Oracle could deal Sun hardware to HP
Oracle CEO Larry Ellison says he wants to keep Sun's hardware business, but he might be bluffing. Photo: Oracle
Could the Sun still come out at HP?
It’s no secret that Larry Ellison wanted Sun Microsystems (JAVA) for its software, not its servers. Regulatory filings show that before the hard-charging Oracle (ORCL) CEO put together his successful $5.6 billion offer and outbid IBM (IBM) for Sun in April, another party was kicking the tires as well.
One of the worst kept secrets in Silicon Valley is, that someone was Hewlett-Packard (HPQ) CEO Mark Hurd.
Since then, though, Ellison has said that he intends to keep all of Sun for himself.
But maybe he doesn’t. A person with knowledge of the communication between Oracle and HP suggested to me recently that Oracle still might deal those hardware assets to HP. And you know what? It could be a fine idea for both of them.
Why would Ellison want to give up Sun’s hardware? Actually, he never wanted it in the first place. Oracle’s first offer to Sun was for just the software business, regulatory filings show. Oracle is a software company after all, and while it certainly has the wherewithal to transform itself into something else, it might not be worth the hassle – or the ding to its profit margins.
Ellison claims he plans to use Sun’s server business to build appliances that are custom-tuned to run Oracle applications – like a data center version of Apple’s strategy of marrying hardware and software. But what else is he supposed to say about hardware now that he’s stuck with it?
HP might actually want Sun’s hardware to boost its services business. HP became a services heavyweight when it bought outsourcing giant EDS last year, and a little-known fact is that at the time, EDS was Sun’s best customer. You can bet that EDS still buys plenty of Sun hardware – so by owning Sun technology, HP could probably goose the profit margins on many of its services deals.
More reasons a deal could happen: HP executives say the EDS integration process is going well, and they feel good about the health of the outsourcing business in general. Also, there are signs that the global economy is stabilizing, which should make HP’s brass in Palo Alto less queasy about parting with the cash.
There are also plenty of reasons the companies might not do a deal. The economy seems to be improving, but it’s still touch and go, and HP might not want to shell out for another fixer-upper. Or Oracle might genuinely want to keep the hardware business.
But don’t put too much stock in Ellison’s claim that he wants to own hardware. When it comes to mergers and acquisitions, you have to take Ellison’s proclamations with a grain of salt. As we saw when he maneuvered to buy PeopleSoft and BEA Systems, he’s willing to bluff to get what he wants.
In this case, Ellison might be bluffing to rid of something at a decent price.
I highly doubt Oracle is going to sell all of Sun's hardware business; while overall revenues are declining, their Open Storage business is doing surprisingly well. And storage is where most of the money will be in the next couple of years, as many companies are buying fewer servers due to massive virtualization.
Humorous to think that Sun has makes large hardware. They bought the Cray and strung it along as the 10K through 20K product line with little modification for almost ten years. Now all they do is take the Fujitsu kit and put their logo on it.
From their latest (and will be the final) investor report, SPARC servers are down 54% in the quarter. Yes less than HALF the billings of last year. They were down 36% for the full year.
Larry is looking to scuttle this leaky scow as soon as he can.
Sun produce fantastic software and hardware. Sun didn't know how to market or consolidate their products, or how to make money from software. Oracle know about all of these. Oracle won't buy Sun without introducing some radical thinking and an approach to make money from all possible areas. Sun will not be run like the Sun to date, it will be run like Oracle and I am mostly thankful for that. With the vision, strategies and team that Ellison has, he could make a success of most of the good stuff from Sun – the staff, hardware, software and hugh intellectual property. The future is about integrated devices and suppliers who provide customers with one throat to choke. Ellison will not walk away from the challenge of providing the full package. I wish Larry the best of good economic fortune – Oracle on Sun will always be the best large enterprise Database and O/S platform.
Oracle could…..do anything it wants once it owns Sun. It's too bad our publications are littered today with useless chatter like this. What's worse is the degrading effect it is having on once trusted publications.
This same rumor is posted on almost all the tech news outlets but some of the best skeptical comments are posted here. I question how writers these days can post such an article without questioning the facts. Just looks at the source sited in this very article. " A person with knowledge of the communication between Oracle and HP suggested to me recently that Oracle still might deal those hardware assets to HP." That statement sounds a lot like someone from HP trying to continue the doubt around the Sun product line to further their own.
