Intel Chief: IBM Is Getting Sun Cheap

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.