Business Tech

All top five server vendors globally saw declines in revenue and shipment in the third quarter of 2009, with Sun Microsystems registering the biggest fall, according to the latest figures from Gartner.

In a report released Monday, the research firm noted that Sun saw its server revenue drop 32 percent and unit shipments dip 38 percent in the third quarter, compared to the same period last year.

IBM experienced a 12 percent decline in revenue growth, though it clocked the highest revenue in the market for the quarter at $3.4 billion. Hewlett-Packard and Fujitsu saw their revenue decline 15 percent and nearly 11 percent, respectively. Dell was the only vendor with a single-digit revenue decline (5 percent) among the top 5 vendors, Gartner said.

Read more of "Sun sets lowest in server market at ZDNet Asia.

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?

Story Copyright (c) 2009 AllThingsD. All rights reserved.

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.

For years, open-source advocates have been praying for someone to free us from Microsoft's proprietary grasp. We've prayed in vain as Linux, OpenOffice, and other open-source software programs have failed to dent Microsoft's dominance.

Until now.

Google, not Red Hat or Sun, appears to be the long-awaited redeemer of both personal computers and servers, and has even staked a credible claim in the mobile world, as well. Google achieves this, in part, by writing copious lines of open-source code, but pays for this "generosity" with insanely profitable proprietary services, services that have long appealed to consumers but increasingly appeal to enterprises, too.

Google, in other words, is arguably not the open-source savior we were expecting, but it's probably the one we deserve.

(Credit: Matt Asay)

Despite more than a decade of trying to make "pure" open-source software businesses work, it's telling that only one company--Red Hat--has managed to pull together more than $100 million per year in revenues for its troubles. For its part, Red Hat is quick to downplay the relevance of its revenue model for just about any other business.

Hardly a rallying cry to the still-growing open-source ecosystem.

Yes, MySQL got to $94 million before Sun gobbled it up, and yes, other start-ups (my own, included) are getting closer to the mark, but none, including MySQL, is wholly dependent on selling open-source software subscriptions to achieve this goal.

We also include proprietary add-on value. Like Google.

So we're left with Google, which is, perhaps, the world's largest open-source company, contributing more open-source software and resources than any other, in my estimation. (Sun likely wins on sheer volume of code, but being an "open-source company" involves more than simply code.)

How does Google do it? Well, for one thing, it learned long ago that monetizing open-source software directly is tough. So it simply uses open source to shepherd prospective customers to its other services, like Search or Google Apps.

Indeed, it is the success of these proprietary products that enables it to be such a generous open-source benefactor, much like IBM, Intel, or, for that matter, Sun (which sells a lot of proprietary hardware). Take away these companies proprietary product lines, and overnight we'd see dramatic decreases in their investments in Linux, Apache Software projects, etc.

And we'd all be the poorer for that.

In an ideal world, open-source software companies would thrive by simply giving away lots of code, and having enterprises and government organizations serve their long-term interests by paying for support.

We don't live in that world. Some organizations do buy support for open-source software, of course, though many others do not, and some only pay long enough to become self-sufficient whereupon they dump their support contracts, as former CTO of NBC iVillage Jon Williams once declared.

Until we cross the border into Utopia, we're going to continue to see the biggest investments in open-source innovation come from Google and its peers: companies with wallets fat with proprietary profits.

As I said, this may not be the open-source world for which we've hoped, but it's the one we deserve, because it's reflective of what we value and, hence, what we pay for.

See also Mark Hinkle's response to this post.

MySQL co-founder Michael "Monty" Widenius is leading a chorus of voices expressing growing apprehension over the proposed Oracle-Sun merger.

In a statement posted on his blog on Monday, Widenius said the European Commission is "absolutely right to be concerned" about the $7.4 billion takeover of Sun by Oracle, and he urged Oracle to sell MySQL to clear up any antitrust issues.

Although the deal received the thumbs-up from the U.S. Department of Justice in August, the Commission opened a probe in early September, citing fear that Oracle's ownership of MySQL could pose a competitive threat.

In his blog, Widenius asked Oracle "to be constructive and commit to sell MySQL to a suitable third party, enabling an instant solution instead of letting Sun suffer much longer." The famed MySQL developer, who departed Sun earlier this year, said that he wishes Sun "all the best, but MySQL needs a different home than Oracle, a home where there will be no conflicts of interest concerning how, or if, MySQL should be developed further."

Another voice uneasy about the Oracle-Sun venture is Florian Mueller, an EU policy expert who is a former MySQL shareholder and adviser. Mueller had helped Widenius' new company, Monty Program, urge the EU to investigate the anticompetitive effects of a MySQL owned by Oracle.

"Letting Oracle have MySQL is worse than putting the fox in charge of the henhouse, because the hens are no threat to the fox, while MySQL makes Oracle lose customers and forces it to grant discounts to customers threatening to defect," Mueller said in a statement.