Don't get me wrong, it would be a great fit for HP and not bad for the Sun hardware line. But, why would Oracle sell the hardware? They're not exactly know for trying to keep the market happy.
It makes no sense for Oracle to sell the Sun hardware business. Hardware is what pays the bills at Sun. As a previous comment mentioned, if Oracle wants to hit the revenue numbers they have floated with the street, they need the Sun hardware revenue and profit.
Here are a couple articles I have written that cover a pile of other reasons Oracle will keep the HW business. Reason number one? With the Sun hardware and Oracle software, Larry Ellison has his sights set on IBM.
http://ctistrategy.com/2009/08/27/oracle-sun-hardware-business/
http://ctistrategy.com/2009/05/08/oracle-sell-sun-hardware-business/
– Jesse
The only thing that makes Sun keep its head above water is its hardware. Sun throws away the software in there for literally peanuts. If Larry wants to spin off hardware he better have a good plan on how to make a couple of billion dollars (because that's what the hardware business earns for Sun) just from software. Last time I heard, software sales alone did not touch even a 100 million dollars.
Now Larry could move away from Sparc altogether and try to work directly with Intel to deliver a totally integrated solution. But I don't think that will happen immediately. There might be some genuine interest on Larry's part to see if Sun delivers something on the enterprise side quickly (after the Rock debacle).
The truth is nobody knows. Maybe Larry himself does not know. I mean how can one hope to make money if the arm that makes the most money is spun off?
No one really talks about the defensive value of Oracle owning MySQL, which was starting to eat into their market before Sun bought them. This, along with the positive revenue streams of Solaris and Java, make the software stack a very solid point for Oracle. It would allow them to dump the Linux underpinnings of RAC and put it on the much more reliable Solaris.
Sun has been milking their hardware for years, dropping future products like cocoanuts in a hurricane. They relogo the Fuji on the high end, have the T servers that are good for, well, uh, doorstops in the middle and make commodity x86 on the low end. Larry is looking for the one time payout instead of dragging out the diminishing revenue stream in their dying hardware business.
The one bright area for HP would be the STK portion. HP has no enterprise presence – they could put their LTOs into the STK robot and run the high end storage units. They have always rebadged high end disk (EMC or HDS) so it would be a good fit on that side.
You may want to check yesterday announcement on oracle site
http://www.oracle.com/features/sunoraclefaster.html
Apparently, oracle wants to tackle IBM and DB2
seems like the author never move off from his days as a rookie reporter…Just listen and report what people said and not looking into the fundamentals of the Oracle deal. Sad to see journalism sink so low just to kick a company that is down at the moment..
The most valuble assets that Sun has to offer is it's software, specifically Solaris and Java. This give's Oracle a means to compete against IBM, MSFT, and the Linux companies by owning a highly reliable and well known software stack.
I believe that the SPARC aspect of their business is falling by the wayside. Not to say that they have not build excellent platforms in the past, but the R&D required to keep up in the microprocessor space has put them at a disadvantage and lost them a tremendous amount of market share. While there certianly is still a huge installed base, look at how much the've lost to X86/Linux, especially in Financial Services.
To keep the hardware part of it just to build database appliances is not a good strategy, you'll never get the ROI on Sun's commodity building blocks, especially having to compete with the HP's, IBM's, Dell's, and EMCs of the world.
If I were in Larry's shoes, I'd cut the hardware business loose (exept for maybe some of the interesting patents), and focus on building the software stack to run on best of breed commodity components.
Ellison would be a fool to sell off the hardware business. As a strategist for a world wide investment bank, most of our infrastructure has been and will continue to be Sun based, regardless of who owns the licensing. If performance and quality is what's needed, as long as they keep the 7000 product family for storage and the X86/Nehalem servers around you'd be dumb to look anywhere else. If you are not giving those product their proper credit then I question your seniority in IT.
Once Oracle and Sun become one – Look Out! Imagine being able to optimize an Oracle DB with tools such as the ones on the 7000 products. THAT'S HUGE! If you don't know what I'm talking about – go get the emulator on Sun.com.
