Tag Archives: Sun might be a blocking move from IBM

Will IBM buy Sun?

Big news around the traps is the potential of IBM to buy Sun for a projected $6.5B, which is about double what the company was valued at when the announcement came out. It has been rumoured for some time that Sun had itself up for sale, it’s market share has been decreasing regardless of what they do to stop it and they risk burning cash to keep themselves afloat. Their latest 10K shows that in Quarter 2 they dropped in revenue, yet increased in costs despite having a significant round of cost cuttings and redundancies.

I don’t see any significant product advantage to IBM from this move. While they will gain some market share, history would suggest they would be lucky to keep half of what Sun now have. Then the cost of transitioning Solaris customers to either AIX or Linux would only be high. The only higher cost option being to keep AIX and Solaris going in perpetuity. There is also the impact of having to continue support for older versions of Solaris while the talented ex-Sun people stream away to other companies.

While IBM would gain access to Java, they have pretty much open access to it already without having to spend the developement dollars. And in every other crossover market, database, tape, storage and services there would be similar prospects of difficult product line merges.

If this does go ahead, I would think this probably has more of a blocking move than improving IBMs product line or market share. Sun are arguably a bargain price at the moment. Before IBMs interest became public, Suns market valuation was about equal to its equity position. Even offering double that this is a better deal than most tech takeovers. Sun has around $2.6B in cash and equivelants, which makes the real price around $3.9B, and splitting off and selling a few divisions will bring that down even further.

I would guess that IBM is worried about someone else buying them and getting quick access to a market they don’t compete in. Someone like a Dell, Acer or Cisco. Even possibly a Lenovo. Dell for example has $8B in cash and no Unix or credible high end services. Bidding big and bidding early might let IBM snap Sun out of a potential rivals hands.

The market seems to have decided this deal is going to happen. Sun shares rose nearly $9 bringing their market cap up to almost the IBM bid price. This means that the stock market is willing to bet $9 a share for a $1 a share return.

This doesn’t seem good for Unix customers though. They will go from having 3 mid-range options to 2. It will likely be good for Microsoft and the Linux vendors though as it will probably give a kicker to the companies moving away from Unix.