Monty Widenius

(Credit: MySQL/Sun Microsystems)

"Every day that passes without Oracle excluding MySQL from the deal is further evidence that Oracle just wants to get rid of its open-source challenger, and that the EU's investigation is needed to safeguard innovation and customer choice," Mueller added. "This is highly critical because the entire knowledge-based economy is built on databases."

Though several analysts have questioned the EC's motivation for probing the deal, Mueller firmly backs the commission.

"It's inappropriately arrogant for some interested parties to suggest that the EC has yet to understand the case," he said. "The EC is really doing a great job under huge time pressure." In August, Mueller helped write a position paper (PDF) on MySQL that Widenius' Monty Program gave to the EC.

And in yet another condemnation, Richard Stallman, founder of the free-software movement, wrote an open letter to the EU on Monday opposing an Oracle-owned MySQL as a threat that would hinder its further development in the open-source community.

Other prominent names, though, disagree. Earlier this month, MySQL ex-CEO Marten Mickos urged the EU to OK the deal, arguing that by delaying the merger, the EU is hurting the very competitive atmosphere that it claims to want to protect.

Major database players, including HP and IBM, have already reportedly taken advantage of the delay to win over customers from Sun.

In the meantime, Sun continues its downward spiral. Late Tuesday, the company confirmed that it would lay off another 3,000 employees, about 10 percent of its total workforce, over the next year. This latest round is in addition to 6,000 jobs cuts announced almost a year ago as part of the company's restructuring plan.

On Oracle's part, CEO Larry Ellison said last month that despite the EU's probe, Oracle has no intention of spinning off MySQL.

Clarification at 9:35 a.m. PDT: Widenius is a co-founder of MySQL, the company.

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.

Federal prosecutors have charged a prominent hedge-fund manager and five others with securities fraud resulting from insider trading involving some of the tech industry's best-known companies, including Intel, Google, and IBM.

Raj Rajaratnam of Galleon Group was arrested Friday in New York according to various reports and charged with 13 counts of securities fraud and conspiracy following a FBI investigation into Galleon Group's trading patterns. Also charged in the complaint, filed in U.S. District Court for the Southern District of New York, were co-conspirators Rajiv Goel of Intel and Anil Kumar of McKinsey, which provided consulting services to AMD.

A separate complaint charges two employees of New Castle Partners, another hedge fund, with insider trading along with IBM executive Robert Moffat, senior vice president and group executive for IBM's Systems and Technology Group. Danielle Chiesi and Mark Kurland of New Castle Partners allegedly exchanged information with Rajaratnam regarding the negotiation process surrounding AMD's decision to spin off its chip-making arm and receive outside investment, and obtained other insider information for the purpose of trading in Akamai and Sun Microsystems.

Galleon Group told CNBC that it was unaware of the investigation but planned to cooperate with authorities.

An Intel representative confirmed that Goel works in the treasury department of Intel's finance organization, and has been "placed on administrative leave as we look into this matter." Intel said it was never contacted by authorities regarding the investigation.

McKinsey said in a statement that it was "distressed" about Kumar's involvement in the case and was "looking into the matter urgently. AMD said it was looking at the complaints and had no further comment. IBM declined to comment.

A representative for Akamai did not immediately return a call seeking comment.

According to the complaint, Rajaratnam obtained information about strategic investments that Intel and others were about to make in Clearwire from Goel, and details about AMD's proposed fab spinoff from Kumar and Chiesi. Galleon Group and New Castle Partners then allegedly used that information to trade in shares of Clearwire and AMD, resulting in millions of dollars in profits.

Moffat is also said to have provided details about AMD's GlobalFoundries spinoff, which required IBM's approval due to an extensive technology-sharing partnership between the two companies. In addition, Moffat allegedly gave the traders information related to upcoming earnings announcements from IBM and Sun, which IBM was considering acquiring in early 2009.

Rajaratnam also had hired an individual identified in the complaint only as a "confidential witness" who has been cooperating with the FBI since November 2007 after agreeing to plead guilty to securities fraud and conspiracy. The witness had insider contacts at Polycom and a company called Market Street, which helps publicly traded companies--such as Google--prepare earnings reports.

The FBI said Galleon Group was able to learn through its Market Street contacts that Google's second-quarter 2007 earnings results were going to miss analyst expectations, which would usually send the stock down the following day. Before Google's earnings were released, Galleon Group purchased put options and sold Google's stock short in hopes of turning a profit, which, of course, they did, to the tune of $8 million.

Shares of Polycom and Hilton Hotels were also involved in the insider trading, according to the complaint. The FBI said it obtained its information by placing a wiretap on several phones--including Rajaratnam's mobile phone--as well as the participation of confidential witnesses.

Rajaratnam was named to Forbes' 2009 list of the world's billionaires, with an estimated net worth of $1.3 billion. He is a former employee of Needham & Co., an investment bank.

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.