Oracle to buy Sun for $7.4B after IBM drops bid

If Oracle can hit those targets, Sun would generate more profit than the combined contributions of three other major acquisitions — PeopleSoft, Siebel Systems and BEA Systems — that cost Oracle north of $25 billion.

But those gains could come at a loss of jobs.

Some of Oracle's earlier buyouts have yielded significant layoffs. In Monday's conference call, Oracle didn't discuss how the deal would affect jobs. Oracle employs about 86,000 people worldwide, while Sun has about 33,000 workers. It's possible that job cuts this time will not be as severe because the companies' products are complementary.

Sun has been for sale for several months, and a raft of companies expressed interest, according to a source close to the talks who declined to comment on the record because the discussions were confidential. Nothing was serious, however, until IBM went public with its overture.

Oracle showed interest in Sun's assets several weeks before the two sides started formal negotiations late Thursday, the source said.

A potential Oracle-Sun partnership underscores the rapid rise — and long fall — of Sun.

The company was founded in 1982 by Stanford University MBAs Scott McNealy and Vinod Khosla; Bill Joy, whose work formed the basis for Sun's computer operating system; and Andy Bechtolsheim, a grad student whose computer workstation for the Stanford University Network led to the company's first product. Bechtolsheim developed the workstation because he was tired of waiting for computer time on the central university system.

Led by the outspoken McNealy, Sun preached the idea that PCs could do more when lots of them are networked. The concept caught on at universities and in the government and became a key cog in the development of the Internet.

By the 1990s, Sun became a star of the Internet boom. It claimed to put "the dot in dot-com," considered buying then-struggling Apple and watched its market value peak around $200 billion.

Along the way, Ellison and McNealy, who is now Sun's chairman and former CEO, became fast friends because their companies worked together to take on rivals Microsoft and IBM.

Yet Sun was slow to react when the bottom fell out in 2001. Its premium products, built on Sun's proprietary systems and its own microprocessors, were sideswiped by less-expensive rivals that used industry-standard technologies such as Intel chips and Microsoft software. Sun lost more than $5 billion in the first five years after the tech bubble burst.

Higher costs for consumers?

Even more problematic for Sun, the company was reluctant to sacrifice its independence, even as it hemorrhaged billions of dollars.

It remains to be seen how the competitive landscape will be affected by the Sun-Oracle combination. Microsoft officials warn the deal could add complexity and cost for some customers, a notion disputed by several analysts.

In addition to Microsoft, Vivek Ranadive, CEO of Tibco Software, a business-software company that competes with Oracle, thinks the deal will complicate things and be more expensive for customers.

One thing is clear, analysts say: Expect a shake-up.

"This is going to place a degree of competitive pressure on other vendors, including IBM," says Butler. Companies "will have to recalibrate their relationship with Oracle. ... This is going to have a big bearing on the industry, no doubt about it."

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