Article

IBM reportedly wants Sun for $6.5B

Dave Raffo
Sun Microsystems Inc. is for sale and IBM Corp. is negotiating to acquire its rival for at least $6.5 billion, according to a story today in The Wall Street Journal (WSJ).

Storage is hardly the main driver of the talks, but if the deal goes through it would let IBM consolidate the enterprise tape library market and extend the open-source model that Sun has embraced.

There has been talk for months that Sun is looking to sell itself or at least

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parts of its storage business.

If the WSJ story is correct, the biggest surprise of the deal would be the price tag. The $6.5 billion figure is approximately twice what Sun was worth before news of the deal leaked, and there doesn't appear to be any other serious suitors. The WSJ story said Hewlett-Packard (HP) Co. passed on Sun. Last year's rumors said EMC Corp. was interested, but EMC president and CEO Joe Tucci has downplayed any talk of acquiring companies that are close in size to his own.

[Open storage]may be the first thing that Sun did right for storage in decades.
John Webster
Principal IT advisorIlluminata Inc.
Sun, which lost $209 million in the last quarter of 2008, has been in a steady decline for years, and a change in CEO from Scott McNealy to Jonathan Schwartz three years ago failed to alter its fortunes. Storage has been a weak spot for years, leading Sun to its Open Storage initiative, which has resulted in interesting new products and some customer notice, if not many sales.

Kaushik Roy, senior analyst, data center technologies at San Francisco-based Wedbush Morgan, said a sale makes sense for Sun, but he doesn't expect any other serious bidders.

"Sun, as it stands now, is likely to shrink," Roy said. "It's better for Sun shareholders to sell Sun to someone else. [But] $6.5 billion seems expensive in this kind of market."

On the storage side, Sun still has the tape business it acquired with StorageTek for $4.1 billion in 2005, but its disk storage comes mainly from OEM partners – Hitachi Data Systems (HDS) in the enterprise, LSI (also an IBM disk OEM partner) in the midrange, and Dot Hill Systems Corp. for entry-level systems.

Buying Sun would give IBM a lock on the enterprise tape market, but that shrinking market is unlikely the impetus for a multibillion dollar deal.

"IBM is going to get the tape market, but do you really want a shrinking business?" Roy said. "Sun's storage systems business is a waste. At the high end, you just kick out HDS. Midrange and entry level, you just kill it."

John Webster, principal IT advisor at Nashua, N.H.-based Illuminata Inc., agreed with Roy about tape, but thinks Sun's open-source storage can be valuable to IBM. Sun launched its Sun Storage 7000 Unified Storage Systems in January, which is based on open-source software.

"IBM would consolidate Sun's tape operations with its own," Webster said. "But they're not going to pay $ 6.5 billion and expect tape to add value to the acquisition. Open-systems disk could be very attractive to [IBM], particularly on the storage software side.

Webster said Sun's open-source strategy is paying off with customers. "They're starting to get a lot of serious attention with that product," he said. "It may be the first thing that Sun did right for storage in decades."

Webster also said the current economic conditions present an opportunity for open-source storage that might not be there in better times. "The commercial buyer is now in a way forced to look at open-source alternatives because of price," he said. "Sun has held steadfastly to this model. It was a risky model from the beginning, and if it doesn't work now, it's not going to work."

Related Topics: Storage vendors, VIEW ALL TOPICS

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