March 19, 2009 I.B.M., Looking to Buy Sun, Sets Up a Software Strategy By STEVE LOHR and ASHLEE VANCE NY Times
http://www.nytimes.com/2009/03/19/technology/companies/19sun.html?ref=technology&pagewanted=print I.B.M.’s interest in acquiring the server computer maker Sun Microsystems for nearly $7 billion may seem at first to be a reversal of its recent efforts to move away from the hardware business. But analysts say there is more to Sun than servers, which are used in corporate data centers. They say its strengths in software, systems design and research make it an attractive target. The price tag being discussed by the companies works out to nearly $10 a share, a person with knowledge of the negotiations said on Wednesday. That is approximately twice Sun’s closing price on Tuesday. Shares of Sun surged nearly 79 percent Wednesday on news of the negotiations, to close at $8.89. I.B.M. has pared back its dependence on hardware, where profit gains have declined, while increasing its investment in higher-margin software and services businesses. It sold off its personal computer business to Lenovo of China in 2005, and its hard-disk drive unit to Hitachi of Japan in 2003. Sun has a solid share of the market for server computers used in corporate data centers, but it too has been trying to expand in more profitable businesses. While it is struggling financially today, the Silicon Valley company has long been a source of technological innovation. Sun created both the Solaris operating system, a version of Unix, and Java, an Internet-era programming language and related software tools. Java is the teaching language in most of computer science, and software programs written in Java are widely used in things like data centers and cellphones. “The technologies of greatest interest to I.B.M. are Java and Solaris, and those are notably not hardware technologies,” said David M. Smith, an analyst at Gartner. I.B.M. uses Java extensively in its big software group, which trails only Microsoft in size. It has its own Java-based tools for software developers, called Eclipse, and at times it has clashed with Sun, potentially weakening the Java camp as an alternative to Microsoft’s Windows software and tools. If it acquired Sun, I.B.M. “would unify those warring groups and make for a stronger front against Microsoft,” said Michael A. Cusumano, a professor at the Massachusetts Institute of Technology’s Sloan School of Management. Both I.B.M. and Sun boast sizable communities of third-party software developers who write programs using their technology. An estimated one million programmers use Sun’s technology, while I.B.M.’s vast software business claims eight million. Both companies not only support Java, but are also backers of the open-source operating system Linux, a rival to Microsoft’s Windows in data centers and on some desktop personal computers. In 2008, Sun increased its commitment to open-source software by paying about $1 billion for MySQL, a company distributing an open-source database that is used in Web commerce sites. Still, Sun’s server business means that the merger, if completed, would be a major consolidation in the machines that power corporate data centers — and it would certainly invite antitrust scrutiny. News of the talks between the two companies was first reported in The Wall Street Journal. I.B.M. would not comment. Sun’s chairman, Scott McNealy, said in an e-mail message: “As always, I don’t comment on rumors, no matter how accurate or silly they may be.” Despite its innovations in software, Sun has been unable to arrest the erosion in the profitability of its mainstay server business. That business had long been based on Sun’s proprietary hardware designs, and its high-end machines still are. The profits in proprietary servers have been under steady pressure from machines run by lower-cost microprocessors, made by Intel and Advanced Micro Devices, using personal computer technology. The leading makers of these industry-standard servers are Hewlett-Packard and Dell. The price pressure as servers turn into commodity products has prompted the major server makers to move into software and services. They are particularly focusing on supplying the technology and expertise to operate corporate data centers more efficiently and with less power. Sometimes they supply computing services to business users much as Google does to consumers, a style of data-center service known as cloud computing. “For years, Sun has been fighting against the commoditization wave,” said Nicholas G. Carr, an industry analyst and author of “The Big Switch,” a book published last year about cloud computing. “But building private cloud-computing environments for corporations looks like a much more lucrative business for all the major server companies. That way, they are not just selling generic boxes, but also higher-level engineering, which is more profitable.” Sun came to the view last year that linking up with another large company would be its best future. That is when its representatives began talking to other companies, including I.B.M., according to a person involved in the discussions. If the companies agree on a bid, an antitrust review will begin. The principal issue, legal experts say, will be how regulators define the server market. Together, I.B.M. and Sun would have about 65 percent of the market for server computers running the Unix operating system and 42 percent of the total server market, measured by the dollar value of the market. But viewed by numbers of server computers sold, I.B.M. and Sun would have only 18 percent of the market, according to I.D.C., a market research firm. That is because Hewlett-Packard and Dell are the leaders in lower-cost industry-standard servers, which sell in far higher numbers than Unix machines. Combined, the companies would hold nearly all of the $1-billion-a-year market for specialized robotic systems that handle tape storage for mainframe computers, according to Robert Amatruda, an I.D.C. analyst. Antitrust enforcement tends to be less rigorous in bad economic times, in the interests of keeping business activity going. But legal experts said that each antitrust merger review is a separate case, based on specific facts. -- ================================ George Antunes, Political Science Dept University of Houston; Houston, TX 77204 Voice: 713-743-3923 Fax: 713-743-3927 Mail: antunes at uh dot edu *********************************** * POST TO [email protected] * *********************************** Medianews mailing list [email protected] http://lists.etskywarn.net/mailman/listinfo/medianews
