Oracle and Sun a good fit, say analysts 20 April, 2009 By Chris Talbot

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With the announcement of the proposed acquisition coming two weeks after word leaked that talks between IBM and Sun had come to a halt, the merger of Oracle and Sun would mean the entrance into the hardware market by software vendor Oracle, but that poses a few questions related to its channel partners -- many of which sell Oracle on hardware from the likes of HP, Dell and IBM.

"Many of those channel partners are platform-specific. You've got members of the channel who focus on one systems vendor's offerings over others. You've got channel folks who are HP specialists or IBM or Dell specialists, and I think this has to create a degree of uncertainty for them," said Charles King, president and principal analyst at Pund-IT.

King said he expects Oracle to talk about how continuing relationships with those other systems vendors and supporting third-party platforms, but with the software/middleware vendor suddenly about to jump into the hardware game, it creates some uncertainty amongst its channel partners.

Michelle Warren, president of MW Research & Consulting, noted that the acquisition of Sun will mean a much greater hardware emphasis at Oracle, which will also have an effect on its channel partners.

"I suspect that when it comes to certain implementations, they're going to recommend Sun hardware, especially as the focus is going to be on making Sun a profitable hardware business," Warren said.

With the deal expected to close in the summer, Oracle is going to have to figure out how to make the hardware business profitable and work towards that goal, she said.

"There's going to be an emphasis on the hardware, which is going to increase the competitive scene. As that happens, we're going to see a battle there," Warren said.

Oracle has been deployed on Sun servers for years, and the companies have had a long-standing partnership, but the real question is whether Oracle actually will stay in the hardware business once the acquisition is complete, said Denise Sangster, president and CEO of Global Touch. She speculated that Oracle may choose to sell off the hardware portion of Sun's business, which could mean IBM would re-enter the picture as a potential buyer. However, she noted that situation as being unlikely. The crown jewels of Sun, as she called them, is Java programming technology and Solaris, so from a software perspective, the acquisition makes sense, she said.

"It's a question of where does Sun's hardware fit into this deal and will they be looking at some point to unload that or keep it in the core offering," Sangster said.

Sebastien Ruest, vice president of services, software and technology research at IDC, agreed.

"If you think about it, from a software perspective, they really combine best-in-class enterprise software," Ruest said. "It gives Oracle a large chunk of the mission-critical computing systems. For Oracle, it really pushes them down the value chain because they will be expected to be able to deliver all the systems from applications through middleware down through the systems. They get some of the security component."

Additionally, Oracle now has considerable experience in acquiring and integrating companies into its own operations, with the vendor acquiring approximately 25 companies over the last three years, Ruest said. While none of those acquisitions have been as large as Sun, some (like PeopleSoft) have been of considerable size.

"It seems to make sense. On paper, it does," he said.

None of the industry experts said it was a surprise that Oracle announced its intent to acquire Sun, although King noted that Oracle wouldn't have been among the most likely suitors for Sun. However, all commented that it seemed like a good fit for Oracle and Sun, whereas some suggested that the IBM acquisition of Sun would have been met with more challenges.

"I'm not totally surprised. I'm not sure that IBM would have actually closed its deal, and if IBM would have continued, I don't know what the anti-trust issues would have been, but I think there would have been some significant challenges to overcome from an anti-trust perspective," Sangster said.

Warren said it makes more sense for Oracle to acquire Sun than IBM to do so.

"I think it would have been tough with IBM. I didn't think that would work, actually -- just from a cultural standpoint and the integration of those two companies," Warren said.

That's not to say it'll be an easy road ahead for Oracle, though.

"I think it's going to be a tough haul. They've got a lot of competition out there," Warren said, including Dell, HP, IBM, and now Cisco Systems.

However, there's also good news.

"It seems to be a very good kind of position. They have a lot of shared customers, both in the government and the commercial space. So it probably makes for an easy transition," Ruest said. The transition won't be instantaneous and would likely take about a year to complete, but as long-time partners, they already have certain similarities in cultures and partner ecosystems, he said.