Both Oracle's software and the hardware will demand higher prices and perform accordingly to make it worthwhile to the customer:
btw: This article and the skeptics are junk. Here's a quote from that ran WSJ front page on 8/27/09. "as we demonstrate Oracle's commitment to Sun hardware" as per this link – http://www.oracle.com/features/sunoraclefaster.html
I love the skeptics. They're just so blatantly wrong. Sun has the best hardware out there and Oracle ahs the best DB outthere. Together, Larry Ellison is king of the data center. Bottom line.
Calling Sun's software and hardware
as trash is a little harsh. Sun still
has a huge customer loyalty base who
have relied on the stability and scale
of Sun HW and SW to run their business.
Larry has much to gain from Sun if Oracle can get it right.
Tommy from Lex, KY…..your an idiot. Sun has long been known for their R&D and has some of the very best technology….just never has been able to market it well. Kinda like Apple in the beggingings vs. Microsoft….They had way better PC platforms and software….but the price and sells strategy never could outmatch the Microsoft machine….just like Sun vs. HP and IBM……To say Suns Hardware and Software is junk really shows your ignorance.
I couldn't keep laughing reading Thommy's lame comments. Honestly Thommy, do you believe writing junk on a technology blog would make your Micro$oft stocks look better ? I suggest you shut up and limit yourself to things you really understand.
Poor Tommy doesn't have a half a whit. JAVA is used in every cell phone in service. It's far more robust and powerful than the crap from Microsoft. And their hardware line is still years ahead of the competition. Nothing touches a Sparq processor in benchmark testing until you look at the high end IBM processors that cost twice as much.
Sun's only problem was it's upper management. Guys that couldn't have made money selling ice water in the desert or heaters in the Arctic. Giving away everything but their stock options for free.
I think it is highly unlikely that Oracle will sell Sun's hardware business. Why?
1) Oracle promised a $1billion profit from Sun in the first year ($2billion second). Where are they going to get that without hardware? Sun Software? hmmm… I don't think so.
2) Besides, Java and all of Sun Software is not worth $5.4billion. Oracle's bean counters must have known that. What was MySQL revenue again?…and what about Java?
3) Sun hardware gives Oracle the leverage it needs to pit itself against IBM. I know how frustrating it must have been for Oracle when IBM bundle and bundle to out price them in larger deals.
In summary, why the fudge did Oracle bother to buy Sun if it was not for the core business which generates most revenue and has the biggest profit potential?
Let's face it, Sun's hardware is still well liked and the only reason that company did not make money was because of one reason alone – bad management. With the focused and efficient Oracle management at the helm, I am very very sure Sun's hardware business would turn out to be a huge weapon for Oracle against their biggest rival – IBM.
Very smart of Ellison. SUN's HW is junk. Design, manufacture, and assembly are all outsourced to companies too inept to do even PC work for DELL.
Except for Solaris and MySQL SUN's SW is trash as well. And let's be honest: JAVA is trash that only became popular as a means for management types to get rid of programmers and earn those big bonuses; well that and the fact the most programmers are inept and if they can't complete a program by dragging and dropping a few icons into a target window then that program won't get done.
Nowadays only government and other very large institutions buy this junk and only then because they lack the guts and intelligence to research the better solutions that are out there.
Why Oracle is NOT going to sell off Sun’s hardware business:
http://ctistrategy.com/2009/05/08/oracle-sell-sun-hardware-business/
Man, the author must be smoking some good stuff.
If Oracle sells off HP, it could trigger a lawsuit because that was not what was sold to investors.
From an industry standpoint, no it is not a good deal for everyone, especially the consumers.
If you had said, Cisco, it could make sense, however, Cisco would have been better off making a bid for Sun outright. But that's another story.
The author of this story has it wrong on so many levels… 
Posted By Jack, Singapore City, Singapore: August 28, 2009 12:44 AM
"I think it is highly unlikely that Oracle will sell Sun's hardware business. Why?
1) Oracle promised a $1billion profit from Sun in the first year ($2billion second). Where are they going to get that without hardware? Sun Software? hmmm… I don't think so."
Suggestion :
The sale of the SUN HW Division to HP.
Payment in two phases
Oracle has only promised this profit over the two first years after the takeover.
Three billion dollars sounds like a good number if you look at it..
A profit is a profit no matter where it comes from…