Oracle Committed to Sun's Hardware BusinessBy Sharon Linsenbach | Print
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Oracle’s plans to buy Sun will move the software giant into uncharted territory -- hardware.Oracle founder Larry Ellison says Oracle is committed to retaining and growing Sun's legacy server and storage hardware business.
Last week, Oracle’s $7.4 billion bid for Sun surprised investors, since the database giant has little experience in hardware products. But Larry Ellison, Oracle CEO said in a statement that "Integrated computer systems, hardware and software, should be very profitable."
Many of Oracle’s customers already use servers based on Sun’s Sparc chips, and if the deal goes through it will instantly transform Oracle into the fourth-biggest company in the $53 billion server market.
Oracle is the world's largest maker of enterprise software, a position it gained by acquiring companies like PeopleSoft and Seibel Systems. Now, it is aiming to branch out into the hardware platforms those software applications run on, and is again using acquisition as a key growth strategy.
The company has a strong track record with acquisitions. Since 2005, Oracle has spent about $30 billion on acquisitions that have fueled both top-line and earnings growth. Oracle’s track record does bode well for the company as it makes a push to become a serious player in the hardware space.
Oracle believes customers will want to buy high-end servers from the same
company that makes the software running on them, a model that’s been successful for competitor IBM, which sells both servers and the software applications.
Oracle is also hoping it can integrate Sun's Java programming language, Solaris operating system, and MySQL database into its own portfolio of programs, expanding Oracle’s product offerings. The move would also allow Oracle to host many of these applications on its own servers.
Many observers think Oracle shouldn't be getting into the hardware business at all, and analysts have suggested Oracle will turn around and sell off Sun's shrinking server business.
Sun’s Sparc servers have lost market share to servers based on Intel’s x86 chips, and the company currently holds just 9.3 percent of the server market, down from 10.6 percent in 2007.
To keep Sun’s hardware competitive, Oracle will have to invest in
research and development, a move that could dilute margins and shrink
profits. Research firm Gartner warned customers to be wary of buying
Sun hardware until Oracle has better articulated its hardware plans.