Commenting on a pending acquisition is like touching the proverbial third
rail, as with politics and religion. No one wants to be perceived as trying to
influence the outcome of a deal that’s still in the works—especially when it’s unconfirmed—such
as IBM’s reported $6.5 billion bid for Sun Microsystems.
Since the news broke that IBM might be
buying beleaguered Sun, there has been a steady stream of whispers that this is
nothing more than any of the numerous rumors of big vendors buying other big
vendors, insert corporate names here.
Adding validity to the rumor is that it comes in the wake of Cisco Systems’
entry into the data center with virtualized blade servers and its unified
computing architecture. Because Cisco is stepping into the backyards of its
allies IBM, Hewlett-Packard and Dell, it
only makes sense for one of the big three to make a major move to stave off
competitive pressures. In this case, for IBM
to make a play for Sun.
While many are questioning the wisdom and validity of the purported IBM
acquisition, the bigger question to ask is this: "Why isn’t Cisco buying
Sun?"
Cisco has made its intentions clear through its unified computing announcement that it wants in on the
server market. And it’s no secret that Cisco’s road map will
likely take it into storage next, and that would mean an expensive acquisition
of either EMC or NetApp. So why not just
bite down now and get deep into both servers and storage, as well as few other
things, by picking up Sun?
On paper, the IBM-Sun deal looks like a
grab for market share. Sun is the fourth-place supplier of servers, with
roughly 10 percent market share. IBM is the
market leader, with 31 to 33 percent. Buying Sun would put it well out of reach
of second-place supplier HP, which holds roughly a 30 percent share of the
server market.
But what else would IBM get for its $6.5
billion? Storage? It already has that. Storage and systems management? Has that
too. A database, since Sun owns MySQL? IBM
already has DB2. Identity management and directories? Tivoli
has plenty of that already. Processors? IBM
already has the P5, which is akin to Sun’s SPARC.
Perhaps the only thing IBM would get that’s
new is Java, the popular Web development platform. But is that worth the price
of admission? Will that be a billion-dollar business?
Worse, an acquisition would foul several of IBM’s
existing OEM partnerships. IBM is partnered
with NetApp for NAS (network-attached storage), which would complicate things
if longtime rival Sun were introduced. And Sun is partnered with Symantec for
storage management and backup applications, which would lead to conflict with Tivoli.
Some analysts are beginning to speculate about the potential for antitrust
scrutiny of an IBM-Sun union.
Placing more than 40 percent of the server market in IBM’s
hands is one thing, but analysts believe federal regulators—and some
competitors—will oppose the acquisition since it will give IBM
65 percent of the Unix-based server market and leave only one significant
competitor: HP.
If Cisco bought Sun, it would likely draw little, if any, regulatory
scrutiny since any market-share capture by Cisco would be new and would not
result in a net loss of competitive players.
Cisco could do well to pick up Sun and jump into several markets concurrently
in which it presently doesn’t have any existing interest. While it’s developing
unified computing systems for the enterprise, Sun’s x86 servers would put it
directly into the midrange server market. Sun’s SAN
(storage area network) gear would lessen its dependence on partner EMC
for storage products. And Sun’s identity management and directories would
complement Cisco’s existing security offerings.
Financially speaking, Cisco can better afford a big fish like Sun than IBM
can. Cisco is sitting on the largest cash reserve in the
technology market, now totaling close to $30 billion. While IBM
is among the top 10 wealthiest tech companies, its cash reserves total less
than $10 billion. For IBM to buy Sun would
consume nearly three-quarters of its cash (in an all-cash deal), while Cisco
could snap Sun up for less than one-quarter of its reserve.
A Sun acquisition by either company would have mixed implications for
channel partners. Sun has the smallest channel, compared with Cisco’s more than
17,000 reseller partners and IBM’s 100,000
business partners. Injecting Sun’s existing 3,000 partners into either of those
big ponds would increase competition for sales and tech support resources.
However, those same resellers would gain access to a whole breadth of products
that are currently unavailable in the exclusive Sun channel.
Neither IBM nor Sun is commenting on the
potential acquisition, and Cisco certainly isn’t offering any insights.
However, Cisco has published its criteria for acquisitions, and the key driver
is access to new markets. While one insider said Cisco is staying out of this
since it probably doesn’t want to enter a market it doesn’t lead, acquiring Sun
would certainly give it access to new markets.
It may be days—if not weeks—before rumors and leaks about IBM
and Sun are laid to rest. And many industry analysts and pundits will dissect
and examine the anatomy of this alleged deal. Whether or not this proposed
acquisition is founded in reality, the IBM-Sun
news is likely signaling the beginning of major consolidation in the technology
industry that will ripple through the channel and into the end-user data
center.