It is not often that you get to hear a company, of the size of Sun Microsystems, rejected by one suitor being snapped up by another in the next four weeks.
Sun has been the target of acquisition ever since its business took a beating after the end of the tech boom in 2001. It has earlier spoken to HP and IBM in the past for a possible buyout. To understand why Oracle has agreed to buy Sun for $7.4 billion cash and paid a 42 per cent premium to its stock prices, it is necessary to understand where the value lies in the world of hardware and software.
At the lowest end is the hardware business, followed by the system infrastructure software and hardware, middleware comes next, application software follows next and business intelligence software comes at the top. With its acquisitions JD Edwards, Siebel, PeopleSoft and several others Sun has already had a reasonable presence at the higher end of the food chain.
This acquisition will also help Oracle consolidate its position at the lower end of the chain.
"This takes Oracle from a second layer software vendor to a top-tier vendor," said one industry veteran.
Oracle has acquired over 50 companies since 2005, including PeopleSoft for $10.3 billion, BEA Systems for $8.5 billion and now Sun Microsystems for $7.4 billion, its third biggest acquisition. India's iFlex Systems, which make one of the highest selling core banking solution in the world called Flexcube, was also acquired by Oracle nearly three years ago. It is now called Oracle Financial.
Sun's acquisition also allows Oracle to access the Java developers across the globe and get an entry into the developing markets of the world. Java is Sun's proprietory technology, which works across operating systems and also helps run devices.
With an eye on the high revenue yielding server business of Sun, Oracle can now bundle its other middleware and business intelligence software and, as a senior industry professional said, "pretend to be another IBM", which offers end to end solutions for IT needs of large corporations.
Large global corporations prefer to outsource their IT requirements to one vendor. IBM, with its offering across hardware, software and services, has managed to corner a large part of that offering. A typical example of that was the $750-million 10-year deal that IBM signed with Bharti for the outsourcing of its IT needs. By stitching together the Sun deal, Oracle is now heading towards getting a share of the services pie too.
Analysts expect services to be the next battlefront for IT hardware giants as Oracle hopes this deal will power it ahead and help it reach the target of $50 billion by 2012.
IBM Global Services is the largest services company in the world, with revenues in excess of $40 billion. Oracle and IBM's rival, Hewlett Packard had acquired EDS last year to enhance its focus on the services business.
Sun has the highest number of developers across the globe. Its customers are known to be sticky and Solaris is known to have a committed following in the IT industry. It has presence in the ERP, database, storage, business intelligence, consulting and several other verticals. It has focused a large number of its applications on Java technology, owned by Sun. With Sun now in its bag, it will not have to bet on technology owned by another company.