Maybe you’ve heard.  Oracle has is going to purchase Sun for $7.4bil, or $9.50 per share (a 42% premium over its current market cap).

We had been watching the dance between IBM and Sun for a few weeks now, and had speculated as recently as last week in “Worth a Click” that there was still a chance for those two crazy kids to work it out.   However, it appears possible that the ‘come hither’ noises Sun was making to IBM last week could have just been a negotiating tactic aimed at Oracle (Sun is going to Oracle for a mere  $0.10 more per share than IBM’s last best offer).
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With the IBM and Sun deal we wrote about a few weeks ago now reported to be very close to happening (any minute now…), rumors are starting to swirl about another (somewhat sexier) acquisition:

according to rumor…   google may want twitter

(…and stay tuned for some interesting antitrust issues with the IBM deal - I put the likelihood that one or more parts of Sun end up getting spun off in the process at about 50-50)

I’ve written before about a good experience I had in my past life as a network/IT consultant deploying Wyse thin clients for a small business client with several remote locations spread across the country and a central MS terminal server (”it’s good to be thin“).

A quick update: IBM has just signed a deal to deploy Wyse thin clients running the new Wyse 6.3 operating system to its Global Technology Services clients using VM Ware or Citrix application servers.  One of the improvements in the 6.3 OS: the client is smart enough to recognize CPU-intensive graphics and media, and transfer (and/or cache) data for processing on the local processor: it’s all about identifying which aspects of the application would be most likely to annoy a user if they were delayed by network performance issues (in a way, the new Wyse thin client is getting slightly less thin).

As network performance improves and vendors optimize the hardware for as crisp a user experience as possible, the advantages of thin computing (ease of maintenance, security, and lower power consumption, to name a few) will only become more alluring.  It turned out to be a pretty good idea a few years ago for me, I think it’s even a better idea now.

Barring any unforeseen problems with the due diligence and final negotiations, we’re soon going to be hearing all about a deal struck for IBM to acquire Sun.

Sun’s Business
Software: Sun has been a troubled company for a few years now, but will always be admired for giving us Java, the pioneering object-oriented/virtual machine-managed programming language that’s proven itself particularly well-suited for the internet (and upon which many aspects of Microsoft’s competing .Net Framework are modeled).  Sun also recently acquired the very popular open source mySQL database platform (much as the open source Java platform competes against the proprietary .Net Framework, MySQL competes against Microsoft’s proprietary SQL Server).
Hardware: Sun has a going concern in tape storage (yes, tape is still widely used for backing up large and relatively static data), and with its Solaris flavor of Unix, claims roughly a third of the Unix server market.

Why it Makes Sense

• Sun and Big Blue are both distinguished by their common commitment to open source software: Sun administers Java through the Java Community Process, and IBM has used (and been a champion of) open source software for several years now.  However, while Sun has always had difficulty monetizing Java, IBM has the good fortune of having a thriving (and application-hungry) global services and consulting business in place – and so will almost certainly have better luck making some money off the Java programming language than Sun has had (Sun grossed only $200M from Java during 2008, a less than 1% increase over 2007).
• It’s important to note that IBM is already in the Java business – along with major competitors SAP and Oracle, Big Blue sells Java-based “middleware”.  In short, middleware is the software plumbing required to glue other enterprise software apps together (often in a web and/or transactional applications).  So although Java is open source, if IBM were to assume stewardship of the language, it would give its WebShere middleware products at least a perceived leg up on the Java middleware competition.
• Maybe most importantly, consider this: according to a recent BusinessWeek podcast, fully two thirds of American corporate credit is now rated as junk.  Even given the current macro-economic climate, I have a hard time believing such a sobering statistic – but in these credit-starved times, if Company A has some cash on hand, it might be a good time to pull the trigger and acquire weaker Company B: short-term, Company A will be negotiating from a position of strength, and longer-term, it will leave itself well-positioned for the turn-around.  With a market cap of $124B and an annual cash flow of $12B,  IBM is Company A: more than able cover the estimated $6.5-$8B deal for Company B (Sun) in cash.

Antitrust?
Software: It should be relatively smooth sailing: the very fact that Java is open source should help insulate IBM from any challenges by Microsoft or IBM’s middleware competitors (it should be noted, though, that not all is not bliss in the open source community: the non-profit Apache Foundation is currently in a longstanding dispute with Sun over licensing of Apache’s “Harmony” Java implementation).
Hardware: This could be an issue.  IBM and Sun are already the two leading tape storage players, and the Unix server market is currently split roughly equally between Sun, IBM, and HP.  It’s therefore pretty easy to imagine HP making a compelling antitrust argument against a combined IBM/Sun holding two thirds of the Unix server market - or any number of smaller companies arguing against a combined IBM/Sun dominating the tape storage market.


In short…
In one form or another, I think this deal will go through - it just makes too much sense.  I do expect a bumpy antitrust ride, though - whether IBM gets all of Sun for the $6.5-$8B or whether the hardware businesses are spun off and IBM picks up only Java and MySql for less remains to be seen…