What an IBM-Sun Deal Could Mean

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Well, I guess it's true: If an enterprise computing vendor lives long enough, IBM will claim it in the end. While I have tremendous respect for Sun, I've never quite been able to figure out how the company has survived this long.

I'd always guessed the company would eventually be sold off piece by piece. Surprisingly, IBM now appears ready to invest perhaps $4 billion in cash (once you take Sun's cash and marketable securities into account) to remove a competitor from the marketplace in a single swoop.

There is more to it than merely offing Sun, of course. Big Blue would also pick up some interesting, if overlapping, products and technologies in the deal. Some of them, as well as the people who created them, will doubtless improve IBM's product line. IBM also gets a significant server business, though at the cost of increasing the complexity of its already complex offerings.

Is this deal a good one?

My guess is IBM would, post merger, rapidly consolidate product lines and sack perhaps thousands of Sun workers. Those who stay might be happy to still have jobs, but not so happy to be working for IBM.

That the two companies culturally "come from different places" is an understatement of some magnitude. This could reduce the value of the engineering talent IBM gets in the deal, but in this economy where do even talented engineers run to when they're unhappy?

In terms of battling rival HP, buying Sun makes sense. IBM/Sun would have approximately 42 percent of the server market (based on IDC numbers) compared to 29 percent for HP, and nearly 12 percent for Dell.

That presumes, however, that Sun customers would hang around post-merger. A technology exec of some renown once told me that a company's biggest mistake is giving customers a reason to reconsider their investment in its products.

An IBM acquisition of Sun would certainly trigger such reconsideration in many companies. How many Sun customers an acquisition would really throw into play and how many HP might snare are important questions.
This deal would be, as others have commented, about IBM taking on HP and not IBM taking on Cisco. But, if Cisco becomes successful in the server business, having Sun already out of the market might be a good thing for both IBM and HP.

Which makes me wonder: If buying Sun is such a good idea for IBM, might it have been a better idea for Cisco? I'd love to hear your thoughts.

My guess is an IBM/Sun deal would pass anti-trust muster, though you can't be sure this early in a new administration.

While the recession is unlikely to take Sun out of the market all by itself, it could make the company more attractive to other suitors, not to mention less expensive. A Sun in severe economic distress could upset the marketplace in ways IBM might not want to imagine, especially with Cisco making its bid for attention. A preemptive IBM purchase would head off that possibility.

I have read much of the IBM/Sun coverage and this post may be an oversimplification--in fact, given the complexity of just the product lines involved, it has to be.

My guess is IBM will make the purchase and it will result in another pioneering company going off into the night. That's not necessarily good or bad, but for Sun, it's inevitable.

David Coursey has been covering IBM, Sun, and the rest of the tech industry for more than 25 years. Contact him at www.coursey.com/contact.

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