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Update: Oracle buying Sun in $7.4B deal

By , Elizabeth Montalbano
April 20, 2009 12:00 PM ET

Ellison said that Oracle tends to integrate acquired companies very quickly into the existing organization, and will do the same with Sun once the deal closes. The deal is subject to regulatory and shareholder approval.

Oracle said the Sun deal should bring the company more revenue in the first year than the company planned for its acquisitions of BEA Systems, PeopleSoft and Siebel combined. Sun should contribute $1.5 billion to Oracle's non-GAAP operating profit in the first year, a number that will increase to more than $2 billion in the second year, the company said.

For Sun, the deal will bring an end to CEO Jonathan Schwartz's efforts to turn the struggling company around. Sun's sales have been declining since their peak during the dot-com boom, as customers turned away from its pricey Unix servers in favor of x86 systems. Sun's share price has also fallen sharply.

Efforts to attract new customers with open-source software, and Sun's belated decision to enter the x86 market, have not paid off fast enough to give it the boost it needs.

With Sun on board, Oracle now will have to figure out how to navigate the server OS and hardware business. In addition to supporting Solaris for many years, Oracle also supports its software on Linux. Though Sun's hardware does not have the reach that its former suitor IBM's does, the deal gives Oracle a combined hardware/software business model more akin to IBM's, with which it now competes in the database market.

The deal comes after Sun reportedly walked away from an offer from IBM a few weeks ago. Those acquisition talks fell apart amid reports that the two sides had become "confrontational" over the prospective price. That deal, under IBM's last offer, would have been worth about $7 billion.

Though there were rumors that Oracle might purchase Sun, it has never before had a hardware or server operating system business, a market in which a significant amount of Sun's assets are tied, so the deal seemed unlikely. However, Sun's Solaris has long been the leading hardware platform for Oracle's database business.

By acquiring Sun, Oracle creates a big question mark for MySQL users, who have relished their independence from the database market leader. Sun acquired MySQL early last year.

The two companies also have areas of common interest in their support for Java software, one of the only areas where their respective product lines overlap. Sun has an open-source Java application server called GlassFish that Oracle likely will hold onto, although the fate of Sun's other commercial Java software, the Java Enterprise System (JES), is unknown.

Oracle also had overlap in this area when it purchased BEA last year, but BEA's WebLogic software had a significant installed base, and Oracle kept the product alive. Sun's JES installed base is smaller, so Oracle may choose not to keep it.

James Niccolai of the IDG News Service and Computerworld's Ken Mingis contributed to this report.

Read more about Data Center in Computerworld's Data Center Topic Center.

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