Business Tech

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.

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.

NetApp's IP patent infringement lawsuit against rival Sun Microsystems may throw a wrench in Sun's reported merger talks with IBM, according to a report on American Lawyer's AM Law.com site.

Two years ago, NetApp , alleging its rival violated seven of its patents with its ZFS file system--a key element to its Solaris operating system. NetApp demanded Sun remove its ZFS file system from the open-source community and storage products, and limit its use to computing devices.

Sun, in response, filed a countersuit, alleging NetApp violated a dozen of its patents.

For Sun, which reportedly has IBM combing through its contracts as part of its due diligence in the merger discussions, the NetApp lawsuit could pose a potential problem.

The ZFS file system is a key part of Solaris, and Solaris' role in the open-source community puts it in an enviable position in relation to IBM's efforts. IBM, as a result, may not want to lose that connection to the open-source community should NetApp prevail in its Sun lawsuit.

But NetApp also has a relationship it may want to retain with IBM.

Back in 2005, the companies , in which NetApp's network-attached storage and storage area network products were repackaged under IBM's brand.

That IBM-NetApp relationship is still intact, which is sold by Big Blue under its IBM System Storage N Series, an IBM spokesman said.

NetApp did not return e-mails or phone calls seeking comment. IBM declined to comment on rumors or speculation regarding merger talks involving Sun.

Shares of Sun Microsystems took a hit in Monday morning trading, falling at least 7 percent while the broader markets advance.

Sun fell as low as $7.53 a share, following reports Friday in The Wall Street Journal that IBM is currently engaged in combing through Sun's contracts, as part of the evaluation process on whether to move forward with an acquisition.

Sun's shares started sinking shortly after a big jump on word of a possible acquisition by IBM.

(Credit: Yahoo Finance)

Sun's shares had been on a rocket ride, after reports surfaced last week in the Journal that IBM was in negotiations to acquire the company for roughly $6.5 billion.

After the reports surfaced, Sun's shares shot up 79 percent to $8.89 a share. The struggling hardware maker's shares had largely languished below $5 a share for the past five months.

As it reportedly shows IBM its contracts, Sun is approaching the end of its fiscal third quarter, which could provide Big Blue with additional data for its decision making.

IBM is reportedly wading through Sun Microsystems' contracts and documents for potential conflicts or problems, as it works its way through the due diligence process toward a merger, according to a report Friday in The Wall Street Journal.

IBM's attorneys have been poring over Sun's documents for at least the past several days, if not longer, according to the Journal.

And while the due diligence process is not anticipated to lead to any nixing of a deal, IBM is seeking a clear understanding of where Sun stands with its complex cross-licensing agreements and other contracts, according to sources cited by the Journal.

In addition to Sun's contracts, IBM may also be taking a peek at Sun's fiscal third-quarter data, given the company will be closing its quarterly financial books at the end of the month.

When Sun reported its fiscal second-quarter results in January, it posted an 11 percent year-over-year drop in revenue. But on a sequential basis, its financial performance was less severe.

As the parties work toward a merger, IBM is reportedly considering a buyout price of $6.5 billion to $8 billion, according to the Journal.

Sun closed down about 6 percent to $8.10 a share during regular trading Friday. But in after-market trading, its shares rose nearly 2 percent to $8.24 a share.

As the chief open-source officer at Sun Microsystems, Simon Phipps spoke to ZDNet Australia about the MySQL acquisition and community engagement on OpenOffice.org and OpenSolaris.

Q: In the beginning of 2008, Sun spent $1 billion on the acquisition of MySQL. Given Sun's huge reduction in Australian revenue, and the global shedding of jobs, was this a prudent acquisition?
Phipps: It's a bit soon to be making that sort of judgment. Asking that question now is a bit like asking a company to change its product strategy on the basis of the share price.

MySQL is a long-term acquisition that has to do with the restructuring we have done of the company. It has to do with being part of a holistic solution, if you look at what we have done at Sun, in November we restructured the company. We have restructured the company so that now open source is at the heart of the entire product business.

Simon Phipps

(Credit: Sun Microsystems)

We have three divisions. (Our first division is) an applications platforms groups. We have Java E, Java ME, and Database with MySQL in it, their business model is to drive adoption and then monetize subscriptions.

We have a second division, our systems division, and you could say their business model is to use open source as firmware.

