The high-tech rumor mill churned at high speed Wednesday as industry watchers debated the good, the bad and the ugly about a potential pairing of IBM and Sun, if Big Blue does indeed acquire its long-time rival.
IBM and Sun compete in many markets, such as servers, virtualization and cloud computing. But while IBM excels, Sun continues to fall short — making it a candidate for an untimely death or an opportunistic acquisition, according to analysts.
“If this deal is for real, this would be the most graceful way for Sun to exit the market — particularly since C-teams are cutting back on the number of IT suppliers they have to deal with,” says Jasmine Noel, a principal analyst at Ptak, Noel & Associates.
For Sun, an acquisition could put an end to speculation that the server vendor is going out of business. But at the same time, an IBM buyout could burden Big Blue with too many overlapping products and would worry Sun customers about the future of their much-loved products.
“Sun is in trouble, without doubt, and with a strong cash reserve it is a very attractive takeover target for any large organization that can afford them,” says Andi Mann, research director at Enterprise Management Associates. “For IBM, it is a questionable move. It definitely makes sense in some areas, but there are problems here too — most specifically, all the product overlap.”
For instance, IBM and Sun both develop Unix operating systems (AIX and Solaris), as well as open source operating systems with Linux and OpenSolaris. They both deliver databases with IBM's DB2 and Sun's MySQL, and perhaps the most obvious product duplication, the two vendors' respective server and storage portfolios. Other overlap exists with virtualization, e-mail and collaboration servers, developer tools, security and productivity applications, and to a lesser extent, management software, Mann says.
Mann says loyal Sun customers, in particular Solaris customers, might witness the products they most like become “at best, marginalized in the IBM sales machine and at worst, unceremoniously dumped.” Without a commitment from IBM to put its considerable strength behind Sun products, customers would have to be concerned about the future of their current Sun investments if a deal is in the works.
“IBM would be cannibalizing its own (mostly) profitable business lines with a whole raft of second-tier and open source solutions,” Mann says. “I think this would be absolutely awful news for Sun and its customers.”
Noel argues that while IBM and Sun both develop cloud-related products, Big Blue trumps Sun's efforts, and that a pairing could produce better cloud computing and monitoring tools for IBM.
“IBM is very interested in figuring out how to fold cloud computing and the deployment/management of cloud resources into their big picture of Service Management. Sun has been making lots of cloud noise but not much cloud money — maybe IBM can change that,” Noel says.
Some analysts say the deal could rival Cisco's recent Unified Computing System (UCS) launch in less obvious ways. For instance, Sun has desktop virtualization technology that could help IBM better compete with VMware, a key partner in Cisco's recent news. And Sun's Crossbow virtual networking initiative could give IBM the network services needed to offer an equivalent to Cisco's server market entry.
“Sun's desktop virtualization/thin client offerings and its Crossbow virtual networking initiative are two key offerings that might not get mainstream attention as everyone tries to digest what this deal might mean. The Sun VDI offering would give IBM its own core virtual desktop offering, from thin clients to the back-end infrastructure, making it more competitive with HP, and less reliant on external partners such as VMware,” says Phil Hochmuth, a senior analyst at Yankee Group. “Sun's Crossbow initiative, which provides virtualized network services and interfaces for Solaris, is similar to Cisco and VMware's combined efforts to converge virtual network and server management and provisioning. So from a tit-for-tat standpoint, if Cisco's server market entrance is a thumb in IBM's eye, the potential of Crossbow in IBM's hands could be a jab right back at Cisco.”
If IBM is planning to acquire Sun, negotiations would have had to begun prior to Cisco's recent news, but industry watchers say Cisco's move could impact this and other server vendor acquisitions.
“As a response to Cisco, it certainly heats things up, but doesn't really change the game. Perhaps it takes Sun off the market so Cisco [or EMC] can't buy them, and that might be valid reason enough for IBM to move. But this is not a typical IBM acquisition,” EMA's Mann says.
If the rumors are true, IBM buying Sun could help the vendors adapt more quickly to a changing market, others say.
“Clearly, Sun continues to have problems. However, it has some very good software assets that it has not found a good way to monetize,” says Judith Hurwitz, president and CEO at Hurwitz Associates. “There is a relationship to the Cisco announcement which is very significant. Cisco is potentially commoditizing the server. If this does come to pass it will have dramatic implications for the hardware market and could change the balance of power. Therefore, we expect that it will lead to a flurry of acquisitions and I wouldn't be surprised to see IBM acquire Sun.”
