Oracle Takes a Shine to Sun Microsystems

The sun came out bright and early this morning in Silicon Valley. Today, Oracle has announced it will acquire Sun Microsystems 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. The acquisition means Oracle will now own computer servers, workstations, storage, software, and services -- an extension of Oracle's entree into the hardware business, which began when the vendor announced at Oracle OpenWorld 2008 its initial dive into hardware with the HP Oracle Exadata Database Machine.

During a morning investor conference call, Safra Catz, one of Oracle's presidents, compared the Sun acquisition to some of Oracle's other big-ticket acquisitions, noting that this new deal is larger than the acquisition of Hyperion Solutions, but smaller than the price tags for either BEA or PeopleSoft. Oracle, she said, believes this deal will be more profitable in per-share contribution in the initial year than all three of those other acquisitions combined. "We believe that we will be able to run Sun at substantially higher margins and we estimate this will add at least $1.5 billion in additional annual non-GAAP operating income, and growing from there," Catz said. In a prior statement, the president said that Oracle expects the profit to increase to more than $2 billion in the second year. She noted that an initial focus will be in serving both Oracle and Sun Microsystems' joint enterprise customers.

The deal with Oracle comes on the heels of Sun's reported merger discussions with IBM. According to the Associated Press, IBM most recent offer to buy Sun topped out at $9.40 per share, but acquisition talks fell apart earlier this month. (Neither of the Sun executives on the call -- President and Chief Executive Officer Jonathan Schwartz or Chairman Scott McNealy -- spoke of the failed IBM deal during the call with media and analysts.)

[Editors' Note: See blogposts from earlier today with excerpts from other coverage, and a guest-blogpost from CRM columnist Denis Pombriant, founder and managing principal at CRM consultancy Beagle Research Group.]

The excitement around Oracle's purchase comes mostly in two parts, according to company executives: Sun's SPARC Solaris processing system and its Java programming language. "Java is the foundation of Oracle's middleware and [the] single-most important software asset we have ever acquired," said Larry Ellison, Oracle's cofounder and chief executive officer, during the conference call. More Oracle databases are run on the Solaris operating system than any other Unix system, he added.

"With the acquisition of Sun we will tightly integrate Oracle databases to the unique high features of Solaris," Ellison said. "Engineered to work together enables us, for the first time, to deliver complete and integrated computing systems -- database to disk."  

According to Forrester analyst Ray Wang, aside from application synergies, the transaction holds new implications for Oracle in the technology world. "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," he says. According to Charles Phillips, Oracle's other president, the acquisition makes Oracle the world's largest supplier of open-source software.

Assuming Oracle is able to use its newly acquired open-source tools and technologies effectively, Wang says, the company is now the steward of Sun's successful open-source parts, such as MySQL, which may help accelerate changes in the market. "These open-source components have been viewed as the alternative to the dominance of the Big 4 [software firms, sometimes known as] MISO -- Microsoft, IBM, SAP, and Oracle," Wang says. "Oracle also gains an innovation engine with the assets of Sun's Labs groups, which [pioneered] a series of innovations that include potential enterprise solutions for the virtual world."

With regard to MySQL, IDC analyst Mike Fauscette later twittered the result of a subsequent phone interview with Phillips, in which Fauscette said the Oracle executive stated the company's "current plan is to continue to offer MySQL as an alternative offering (they already have other open source products)."

Wang, of Forrester, also points out that Oracle has one of the best post-merger integration teams in the business. And it doesn't hurt that Sun and Oracle have been partners for more than 20 years, he says.

On the call with analysts, Phillips said that the integration of Oracle and Sun products and infrastructure holds many possibilities for innovation. He pointed out, as an example, the possibility to provide specific verticals with complete "industry-in-a-box" hardware-and-software solution sets. He also noted that, in terms of storage, Sun's Open Storage is similar to Oracle's computing product Exadata in that both products use standard servers. "We can now deliver a complete system for creating, managing, storing, achieving, and restoring data," Phillips said.

Phillips also noted that, by adding Java, Oracle will now oversee the word's largest software-developing community.