The third business is using open source as the backbone for cloud computing, so we have a cloud computing division that uses open source and then monetizes the delivery of both software as a service and software as a service infrastructure.

The MySQL acquisition fits into that, both as a product set, and as access to the install base of MySQL and also for the open-source skills of the executives and staff that we hired.

I think now is too soon to be doing a basic mathematical judgment. I'd say that from an organizational point of view it was an ideal acquisition; it was one of the best acquisitions that Sun has done in recent years.

But is it safe to say that the MySQL acquisition hasn't been profitable so far?
Phipps: No, I would say that is a very unsafe thing to say. I would say that MySQL is performing well.

Moving on, Sun has just released OpenOffice.org 3.0. Have you seen a lot of growth in that?
Phipps: There has been 35 million downloads since October. When you look at the historic graphs showing downloads that is significantly up even on a new release.

Anyone who is assessing the success of OpenOffice.org 3 would be making a huge mistake if they fail to account for the plug-ins, where there has been more than 50 new plug-ins since October.

Given the size and complexity of the OpenOffice code base, have you had any luck recruiting developers outside Sun for the core code?
Phipps: The complexity of the core code base is such that it is a specialized task to engage in modifying the core code, but the big innovation in OpenOffice.org 3.0 was the introduction of the add-on mechanism. There has been a significant number of developers who have engaged in that add-on mechanism.

Even more importantly, we are seeing large enterprises adopting OpenOffice.org 3.0 and creating add-on for their own applications.

I would be the first to say, given my role is community engagement, that the code around OpenOffice.org is hard to approach. That's why we have implemented this new plug-in mechanism.

So do you have developers outside Sun working on the core code?
Phipps: There are developers working on that core code, notably the developers from IBM, who are using the code for Lotus Symphony. They have some catching up to do.

They, and also a number of developers from Red Flag 2000 who are working on China's Red Office, are all engaged in a community working on the code.

If you add up all the individual developers who work on the OpenOffice code because they have consulting engagement or small businesses, that sector is almost as numerous as the Sun developers who are engaged.

The second highly significant area is localizers. There is a very large localization community that is doing local versions of OpenOffice. I believe there is OpenOffice in over 100 local languages around the world.

One of the great values of OpenOffice that is really remarked on in analysis is that OpenOffice is localized globally. That makes it a very powerful force in the industry because it is able to go places with community engagement that proprietary software can't go.

OpenSolaris is a huge and complex code base as well. Any luck getting external developers on that?
Phipps: Yes, we have had a steady trickle. The obstacle on OpenSolaris is not so much the complexity of code.

The problem with OpenOffice is that there is a very strong dependency between every part of OpenOffice. That means that when you make code contributions, there are very few developers with the oversight to be able to accept those code contributions, and that causes a bottleneck.

In OpenSolaris that is not the case, OpenSolaris is a very well structured and diffuse piece of code, where it is very reasonable to be able to have contributors.

Alex Serpo of ZDNet Australia reported from Sydney.

Sun Microsystems unveiled Monday its Sun Storage 7000 Unified Storage Systems line, as it seeks to turn around its ailing business by once again turning to open source.

The Sun 7410 storage array.

(Credit: Sun Microsystems)

The Sun Storage 7000 line, formerly known as "Amber Road," is intended to bolster the company's storage business by adding open source to its hardware, in a move to make it easier for customers to install and configure the systems and reduce costs. The line will be part of the company's Unified Storage Systems.

Sun's three open-source storage are designed to increase the performance while lower cooling requirements via Sun's Solaris Zettabyte file system (ZFS). These are the new model:

• Sun Storage 7110: Ultra compact model with 2 terabytes (TB) of storage. Pricing is expected to begin at $10,000.
• Sun Storage 7210: Midrange storage featuring up to 48 TB of storage capacity in a four-unit form factor; includes support for write-optimized solid-state disks that use Sun's Flash Hybrid Storage Pool technology. Pricing begins at $34,995.
• Sun Storage 7410: Highly configurable storage system with support for up to a half-petabyte of capacity that includes support for read- and write-optimized solid-state drives and the Flash Hybrid Storage Pool technology. Pricing begins at $57,490 for a single-node version (12 TB)

These systems are also available in clustered configurations. The clustered 12TB version is expected to begin at $89,490.