May 18, 2009, 10:27 AM — Oracle's recent US$7.4 billion bid for Sun Microsystems could turn Sun's ailing hardware business into a boon for data-center managers. But industry analysts question whether the software firm can turn Sun's hardware platform back into gold.
Oracle has done well in past acquisitions, buying and quickly integrating large software companies such as BEA Systems, PeopleSoft, and Siebel Systems. But the purchase of Sun, and its large hardware business and SPARC processor platform, is a whole different beast, says George Weiss, VP of server and operating system trends at Gartner.
"The nature of this acquisition (for Oracle) is different than anything that has preceded it," Weiss says. "Oracle has to carve out an opportunity in a market where Sun was pretty vulnerable and threatened."
In statements posted online, Oracle argues that its planned purchase of Sun Microsystems will give IT managers better, more integrated enterprise appliances for the data center. But Weiss worries that the acquisition could leave Oracle facing the same quandary as Sun: Decreasing hardware revenues for a minority SPARC platform.
Sun's revenues for its servers and storage products have fallen quickly in the past year. In 2008, the company made $153 million less on its computer system and storage products as compared to the prior year.
And, in its most recent quarter, which ended on March 29, Sun's product revenue fell even further, down $434 million compared to the same quarter in 2008, according to its filings with the Securities and Exchange Commission.
Companies that compete against Sun's SPARC architecture question whether Oracle would be better served staying with the proprietary platform or increasing its adoption of Intel's Nehalem architecture. Intel announced the Xeon 5500, its first enterprise processor family which uses Nehalem, in March.
"Do they really need to stay on a SPARC-based system and what are the advantages of cost?" asks Jeff Hudgins, VP of marketing for NEI, which builds designs and builds enterprise products for other companies based on Intel's architecture. "Sun is leveraging a lot of x86 technology already. They have a Nehalem strategy as well."
When Oracle announced the acquisition on April 20, the company immediately tried to assuage the fears of Sun hardware users by committing itself to increasing its support of the SPARC processor architecture. "After the closing, Oracle plans to be the only company that can engineer an integrated system where all the pieces fit and work together so customers do not have to do it themselves," the company states in a FAQ posted on its Web site. "Our customers benefit as their systems integration costs go down while system performance, reliability and security go up."
Oracle declined to comment on the acquisition beyond the statements posted on its Web site, but in a posted interview, Oracle CEO Larry Ellison likens his strategy to Apple's creation of the iPhone.
"If a company designs both hardware and software, it can build much better systems than if they only design the software," Ellison said in the interview. "That's why Apple's iPhone is so much better than Microsoft phones."
If Oracle can deliver on the promise, data-center managers would stand to benefit. And an Oracle-Sun combination could threaten giants such as IBM, says James Kobielus, senior analyst for data warehousing and advanced analytics at Forrester Research.
"IT managers will have a one-stop shop of hardware and and software needs in the data center, in terms of both the servers and the storage, the databases and the business intelligence," Kobielus says. "This is clearly a shot across the bow of IBM, who long offered one-stop shop advantages."
IBM declined to be interviewed for this article.
Creating well-tuned appliances for the data center will not be anything new for Oracle, Kobielus adds. The software company already does just that for its data warehousing product line.
"Oracle will be able to scale economies, which will give everyone else in this area a run for their money, which will lead to an era when data managers can get a cheap out-of-the-box experience," Kobielus says.
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