Patents with Benefits

Google is spending $12.5 billion to buy Motorola Mobility. But the big prize isn’t Motorola’s lineup of cellphones, computer tablets and cable set-top boxes, It’s Motorola’s more than 17,000 patents — a crucial weapon in an intellectual arms race with Apple, Microsoft and Oracle to gain more control over the increasingly lucrative market for smartphones, tablets and other mobile devices.

Google has $39 billion in cash and can easily afford it, the price translates to $40 per share, 63 percent above Motorola’s stock price before the deal was announced.

However, it might be a good short term strategy, long term impacts are yet to be seen.

Should Android OHA worry?

Android partners including HTC, Samsung, SonyEricsson have showed a strong support to Google’s move, at least publicly. Its hard to say it now if they are actually worrying of being a competitor to Google. All partners have heavily invested in android platform, and there is no looking back for them, if Google builds an apple like strong hardware-software tight-coupling, Open handset alliance is going to shatter. But won’t let that happen, they would do anything to keep Android green.

Its going to be hard

And by getting Motorola employees onboard, Google now has 48,000 employees 60% up from 29,000 that it had previously. It would not just be the biggest ut also the largest employee-on-employee acquision in Tech sector, ever.

Early on, investors hate it. Google stock has gotten smacked in the pre-market. It would be harder for Google to convince almost all its investors.

Other Benefits

Buying Motorola also would push Google into phone and computer tablet manufacturing, competing with other device makers who rely on Android. The largest makers of Android devices are all supporting a deal that Google CEO Larry Page said was too tempting to resist.

“With mobility increasingly taking center stage in the computing revolution, the combination with Motorola is an extremely important step in Google’s continuing evolution,” Page told analysts in a conference call Monday.

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Google has given the biggest number in the industry by acquiring 23 companies, 3/4th of which are venture financed or angel-backed. On the other side of the road, Twitter, still hasn’t figured out a sustainable revenue model, made three acquisitions related to social media and analytics. IBM absorbed much of the enterprise software market and bit on the Hardware side as well.

Microsoft’s silence in 2010 has a solid reason –the biggest acquisition failure of Yahoo! As per CBInsights, the Microsoft is losing out on the top start-up technologies, although, there’s no doubt on how comfortably Microsoft can acquire nearly any (and every) start-up, but they are just not doing it, at least not publicly.

Facebook: Surprisingly, Facebook has jumped ahead of many of the tech companies Cisco, Oracle, etc. Of course, many of Facebook’s acquisitions are of the small tuck-in variety recruiting talent or interesting capabilities for the social networking giant.

HP: Unlike Facebook with it’s smaller acquisitions, HP has been making larger acquisition deals (4 x $1+ billion) with the aim to push technology, products and services to a new level.

Cisco: Cisco which has record of making large number of acquisitions had been slow this year with only 4 mergers.

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Intel, the biggest chip-hardware player, is buying software/security maker McAfee for $7.7 billion, a huge 60% premium  over yesterday’s market price.

Acquisitions like this one are Really rare in the Tech industry, here’s why:

• Intel bought a company which is almost as big as itself.
• A core Hardware company buying a core security software company.

However, Intel believes that security has become an integral part of computing, which makes it their business, too.

“With the rapid expansion of growth across a vast array of Internet-connected devices, more and more of the elements of our lives have moved online. In the past, energy-efficient performance and connectivity have defined computing requirements. Looking forward, security will join those as a third pillar of what people demand from all computing experiences,” said Paul Otellini, Intel president and CEO.

McAfee will operate as a wholly-owned subsidiary, and it will be reporting to Intel’s Software and Services Group.

The full press release is here.

Here’s the rationale for Intel:

• Acquisition enables a combination of security software and hardware from one company to ultimately better protect consumers, corporations and governments as billions of devices – and the server and cloud networks that manage them – go online.
• Intel elevates focus on security on par with energy-efficient performance and connectivity. The acquisition augments Intel’s mobile wireless strategy, helping to better assure customer and consumer security concerns as these billions of devices connect.
• Intel has made a number of software-related acquisitions of leaders in their respective industries that also rely on great silicon, including Wind River, Havok and now McAfee.

