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The marriage of IBM and Sun Microsystems
appears dead in the water, as reports in the Wall Street Journal and other
media outlets say the two sides have reached an impasse over the purchase

While neither side has acknowledged or confirmed the acquisition talks, IBM
has reportedly been pursuing a purchase of Sun for more than $7 billion
which would be more than 100 percent of Sun’s stock trading value when the
talks started in mid-March.

Last week,
Sun completed its massive reorganization with the layoff of 1,500 employees,
mostly from direct sales and marketing departments
. Sources told eWEEK
and Channel Insider reported that the reorganization would put greater emphasis
on Sun’s channel partners for revenue, and was designed to mirror IBM’s
business partner organization. The idea, the sources said, was to smooth the
integration of the two companies.

IBM’s acquisition of Sun would give Big
Blue a significant boost in its server market share. It currently holds a 33
percent share of the overall server market, leading rival Hewlett-Packard by 3
points. Bringing Sun into the fold would give IBM
a 10 percent gain in overall server market share and a 65 percent share of the
high-end Unix server market.

Sources have indicated the acquisition announcement would come this week.
However, other reports indicated that the deal was stalling because of concerns
of triggering regulatory reviews and Sun’s demands for IBM
guarantees for compensation should the deal fall apart.

Sun was reportedly concerned that it would succumb to the same fate as Yahoo
when Microsoft backed out of its $42 billion acquisition last year. When that
happened, Yahoo’s stock plummeted to its current all-time low, which forced the
resignation of CEO Jerry Yang.

Since the deal publicly surfaced, Yahoo’s stock has gone on a rollercoaster
ride, starting at around $4.70 a share to a high of close to $8.55 per share.
Sun, which trades under the symbol “JAVA” on NASDAQ, closed Friday at $8.49.
Some analysts speculated that Sun’s stock value and market capitalization would
collapse if the acquisition failed.

Sun reportedly wants IBM to give it
guarantees that it will battle through any regulatory hurdles that threaten to
derail the sale. Some analysts have speculated that the IBM-Sun
marriage would trigger antitrust reviews, since it would give IBM
control over nearly half of the server market and nearly absolute control over
the tape storage market, which both companies dominate.

Some analysts and industry observers have indicated that the IBM-Sun
deal will never happen because it simply doesn’t make sense. Many reports have
talked about the server powerhouse that the combined companies would make, but
others have cited that there is tremendous overlap in technologies and
products, and the only thing IBM would get
from the acquisition is market share.

Some analysts have indicated that better suitors for Sun would have been Cisco
Systems, which recently entered the server market and has ambitions for storage
Dell, which needs to enhance its server and storage business; and Apple, which
some believe needs to find a position in the business technology market.