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Will Sun help Oracle eclipse IBM?

With its acquisition of Sun, Oracle is now positioned to fight IBM in every market from chips to business process management

Oracle's proposed $7.4 billion acquisition of Sun Microsystems would equip the software giant with a soup-to-nuts lineup of hardware and software technologies to significantly alter the competitive landscape among enterprise-class vendors.

The proposed deal not only gives Oracle a much improved position going forward in the cloud computing arena, a healthy dose of credibility in the open source world, and a decided advantage in the Java vs. .Net development wars, it also gives the company access to a range of sophisticated multi-processing chips and other hardware it could bundle with Sun's Solaris operating system and its own applications to create a series of appliances.

"We haven't seen this since the days of DEC (Digital Equipment Corp.), but with Oracle buying Sun we now have a company in possession of everything from the silicon right up through the business processes. For the first time IBM now has a true, worldwide counterweight," said Dana Gardner, the principal analyst of Interarbor Solutions, a market researcher and consultant in Gilford, NH.

The proposed deal not only gives IBM something to worry about, but it also applies competitive pressures to Microsoft in a couple of areas. One is the boost it gets in the increasingly important cloud computing market, a market in which Oracle has been vague in declaring its strategic intentions, as well as in the applications development market where it now has greater control of Java and can align with allies such as IBM to go after Microsoft's .Net.

"All of a sudden Oracle is a major cloud player. By acquiring Sun now it could leap into cloud computing and going up against Amazon never mind Microsoft and IBM. If there is any question about whether Cloud is real or not, this deal should put that to rest. They (Oracle) no longer have a cloud confusing strategy," Gardner said. While gaining greater control over Java can be viewed as the most strategically important part of the deal, the ramifications for Oracle's open source ambitions should not be overlooked.

"While Java and Solaris may appear to be the crown jewels in the deal, the real significance is the entrustment of other parts of the open source stack with Oracle. These open source components have been viewed as the alternative to the dominance of the Big 4 (Microsoft, IBM, SAP, and Oracle). Oracle also gains an innovation engine with the assets of Sun's Labs groups which pioneer's a series of innovations that include potential enterprise solutions for the virtual world," said Ray Wang, a vice president with Forrester Research. Inc. based in Cambridge, Ma.

Another interesting market opportunity the deal presents is for Oracle to more aggressively pursue the appliance market, a market it has already stuck its toe in with its Exadata system, a hardware-software bundle it partnered with Hewlett-Packard on.

"Oracle has already demonstrated they like the idea of appliances. They could easily pick up their partnership with HP and come up with a line of appliances that could be aimed at a number of private cloud implementations. You could have a major two horse race between Oracle-Sun and IBM for domination in the private cloud sphere," Gardner said.

What puzzled most observers was what Oracle would do with Sun's server and workstation hardware lineup, given that its only experience in that market is what it has done with Exadata. Three weeks ago it was rumored that Oracle and HP had approached Oracle about buying the Sun, with Oracle taking the software business and HP the hardware. That has obviously not materialized. A reasonable solution would be for Oracle and HP to tighten their already close partnership to where HP would be akin to an in-house consultant helping shape Oracle's strategies there.

"If you ask me it doesn't make sense for Oracle to be in the hardware business. I mean, where is their experience there to go up against IBM or Dell at the low end. Seems like they need a partner there," said one IT administrator with a large Chicago-based financial institution.

Despite the lack of experience in the hardware business, Oracle is gaining possession of some blazingly fast multiprocessor servers powered by Sun's SPARC processors, most notably the 8- and 16-core "Niagra" and "Rock" versions of that chip. Coupled with the Solaris operating system, which is tailored to exploit the architectures of "Niagra" and "Rock", many believe it would give Oracle a competitive advantage against the offerings of IBM, particularly if implemented as part of a cloud computing solution.

An unknown element that could give Oracle technical advantages long into the future is what Sun has cooking in its research and development centers. More specifically, what the company is concocting in the way of chip architectures that could help propel a range of different software technologies particularly in the areas of cloud computing, utility computing and virtualization.

The ultimate determinant for the deal succeeding will be the acceptance of users, particularly those of Sun. Most users however declined to comment specifically on the deal saying they needed to more time to assess its widespread strategic implications.

Another important advantage the deal affords Oracle is that a "big chunk" of Oracle's most profitable database installations run under Solaris. This is something Oracle would not want "falling into the hands of the DB2 guys," Wang said.

While Oracle officials did not mention the strategic role that Sun's MySQL open source data base might play at this morning's press briefing, some analysts thought the company could use it to great affect in competing against Microsoft at the low end of the market. Other analysts said company officials may have held off for either fear of eroding sales of its higher end proprietary databases or that they need more time to properly position it against the Oracle 10g and 11g products. Or it could be that Oracle believes the best days of MySQL are behind it given the loss of Mickos Marten, the original force behind the product.

What works in Oracle's favor over both the short and long term, is its expertise in buying and successfully integrating large companies from both a technical and financial. Some analysts point out that the company's revenues would not be at $25 billion, nor its profit growth consistently over 20 percent, if it had not done a good job at swallowing and digesting companies such as Siebel, PeopleSoft, JD Edwards, and Hyperion over the past decade.

In a note to clients analyzing the deal Forrester's Wang said that with two former investment bankers at the helm, Oracle has one of the best post-merger integration teams in the business. He wrote that Oracle's profit performance signals that it has been able to add new companies and to its revenues stream while simultaneously keeping costs down.

One disadvantage Oracle would face, despite the embarrassment of technical riches from Sun, is the lack of a worldwide professional services organization to support users with an extremely wide range of technical support needs. Most analyst said even an Oracle-Sun combination could not match that of IBM's $46 billion Global Services unit, and that it would have to form a partnership with a services company, such as Accenture, to compete effectively there.


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