Intel Chief: IBM Is Getting Sun Cheap

By Lawrence Walsh  |  Print this article Print

Intel CEO Paul Otellini, in SEC filings, confirms Sun Microsystems has been shopping itself around for a buyer for months and that IBM is likely in hot pursuit because Sun's stock is at a bargain price.

Intel Chief Executive Paul Otellini told employees at the chip maker that it should come as no surprise that IBM is interested in buying Sun Microsystems since the one-time high flier of Silicon Valley is trading stock at a bargain price.

According to reports by Reuters, Otellini said Sun has been shopping itself around to prospective buyers for months, offering to sell all or part of the company. Last fall, Sun declared a $1.2 billion year-over-year revenue decline and announced layoffs for more than 6,500 employees.

"I can tell you that Sun was shopped around the valley and around the world in the last few months," Otellini said in Securities and Exchange Commission filings. "A lot of companies got calls or visits on buying some or all the assets of the company. It looks like IBM is in the hunt now. And at a hundred-and-some-odd-percent premium, I suspect they'll get it."

News broke last week that IBM was in talks to buy Sun. The asking price ranged between $6.5 billion and $8 billion. At that price, IBM was offering more than 100 percent premium on Sun’s then-traded price of $4.78 per share.

IBM and Sun have both been silent on the rumored deal, but neither has been out of the spotlight.

IBM announced March 25 that it will lay off nearly 5,000 employees, or 4 percent of its work force, and shift more work to India.

Sun has been touting its positioning in the rapidly expanding cloud-based services market. Sun CEO Jonathan Schwartz, speaking at the InfoWorld Open Source Business Conference in San Francisco, avoided commenting on the IBM talks and focused on Sun’s ambitions in cloud computing.

"Where's the money?" Schwartz asked rhetorically. "Our cloud services will not be free. They'll be available for a fee."

Other vendors have reportedly been interested in or were approached to acquire Sun, including Hewlett-Packard, Dell and Cisco Systems. Some speculated that IBM made its move to acquire Sun because of Cisco’s entry into the blade server market with its unified computing strategy. Otellini dismissed notions of IBM being motivated by competition, stating in the filings, "I think [the] cheap Sun price—a low price—spurred a lot of interest."

Published reports have stated that IBM is deep into its due diligence, reviewing contracts Sun holds with other IT vendors and customers. The review shouldn’t hold up the deal, some reports have stated.

Should IBM acquire Sun, it will gain an immediate 10 percent increase in server market share, solidifying its top position over second place HP.

Channel observers and analysts have speculated that IBM’s interest in Sun is purely for market share and install customer base gains. Solution providers have been relatively split on the idea of IBM buying Sun—many are saying it will make little difference in the competitive marketplace, while others believe it will be a game changer for partners of Sun and IBM competitors (namely Dell, HP and Cisco).

The IBM-Sun deal kicked off a number of reports of rumored acquisitions and consolidation deals among big vendors. Cisco’s blade server announcement rekindled speculation about its interest in buying EMC or NetApp. Analysts are openly saying Dell should buy Palm to get into the handheld market. And there are reports that Oracle is expressing interest in open-source software vendor Red Hat.

Lawrence Walsh Lawrence Walsh is editor of Baseline magazine, overseeing print and online editorial content and the strategic direction of the publication. He is also a regular columnist for Ziff Davis Enterprise's Channel Insider. Mr. Walsh is well versed in IT technology and issues, and he is an expert in IT security technologies and policies, managed services, business intelligence software and IT reseller channels. An award-winning journalist, Mr. Walsh has served as editor of CMP Technology's VARBusiness and GovernmentVAR magazines, and TechTarget's Information Security magazine. He has written hundreds of articles, analyses and commentaries on the development of reseller businesses, the IT marketplace and managed services, as well as information security policy, strategy and technology. Prior to his magazine career, Mr. Walsh was a newspaper editor and reporter, having held editorial positions at the Boston Globe, MetroWest Daily News, Brockton Enterprise and Community Newspaper Company.