Report: IBM in talks to buy Sun Microsystems
Offer could be as high as $6.5 billion
IDG News Service - IBM is in talks to buy Sun Microsystems Inc. in a deal that would expand its server market share, The Wall Street Journal reported today.
IBM may pay as much as $6.5 billion in cash for Sun, the newspaper reported on its Web site, without naming its sources. That amount of money would be nearly double Sun's closing share price on Tuesday of $4.97 per share.
The Journal also reported that IBM is likely to pay between $10 and $11 per share for Sun.
Company officials were not commenting, but Computerworld blogger Steven J. Vaughan-Nichols later confirmed that talks are under way, with his sources indicating that what IBM wants is Sun's software businesses, not its x86 and SPARC server lines.
Sun had revenue of $3.2 billion last quarter, around $1.2 billion of it from server sales. That put Sun in fourth place in the server market, behind IBM ($4.9 billion, or 36% of the market), Hewlett-Packard Co. ($3.9 billion, or 29%) and Dell Inc. ($1.4 billion).
Sun also has a software business, although that brings in little revenue. It made $42 million last quarter from sales of its Solaris operating system and associated management and virtualization software. In February, it struck a deal with HP to expand distribution of Solaris, complementing deals struck in 2007 with IBM and Dell.
Sun has a lot of open-source software, including MySQL AB's database, which it hasn't been able to monetize. It reported $81 million in sales of MySQL licenses and related infrastructure last quarter, after paying $1 billion for the company in January of 2008.
A merger between IBM and Sun, if it came true, could benefit both companies, according to Nathaniel Martinez, an analyst at market research firm IDC.
Regarding MySQL, "bringing IBM into the picture, with its services arm, could be something that could turn that into actual dollars in the future," he said.
Sun also has a huge installed server base, and many users are currently looking at migrating to Linux. A deal would be a way for IBM to grab Sun customers who are using RISC-based servers, Martinez said.
Also, IBM is working on making itself the choice for high-end servers, and customers using Sun's Solaris operating system are on the high-end and extremely loyal, according to Martinez, who also gives credence to speculation that it's a competitive move from IBM in response to Cisco Systems Inc.'s entry into the data center on Monday.
But a deal of this size also comes with its fair share of challenges. There would obviously be products that overlap, according to Martinez, including areas such as servers, databases and storage, and wherever IBM has an office, Sun also has one, he said.
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