"This truly is a momentous day for Sun and Oracle and for the industry in which we combine the assets and innovations to create a new leader across the entirety of the data-center marketpace," said Sun's Schwartz. He later referred to the combination of Sun and Oracle as a "systems-and-software powerhouse."

News relevant to the customer relationship management industry is posted several times a day on destinationCRM.com, in addition to the news section Insight that appears every month in the pages of CRM magazine. You may leave a public comment regarding this article by clicking on "Comments" at the top; to contact the editors, please email editor@destinationCRM.com.

Related Articles

Infor Makes the Latest Move in the CRM Shuffle

Six weeks after resigning from Oracle under a cloud of controversy, Charles Phillips is handed the reins at Infor.

5 Years Later, Oracle's Fusion Apps Finally Near Release

Oracle OpenWorld '10 — Day 1: Kicking off its mammoth conference, Oracle makes a few hardware announcements, tackles the cloud, and sheds more light on 2011's Fusion Platform.

Oracle Releases a Social Services Suite

The mega-vendor makes a handful of CRM announcements and heads into two new verticals.

Oracle Finally Puts the Spotlight on Fusion Apps

Oracle OpenWorld '09, Day 4: The final conference keynote featuring CEO and Founder Larry Ellison pumps up the crowd with a few surprise guests and a sneak peak at Fusion Apps.

Oracle Reinvigorates Mobile and Social CRM Offerings

Oracle OpenWorld '09, Day 3: One executive calls Oracle CRM On Demand not only Big Red's fastest-growing software-as-a-service application, but its fastest-growing application — period.

3 Game-Changing CRM Strategies at Oracle OpenWorld

Oracle OpenWorld '09, Day 2: Executives detail Oracle's broad strategy as a systems provider, and its head of CRM delves into transforming technology at the application layer.

Big Red Roundup

Oracle releases financial results, announces the departure of an influential leader, and creates news around its Fusion Middleware Apps.

Oracle Gets Down to E-Business With 12.1 Release

The latest edition of E-Business Suite offers a medley of enhanced capabilities, from compensation incentives to supply chain management. Also, Oracle waives first-year Extended Support costs for some customers.

Oracle Enters the Hardware Business

Oracle OpenWorld '08: Partnering with HP and Intel, the software giant introduces not one but two servers.

The Innovation Clock is Ticking

Oracle OpenWorld '08: Intel's CEO addresses the fast-paced world of computing, an extended commitment with Oracle, and Green IT.

Oracle Buzzes for the Gold

Oracle OpenWorld '08: The vendor kicks off its annual conference with a Monday keynote filled with a laundry list of announcements, strategies, and roadmaps.

Oracle Integrates CRM On Demand with Siebel

In an effort to unite on-demand and on-premises CRM, Oracle takes responsibility for product integration -- a move that looks particularly appealing for partner channel management.

Oracle and BEA: One Big Happy Family?

Oracle's BEA Welcome Event: The enterprise software provider shares its post-acquisition roadmap, and promises "no forced migration."

Oracle Salutes ''Acquired Innovation''

At Oracle OpenWorld 2007, executives emphasize the benefits of having made 41 acquisitions in 45 months: "We've become the IPO market for the enterprise software industry."

Oracle Is Set to Purchase Hyperion

The $3.3 billion acquisition would be Oracle's largest since Siebel, and continues Oracle's focus on BI while undermining rivals; more BI acquisitions are to come, according to analysts.

How Well Will Oracle Manage PeopleSoft's Customer Relationships?

The marathon takeover battle ends with a handsome payoff for PeopleSoft shareholders, but questions for customers.

Oracle Offers to Buy BEA Systems

On the heels of the SAP-Business Objects deal, Larry Ellison's company makes a multibillion-dollar move of its own.

SAP to Acquire Business Objects

The friendly takeover folds new business intelligence capabilities into one of the leading enterprise software platforms; amidst differing opinions, rumors loom of a counteroffer from Oracle or IBM.

Oracle and Siebel: What Does It Mean for Customers?

End-users are looking for answers as they wait for the planned acquisition to close.