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HP and Oracle, now headed for a split, could have split up Sun

The companies once considered buying Sun together, with HP taking the hardware and Oracle the software

By Stephen Lawson
June 8, 2012 04:54 PM ET

IDG News Service - One of the more surprising episodes in Hewlett-Packard and Oracle's ill-fated enterprise IT partnership was touched upon for only a few minutes during testimony in their breach-of-contract trial earlier this week. But that event -- fruitless talks aimed at a joint acquisition and breakup of Sun Microsystems -- may have been one of the sources of their current rancor.

Ann Livermore, an HP board member and the former head of the company's enterprise business, briefly discussed the companies' unrealized idea during cross-examination by Oracle's attorney in Santa Clara County Superior Court, in San Jose, California, on Tuesday. Before Oracle made its successful US$7.4 billion bid for Sun in April 2009, it talked with HP about buying the troubled server and software company together. Under that plan, Sun's hardware assets would have become part of HP and its software would have gone to Oracle.

HP also considered acquiring Sun on its own, an idea it ultimately dropped, partly because it had seen Sun's server sales decline, according to Livermore. But the surprising scheme to buy Sun in a three-way deal with Oracle might have made sense at the time, industry analysts say. And it wouldn't have been so surprising prior to 2009, because the companies were close then. The deal might have prevented the game-changing acquisition that turned the cozy partners into major competitors: Oracle's takeover of all of Sun, including its enterprise server business.

Now HP is suing Oracle, saying it breached a contract by ending software development for future versions of HP's Itanium chips. Oracle has countersued, accusing HP of lying and defamation.

How the deal might have helped

A joint acquisition would have allowed both companies to strengthen their core businesses of the time, which were complementary, industry analysts said.

"Dividing it up would have made sense, especially since HP at that point didn't really have a great interest in or great assets around software," said analyst Charles King of Pund-IT. For large enterprises, HPs greatest interest was in supplying high-availability Integrity servers from its Business Critical Systems (BCS) division to run customers' software, much of which came from Oracle. Taking over Sun's server business would have helped it do so.

"In one fell swoop, HP could have coalesced a sizable [portion], if not a very large majority, of Oracle's database customers within its Business Critical Systems," King said.

But the current weakening of the BCS business proves that that wouldn't have solved all of HP's problems, according to King. HP says BCS revenue declined significantly last year, mostly because of Oracle's announcement in March 2011 that it would stop porting its database and other software to new versions of the Itanium chip at the heart of the Integrity servers. HP may have foreseen that it had to get into software too, King said.

Reprinted with permission from Story copyright 2014 International Data Group. All rights reserved.
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