Oracle-Sun Combo!

I looked at the news in disbelief this morning – Oracle buying Sun for $7.4 Billion. The actual deal would cost Oracle only $5.6B after taking into account Sun’s cash and debts. In some sense, it’s a “steal”  for Oracle, cheaper than what it paid  for BEA and  PeopleSoft. Remember, Sun was valued at $200B at its peak during the dot-com hay days.

The immediate questions are: Oracle is getting into hardware business? What value does Oracle get from proprietary OS like Solaris? What would Oracle do with MySQL? What about Open Office? How many people will be laid off from the 34000 Sun population?

During my ten years at Oracle, Larry kept repeating “We are not a hardware company and wll never be.” Well, if that conviction persists, then Oracle will dispose off the server and storage business, which are low margin entities anyway and are being commoditized every day. Also, it will pose conflicts with Oracle’s other hardware partners like HP and Dell.

It is true that there are thousands of customers running Oracle on Solaris for years.  Having one vendor supplying both pieces can be appealing to customers for better support and enhancements. IBM is a good example of doing that, so also Microsoft. It seems we are back to “vertical stack from one vendor” days. Oracle has never done any storage hardware business, although database software folks like me feel intimate to the disk hardware, as the software has to work very close. The dividing lines can be interesting (how much the DBMS does vs the Storage manager). Some people call this “bullet-proof vertical” approach – having storage, OS, and DBMS from one vendor.

The gain of the Java business is significant and Oracle mentioned that that will add to the middleware revenue. Time will tell, as development platforms are not usually good revenue generators. MySQL open-source database will be interesting, as it will be additional to Oracle’s own closed-source database business. But Oracle also has an open source database product.

I think the deal is mostly financial. Oracle’s EPS will gain 15 cents. profits will grow by over $1B during the first year. From an ROI standpoint, this deal makes a lot of sense for Oracle and a saviour for Sun which had no bidder after IBM dropped the offer.

It’s a bold bet for Oracle.


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