IBM mulling bid for Sun

By Alex Handy

March 18, 2009 —

UPDATED (5:14 PM) — The software development industry was rocked this morning by rumors of a forthcoming acquisition of Sun Microsystems by IBM. The news was first reported this morning by CNBC and "The Wall Street Journal," with both outlets anticipating that a solid offer in the area of US$65 billion could be on the table within the week. The stock’s price was up 78% from when the news broke this morning.

Jean Bozman, research vice president for enterprise servers at IDC, said that it cannot yet be known whether the acquisition report is real or not.

“Nobody knows where it came from,” she said, referring to the unexpected nature of the report. “It could even have been something along the lines of a trial balloon to see how people would react. IBM is a heavy Java user and has been for a long time. There was a time period when IBM had more Java programmers than Sun. And Java is a unifier in the data center.”

Numerous attempts were made to contact IBM and Sun Microsystems about the deal. Marten Mickos, former CEO of MySQL and now an open-source strategist with Sun (until early next year), declined to comment on the acquisition. Karl Haberl, director of Sun Microsystems Laboratories, said he could not comment and that he did not know anything about the acquisition rumor. Roger Kitain, a staff engineer at Sun and specification lead on JSR 314 for Java Server Faces 2.0, also said he knew nothing about the acquisition.

Sun Microsystems has had a tough couple of years since its current CEO, Jonathan Schwartz, took the reins. Schwartz had been in the middle of filming a four-part video-blog entry attempting to explain Sun's business plans for the future, but those videos stopped arriving after the second installment, prompting discussion over whether or not the acquisition would happen so quickly that there would no longer be a need to make such information public.

Adding to the tumult at Sun, the company's CommunityOne East open developers conference is taking place in New York today. There, developers, Java Community Process members and general Java programmers have gathered to discuss the future of the Java platform and the OpenJDK.

John Rymer, senior analyst at Forrester Research, said that Schwartz had been shopping the company around since the downturn in the economy. Sun estimated that its own revenues from financial customers made up around 25% of its business, and with financial institutions currently in dire straights, Sun's bottom line was obviously hurting. The company posted a loss of $642 million in the final quarter of 2008. Such a loss is reminiscent of the type of losses seen when Schwartz was promoted to CEO in 2006.

Rymer said that this deal would be appealing to IBM for many reasons. “[Reason] one is Sun's enterprise server business. [IBM] divested themselves of some of their hardware business, but they still have a big footprint in enterprise servers. That stuff is important to them. Ground zero is the server business, where I think IBM has decided they want to consolidate their Unix and Linux business to compete with [Hewlett-Packard].

"[Second,] IBM has an enormous amount of software revenue based on Java, so they would have control over that technology and control over its evolution. I think Solaris is a big part of this. Of all the Unixes, Solaris is the biggest."

Another interesting angle for IBM wouldn't be developer- or server-related at all, said Rymer. “The other aspect of this that I think would be interesting to them would be OpenOffice, where IBM is again trying to compete with Microsoft. Sun also has a very strong identity management business.”

Bozman pointed out that Sun already has a number of large investors on its board of directors, including two from Southeastern Asset Management, which snatched up 22% of Sun's common stock in December 2008. At the time, the deal was worth over half a billion dollars.

Sun also accepted investment from private equity firm Kohlberg Kravis Roberts & Co. in early 2007. That deal was worth $700 million at that time. Both of these outside investment firms, said Bozman, would be part of any negotiations.

Rymer agreed, speculating that some members of Sun's board may be forcing the sales issue because of the company’s continued poor performance.

Related Search Term(s): IBM, Sun

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IBM, Sun still quiet on acquisition A day after the rumor about the two companies bubbled to the surface, analysts speculate what the implications could be from such a union. Java developers also weigh in on what this would mean for their projects.

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What a Sun-IBM merger could mean for Java If IBM were to go through with a rumored acquisition of Sun, SD Times columnist Andrew Binstock speculates on the future of Java in the enterprise and in open source under the auspices of IBM.

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