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3D desktops can add a lot of utility to your multitasking. We’ve seen how we can get a 3D desktop on Ubuntu, Bumptop adds the third dimension to both Windows and Mac to make it look like a “Real world desktop”. You can create visual “piles” of files or stick notes to the wall, size design, layout everything is there after fully customizable. In addition, there’s also a cool search feature that’s invoked simply by typing.

Watch the video, Experience speaks for itself:

But wait a minute, What’s Google going to do with BumpTop?

Google hasn’t said anything about the deal yet. The most likely area seems to be its upcoming Chrome OS or even Android operating system for smartphones and more evidently the upcoming Chrome OS/Android Tablet PC.

BumpTop can give facelift to Android/Chrome OS’s interface giving it a step ahead of Apple’s iPad and iPhone.

BumpTop raised $1.65 million in funding.  The acquisition price was probably between $35 and $40 million, confirmed figure is still unavailable.

Ironically, BumpTop was also part of Microsoft’s BizSpark program, which offers free software and mentoring to startups.

[via BumpTop]

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Oracle announced on Thursday that it had received regulatory approval from the European Commission for its acquisition of Sun Microsystems, Inc. Oracle expects close the transaction soon for it’s Sun-Oracle merger.

Well, The Biggest Tech Acquisition of 2009 [worth $7.5 Billon] will see Merger in Q1 2010.

To celebrate and kickstart the process, Oracle will host an all-day live event for customers, partners, press and analysts on January 27th, 2010 at 9:00 AM Pacific time, at its headquarters in Redwood Shores, California. Details are available at www.oracle.com/sun.

One  side Oracle is busy and excited over the merger, Monty, the MySQL founder, is still trying hard on trying to prevent it. After Ellison’s claims, I feel Monty’s concern is nothing but irrelevant. When Oracle says they will invest and innovate heavily in MySQL, they mean it [Will Oracle kill MySQL ? Why they Can’t and Why they Wouldn’t]

With Oracle, Sun would regain the pride. With Oracle getting into hardware business, it will continue to invest, innovate in Java.

Larry Ellison will Unveil Oracle + Sun Strategy at Company Event on January 27th, part of the Hardware side, we already know: Some serious benchmarks that makes IBM look old and outdated.

More to come on this on Jan 27th. Stick with us as we cover more Sun, Oracle, Apple, Open Source, Programming, Tech News @taranfx on twitter and below:

The deals like this, brings new hopes for the customers and areas where Mobile usage isn’t as dense as US, Japan, China.

Today, as per the latest press release, Orange and T-Mobile, will join hands in a new joint venture, this fall.

At the moment, they are 3rd and 4th largest Telecom providers in UK. The merger will create the largest mobile company in the United Kingdom, with a subscriber base of more than 28.4 million which builds up roughly 37% of the market.

Currently the largest UK operator with a 27% share is Telefonica’s O2, which is the exclusive iPhone carrier. At the  second place with 25% of the British market is Vodafone, the company which jointly owns a 48% stake of Verizon Wireless.

The merger of Orange and T-Mobile in the UK would be like Sprint and T-Mobile merging in the United States, breaking up the market into thirds.

The deal, which is due to be signed November, comes on the heels of poor financial results from T-Mobile and lackluster sales from Orange, and the reasons behind it are quite obvious: saving money. Despite the huge initial cost of the merger, the two companies expect to save, over time, up to 5.7 billion dollars. Part of these savings will probably reflect on the combined staff of the two companies: Orange’s 12,500 and T-Mobile’s 6,500 employees, although a spokeswoman said that it’s too early to talk about the impact on the workforce, but we can expect cuts.

As far as branding goes, both brands will remain separate in the first 18 months after the deal is completed. Orange chief executive Tom Alexander will lead the new company, while T-Mobile’s UK boss Richard Moat will become the COO.

