May 04, 2009
Oracle Buys Sun
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Jeff Rowe - Managing Editor

by Jeff Rowe - Contributing Editor
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Oracle Corp. and Sun Microsystems announced they have entered into a definitive agreement under which Oracle will acquire Sun common stock for $9.50 per share in cash. The transaction is valued at approximately $7.4 billion, or $5.6 billion net of Sun's cash and debt. "We expect this acquisition to be accretive to Oracle's earnings by at least 15 cents on a non-GAAP basis in the first full year after closing. We estimate that the acquired business will contribute over $1.5 billion to Oracle's non-GAAP operating profit in the first year, increasing to over $2 billion in the second year. This would make the Sun acquisition more profitable in per share contribution in the first year than
we had planned for the acquisitions of BEA, PeopleSoft and Siebel combined," said Oracle President Safra Catz.

"The acquisition of Sun transforms the IT industry, combining best-in-class enterprise software and mission-critical computing systems," said Oracle CEO Larry Ellison. "Oracle will be the only company that can engineer an integrated system - applications to disk - where all the pieces fit and work together so customers do not have to do it themselves. Our customers benefit as their systems integration costs go down while system performance, reliability and security go up."

There are substantial long-term strategic customer advantages to Oracle owning two key Sun software assets: Java and Solaris. Java is one of the computer industry's best-known brands and most widely deployed technologies, and it is the most important software Oracle has ever acquired. Oracle Fusion Middleware, Oracle's fastest growing business, is built on top of Sun's Java language and software. Oracle can now ensure continued innovation and investment in Java technology for the benefit of customers and the Java community.

The Sun Solaris operating system is the leading platform for the Oracle database, Oracle's largest business, and has been for a long time. With the acquisition of Sun, Oracle can optimize the Oracle database for some of the unique, high-end features of Solaris. Oracle is as committed as ever to Linux and other open platforms and will continue to support and enhance our strong industry partnerships.

"Oracle and Sun have been industry pioneers and close partners for more than 20 years," said Sun Chairman Scott McNealy. "This combination is a natural evolution of our relationship and will be an industry-defining event."

"This is a fantastic day for Sun's customers, developers, partners and employees across the globe, joining forces with the global leader in enterprise software to drive innovation and value across every aspect of the technology marketplace," said Jonathan Schwartz, Sun's CEO, "From the Java platform touching nearly every business system on earth, powering billions of consumers on mobile handsets and consumer electronics, to the convergence of storage, networking and computing driven by the Solaris operating system and Sun's SPARC and x64 systems. Together with Oracle, we'll drive the innovation pipeline to create compelling value to our customer base and the marketplace."

"Sun is a pioneer in enterprise computing, and this combination recognizes the innovation and customer success the company has achieved. Our largest customers have been asking us to step up to a broader role to reduce complexity, risk and cost by delivering a highly optimized stack based on standards," said Oracle President Charles Phillips. "This transaction will preserve and enhance investments made by our customers, while we continue to work with our partners to provide customers with choice."

The Board of Directors of Sun Microsystems has unanimously approved the transaction. It is anticipated to close this summer, subject to Sun stockholder approval, certain regulatory approvals and customary closing conditions.

Commentary By Jeffrey Rowe, Editor

After weeks of speculation of IBM buying Sun, which failed to come to fruition, Oracle decisively came in and bought the company. Although well calculated, it seemed like a sudden move, and one that Sun and Oracle amazingly both kept quiet. Is Oracle a better suitor of Sun than IBM? I would have to say “yes” for several different reasons that I’ll briefly discuss.

For the survival of the investments that a lot of companies made in Sun technologies over the years, Oracle buying Sun is preferable over IBM for the following reasons:

•        Sun's Java virtually duplicates IBM's Java.

•        Sun's Solaris operating system largely duplicates IBM's AIX.

•        Since there are really no good alternatives to Java, Oracle very likely will stay the course with Sun’s implementation of Java.

This deal will likely be the most significant one made in the software industry for 2009 and could have some possible future implications for the CAD and PLM markets. The Board of Directors of Sun Microsystems all approved the transaction that is due to close this summer subject to Sun stockholder approval, certain regulatory approvals and customary closing conditions. Jonathan Schwarz, Sun’s CEO, certainly seems happy with the deal.

Oracle has the resources to take Java to the next level, but does it have the desire to make Java's emphasis more focused on enterprise computing as a result of this acquisition? Historically, Oracle definitely knows how to make money from middleware – something that Sun has always struggled with.

Another question that comes to mind is, does Oracle really want to get into the hardware business that was such a big drag on Sun? The press release hardly mentions hardware except for Ellison's quote about Oracle now having an “end-to-end platform.” It does, however, state the importance of Java and Solaris as being at the core of Oracle technology. If Oracle quickly turned around and sold the hardware business to, say, Fujitsu or another server hardware manufacturer, then it would effectively have bought Java, MySQL, and Solaris virtually for free.

There has been a strong partnership between Sun and Oracle over many years, and Oracle running under Solaris is a solid pairing. However with the acquisition, what comparable products will Oracle retire? Then there the inevitable naming question -- will Sun still called Sun or will it be known as Oracle Sun?

For the most part, Oracle has been supportive to products it has acquired, often replacing its own products with the new ones. Also, Oracle has already heavily invested in Java technology – a lot more than IBM.

Since Ellison has always been big on dueling it out with other companies, such as Microsoft, Sun’s free office suite, OpenOffice may get a big boost. Java support on the client side may increase, as well. This acquisition raises questions about the future. Could Adobe or a major CAD vendor be Oracle's next acquisition target?

The only thing missing in Oracle now is client side GUI and graphics stuff. I predict more future acquisitions (Adobe?) to be made in the graphics area. Stranger things have happened. Imagine, for example, a cross-platform JavaFX-based digital tool for mechanical design.

From the Java perspective, the acquisition provides several things, including:

•        Protects and extends customers’ investment in Sun technologies

•        Accelerates growth of Java as an open industry standard development platform

•        Sustains Solaris as an industry standard enterprise operating system for Oracle software

•        Continues Sun’s open storage and systems initiatives

If there is an unsettling aspect to the acquisition, it might be that since Oracle is at the top of heap as far as database software and services go, where will MySQL end up?

As for Oracle’s foray into the CAD arena, let’s take a short step back in time . . .

About two years ago, Oracle announced its acquisition of Agile, a company known mostly for its PLM products, for $495 million. This move was not so much an entry point into PLM as it was into the CAD visualization market. Agile purchased Cimmetry, a CAD visualization company, in February 2005 for $45M cash. And now (through Agile) Oracle owns the AutoVue product line.

For the past couple of years, the CAD visualization market has gone through a several changes. For example, with Adobe entering this arena relatively recently with Acrobat 3D, and Oracle with Cimmetry, again, could Adobe be in Oracle’s acquisition sights, or possibly even a top-tier CAD company?

This deal makes a lot of sense, and it will be also interesting to see whether Java will be used to go up against ERP giant, SAP, and IBM.

I’m sure many would prefer an independent Sun, but since this was no longer possible, the Oracle deal is probably the best thing that could happen for Sun and ensuring that its technologies remain viable and sustainable. Oracle, as the buyer, looks (at least outwardly) better than IBM. I would conclude that from the software perspective, this is a good deal. It’s the hardware side that will remain a mystery, but I’m sure Oracle will sort that out in due time. And while Oracle is currently not a huge presence in the MCAD market, I think that will change over time, and that time may not be too far in the

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-- Jeff Rowe, Contributing Editor.

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