IBM CEO (Almost) Says Why IBM Targeted Sun Microsystems Acquisition

IBM (NYSE:IBM) has upped its software and services game to become 80
percent of its business, a big increase from the 50-something percent
that software and services used to contribute.

But as IBM recounted its strategic moves towards emphasizing software
and services putting less of a focus on hardware sales during its IBM
Analysts Day today, the company almost begged the question "Why did you
even consider acquiring Sun Microsystems (NASDAQ:JAVA) then?"

It’s a question that plenty of people asked in March as Sun and IBM were widely reported to be in talks about an acquisition.

Bernstein Research Senior Analyst Toni Sacconaghi asked just that
question at the end of the morning’s presentations at the IBM Analysts
Day.

While declining to name Sun, IBM’s CEO Sam Palmisano says he could
characterize the thought processes behind IBM’s decisions to pursue
certain acquisitions.

Palmisano says that IBM targets acquisitions for one of two reasons:
either the deal is a good strategic fit for IBM in terms of furthering
IBM’s strategic plans, or else the deal is an opportunistic acquisition
that presents opportunity for consolidation and margin expansion.

Reading between the lines, the proposed Sun acquisition would certainly
be the latter. IBM viewed Sun as an opportunity for consolidation and
margin expansion.

Sun yesterday filed its own version of its process to sell itself to
another company in a filing with the Security and Exchange Commission
(SEC). In the document, Sun indicates that Oracle (NASDAQ:ORCL), which
eventually entered into a deal to buy Sun, was initially only interested in Sun’s software business, and not its hardware business.