IBM’s $7 billion for SUN – A Happy Marriage

Sun Microsystems used to be the darling stock during the dot-com boom. The company was the “dot” that connects everybody in the internet, so goes the saying. And IBM used to make jokes about this marketing statement – Sun was just a little dot, so why bother? But IBM can afford to be arrogant because their bread and butter were not on their AIX (IBM’s version of UNIX) but rather their mainframes. In fact IBM Corp. can prosper without its UNIX division, the same way Hewlett-Packard Co. can do without its HP-UX division. HP’s bread and butter were in printer business. But it won’t be fun to let Sun Microsystems monopolize the UNIX market and so the three UNIX players – SUN’s Solaris, IBM’s AIX and HP’s HP-UX.

Sun Microsystems engineers used to be proud owners of their share options and most of them didn’t exercise during the technology bull and they were watching in disbelieve how their stocks value tumbled. After the dot-com crash Sun Microsystems tried numerous ways to find their killer-apps to rise above the horizon again but never succeed. However unlike other IT giants that perished after a tsunami, Sun did one thing right – it continues to expand its R&D. Even after the technology crash it still command loyalty amongst its customers in corporate data centers. It’s strength in software, system design and research enable it to survive until today.

And now IBM, the company that used to ridicule Sun is toying with the idea of acquiring the latter for nearly $7 billion or roughly $10 a share – 100% more than Sun Microsystems’s closing price prior to the announcement. Everyone Tom, Dick and his dog in the I.T. industry knows that hardware business is the worst with razor-thin margin. IBM knew about this and it did the right thing by disposing its hard-disk drive division to Hitachi of Japan in 2003 and subsequently personal computer business to Lenovo of China in 2005. So the news about Sun’s acquisition raised some eyebrows but the fact is IBM is targeting Sun Microsystems’s Java and Solaris.

Sun’s most innovative and daring creation was perhaps Java, and internet programming language that is the de-facto computer science’s teaching language in most of the learning institutions. Programs written in Java are widely used in data centers and gadgets such as cell-phones. Both IBM and Sun Microsystems support open-source operating system Linux. Sun even bought MySQL, open-source database used in web commerce, for $1 billion in 2008. Despite its leading engineering in software the profitability was not promising and hence talks of Sun becoming the target of acquisition by other technology companies, amongst them Cisco and even EMC. Too bad it’s free StarOffice which was design to rival Microsoft Corp’s Microsoft Office didn’t take off. Sun’s dependence on its Solaris operating system is history although the respect for Solaris remains.

With DELL declaring VSS for its 5,000 staffs in Malaysia alone, the technology companies are seeking partners in the name of consolidation. IBM and Sun Microsystems should have a happy marriage although the merger would see some staffs’ job functions overlapping. It would be interesting to see how the merged IBM and Sun facing one-to-one fight with Hewlett-Packard especially in the UNIX market segment.