One winner in the Oracle-Sun deal: Microsoft?

Acquisition could benefit Microsoft if Oracle alienates its hardware partners, analysts say

Microsoft Corp. has had few critics more vocal than Oracle CEO Larry Ellison and Sun Chairman Scott McNealy. With Oracle and Sun set to merge in a blockbuster $7.4 billion deal announced Monday, is it time for Microsoft to worry?

In fact, the opposite may be true, some industry observers said.

If Oracle retools itself as a systems vendor, as Ellison suggested that it might, that could put pressure on hardware makers such as Dell Inc. and Hewlett-Packard Co. to cozy up more with Microsoft, which doesn't have a competing hardware business.

"Historically, [Oracle] has been a major partner for HP, given HP's lack of a large software business," wrote Toni Sacconaghi, a financial analyst at Sanford C. Bernstein & Co. "Going forward, we believe that HP is likely to push alternatives to [Oracle] when possible, given that they are now direct competitors in the hardware space."

If the hardware divisions at Oracle's business partners feel threatened by the Sun deal, that could be bad news for Oracle's software business, according to Miko Matsumura, a former Sun executive who is now deputy chief technology officer at Software AG. "The hardware business is king [for server vendors], and anything that threatens that becomes your mortal enemy," he said.

Matsumura believes the planned purchase of Sun could drive HP into a tighter relationship with Microsoft as Oracle tries to work through the massive acquisition. "In the midterm, I think it [will be] a big bloody mess," he said of the deal. "I think HP is going to steer clear of Oracle."

Another bonus for Microsoft is that there may soon be one less database vendor to compete with, since the MySQL open-source database and Oracle's flagship software will be under one roof. It's unclear whether Oracle will continue to develop and market MySQL alongside its own database. If it allows MySQL to languish, that could give Microsoft's SQL Server more opportunities at Web 2.0 companies, where MySQL is a popular choice.

"I don't think that MySQL is going to thrive now that it is part of Oracle," said Matt Rosoff, an analyst at consulting firm Directions on Microsoft. "That's kind of a plus for Microsoft."

Some analysts expect Oracle to spin off Sun's hardware business to a company such as Fujitsu Ltd., which makes systems based on Sun's Sparc processors. But Ellison didn't offer much insight into his plans during a conference call on Monday. He said that software, in particular Java and the Solaris operating system, was "instrumental in Oracle's decision to acquire Sun," but he also noted that the acquisition could help Oracle to deliver integrated systems for data centers.

Oracle has said it intends to make Sun's server business more profitable. If it does decide to invest in hardware and become a real systems vendor, that could mean trouble for business partners such as HP and Dell, which could end up having to compete with a revitalized Sun product line, according to Stuart Williams, an analyst at Technology Business Research Inc.

"If Oracle retains the complete Sun hardware business, they're no longer a software company; they're a systems company that puts pressure on companies like Dell," Williams said.

Even former Sun suitor IBM could feel the pressure. It would face a more powerful data center rival in a combined Oracle-Sun, which could sell a complete enterprise stack of hardware, operating system and infrastructure software — something IBM alone had previously been able to offer.

Microsoft didn't respond to a request for comment on the implications of the Oracle-Sun deal. CEO Steve Ballmer told reporters in Moscow on Monday that he was "very surprised" by the merger news, according to the Reuters news service. "I need to think about it," he said.

Agam Shah of the IDG News Service contributed to this story.

Copyright © 2009 IDG Communications, Inc.

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