04:45 AM

IBM's Bid For Sun Is A Blocking Move

Foremski's Take:

IBM's bid for Sun Microsystems [JAVA] is a strategic move aimed at preventing Cisco Systems or Hewlett-Packard from acquiring the company. IBM is already Sun's largest reseller; and IBM's support of open source software is similar to that of Sun. Why would IBM need to "buy the cow?" [Please see additional overlaps towards the end of this post.]

The move makes better sense as a strategic move to prevent Sun from falling into the hands of Cisco or HP. There are considerable synergies between Sun and Cisco:

- Sun has a large server business, Cisco is moving into servers.

- Sun has large customers in telecommunications and finance, two very large server markets.

- Sun has considerable R&D and IP in data center technologies, Cisco needs those capabilities if it is to rapidly succeed in its data center push.

- Sun has considerable expertise in building and running data centers.

- Sun has a services business that would aid Cisco in winning new business.

- Sun has very little overlap in products, technologies, or services with Cisco.

- Sun has extensive middleware.

- Companies buy systems and solutions - Sun would help Cisco move beyond just providing boxes such as its recently introduced Cisco Unified Computing System.

Sources told the Wall Street Journal that Sun has met with prospective buyers. Why didn't Cisco bite? Could it be that John Chamber's move over the past couple of years to decentralize the management of its operations and remove it's traditional command-and-control organization has disabled its ability to make large acquisitions? [Please see video of John Chambers talking abut these changes at the end of this post.]

Cisco acquired WebEx in 2007 for $2.9 billion, and Scientific-Atlanta in 2006 for $5.3 billion. It has made 127 acquisitions.

Hewlett-Packard would also benefit from a tie up with Sun.

A merged HP and Sun would make a stronger competitor against IBM. It would create a West Coast versus East Coast rivalry that could unite the two cultures against a common enemy.

- HP would get Sun’s range of SPARC systems and an impressive future technology road map for SPARC microprocessors. This is a great challenger to IBM and its proprietary 64-bit Power microprocessor architecture. Margins on proprietary hardware are four to five times better than on industry-standard systems.

- HP would gain from Sun’s large accounts in financial services and telecoms. These sectors are huge IT spenders.

- Sun needs a much stronger services arm, and HP has a strong IT services group.

- HP would gain Sun’s middleware, very important against IBM’s WebSphere middleware. Middleware software has a very high profit margin.

- Both companies could consolidate their computer labs.

- Sun’s Java technologies have consumer electronics and mobile phone applications and momentum.

- Both have strong data center technologies. They could dominate cloud computing.

There are many overlaps between Sun and IBM where there would be little benefit to IBM:

From  IBM/Sun deal won't be about the software, experts say | The Industry Standard

. . .Sun has developed StarOffice off the OpenOffice.org project while IBM has developed Symphony around the same code base.

It is unlikely that IBM would scrap the work it has done over the past few years to weave Symphony into its Note/Domino collaboration tools and its emerging collection of social networking software.

In addition, Sun is the primary sponsor of OpenOffice.org and the primary contributor of code to the project, a role IBM would have to assume.

IBM already has an established middleware (WebSphere, DB2) and tools business where Sun could add little value.

IBM and Sun also have competing directory technology and identity management tools.

Sun's MySQL database technology is hot in the Web 2.0 world and presents an opportunity for IBM in terms of its data center strategy, but clearly it overlaps with DB2 from an enterprise perspective.

The IBM bid for Sun makes sense if it is seen as a blocking move to prevent Sun from falling into the hands of a competitor. And it has given Sun a relatively high valuation to raise the bar for Cisco, or HP to come up with a bid of their own, and to speed the completion of the deal.

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Please see:

Cisco Crosses The Rubicon With All-In-One Data Center Box - A War Of Attrition Begins?

Cisco CEO John Chambers speaking about the move to a decentralized collaborative management structure and away from command-and-control.