) SPARC cover a much broader range of application scale. In AMD's case, extending up to eight-socket servers and in SPARC's case up to 64-socket servers," he said.
Sun Microsystems shares fell as low as about 13 percent Monday afternoon, steeper than the declines experienced by the broader markets. Investors, who are awaiting word on whether speculation of an IBM merger will become a reality, apparently were spooked, sending shares as low as $6.82 a share in afternoon trading.
(Credit:
Yahoo Finance)
Shares of Sun lost 59 cents to close at $7.24, down about 7.5 percent, Monday.
The Dow Jones Industrial Average, meanwhile, fell as low as about 4 percent to 7,437.59 during intra-day trading and the Nasdaq dipped about 4 percent to 1,484.98. The Dow and Nasdaq were each down about 3 percent at the close.
While it's not immediately clear what may have spooked Sun investors, it is clear that IBM has an interest in migrating Sun's customers from Sun's SPARC architecture to IBM servers based on an x86 chip architecture, according to IBM BladeCenter Vice President Alex Yost, in a recent interview with Brooke Crothers, who writes CNET's Nanotech: The Circuits Blog.
Yost noted in that interview that a number of IBM customers are seeking to use Sun's Solaris operating system on x86-based servers or Linux on x86 servers.
In a more limited fashion, some of Big Blue's customers have a special requirement to use Solaris on Sun's SPARC architecture, Yost noted in that report.
During an employee Webcast earlier this week to discuss Intel's stock options program, the chip giant's CEO, Paul Otellini, shed a little background on Sun Microsystems' pursuit to find a buyer.
When queried by an employee about his thoughts regarding an IBM-Sun merger and whether Cisco's recent announcement about entering the storage market drove Sun to find a buyer, Otellini said:
Oh, I don't know if the Cisco entry spurred IBM. I think (a) cheap Sun price--a low price--spurred a lot of interest. I can tell you that Sun was shopped around the valley and around the world in the last few months. A lot of companies got calls or visits on buying some or all the assets of the company. It looks like IBM is in the hunt now. And at a hundred and some odd percent premium, I suspect they'll get it.
I don't think it had anything to do with Cisco. I think IBM is trying to consolidate architectures. IBM has the strongest Java license in the industry. By picking up Sun--which is the creator of Java--they really consolidate their position not just in Linux, but also in Java.
I think the stuff on Solaris and SPARC is likely to see EOLs over time through the IBM acquisition. But no strategic reason for IBM to maintain that except to attempt to convert the very large Sun SPARC Solaris base to power. I think that would be their most likely strategy as part of this.
Is it good or bad for us? I don't know. I'd rather have Sun be independent, I guess.
Otellini's comments were published in a Securities and Exchange Commission filing on Wednesday.
Sun's shares closed down about 3 percent to $7.85 a share Wednesday during the regular trading session, while the broader markets advanced. With its closing price, Sun is valued at $5.85 billion.
IBM is reportedly interested in paying $6.5 billion to $8 billion, according to reports in The Wall Street Journal.
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