Though both Vodafone and O2 were recently reported to have made bids on T-Mobile, a mutual interest was shared between executives at Orange and T-Mobile. Orange’s CEO Tom Alexander, for example, came to the company in 2007 from T-Mobile-owned MVNO Virgin Mobile. Alexander will become the CEO of the joint Venture, and T-Mobile’s CEO Richard Moat will take over as COO.

For the first 18 months of the joint venture, both brands will remain separate. T-Mobile this morning said that period will be used to “review branding alternatives” for the new company.

sources: betanews, Mashable ]]> http://geeknizer.com/orange-and-t-mobile-join-hands-to-become-uks-biggest-telecom-provider/feed/ 0 http://geeknizer.com/ericsson-to-buy-nortel-wireless-at-11billion-after-winning-auction/ http://geeknizer.com/ericsson-to-buy-nortel-wireless-at-11billion-after-winning-auction/#comments Sat, 25 Jul 2009 23:14:33 +0000 Tarandeep Singh http://geeknizer.com/blog/?p=1472 Read more »]]> Nortel is long in news now. Earlier, we have talked about Avaya’s plan with Nortel. And today that fate of Nortel has been taken further, Ericsson has won the bidding over the wireless division of Nortel Networks, agreeing to pay US$1.13 billion for Nortel’s CDMA business and LTE Access technology 4G.

How does it Benefit Ericsson?

The deal will greatly expand Ericsson’s foothold in North America, bringing customer relationships with large operators such as Verizon and Sprint.

Nortel had been operating under court bankruptcy protection under Chapter 11 since January. In June, the company accepted a $650 million offer from Nokia Siemens Networks for its CDMA and LTE assets. That offer set the stage for Private equity firm MatlinPatterson to jump in with a counter offer of $725 million for the wireless assets.

RIM also made an offer for the assets but was barred from the sale after a bidding procedure dispute with Nortel.

Ericsson was a late entrant to the bidding process, with its interest publicly declared just Thursday. As part of deal, announced early Saturday, Ericsson will offer employment to a minimum of 2,500 Nortel employees supporting the CDMA and LTE Access business.

“This is one of those gifts from heaven for Ericsson in the otherwise very competitive world these companies operate in. Rather than competing with Nortel, Ericsson has won,” said telecom industry analyst Jeff Kagan in e-mail. The consolidation of the industry, however, is not necessarily a good thing for customers”, he noted.

“There are other competitors today, however Nortel posed a large competitive threat to Ericsson, and without that dynamic, what will the affect be on pricing and innovation and customer responsiveness?”

Ericsson and Nortel officials tend to reassure customers, with the statement:

“The anticipated sale of our CDMA business and LTE Access assets to Ericsson for $1.13 billion represents a very positive prospect for our customers who will be able to continue their relationships with a long term partner; for employees who will have new opportunities at Ericsson and for many of our other stakeholders,” said Nortel President and Chief Executive Officer Mike Zafirovski, in a statement announcing the deal at the official Nortel website.

Ericcson CEO Carl-Henric Svanberg added,

“Ericsson is committed to meeting the needs of our new CDMA customers today and bringing the next generation of mobile broadband to the world with LTE.”

Nortel said that it expects to close the deal by the end of the year.

GoldenGate is a provider of real-time integration software. Information Software giant Oracle is buying Silicon Valley real-time data firm GoldenGate Software, for an undisclosed sum.

“With the addition of GoldenGate, Oracle expects to help our customers achieve better performance, through improved business intelligence and business continuity with real-time information,” said Oracle’s senior veep Hasan Rizvi, in a statement. “The combination of GoldenGate and Oracle is expected to create a comprehensive heterogeneous data integration platform.”

The two companies have been close business partners for more than 10 years.

Oracle said the deal, subject to the normal regulatory approvals, was expected to close later this year. In the meantime, the two software firms will operate independently.

The acquisition-happy software maker, which is also is in transition to buy Sun Microsystems for $7.4bn, hopes the merger will “create a comprehensive heterogeneous data integration platform.”

Although the announcement was absent financial details, The Wall Street Journal linked to a blog post by research company 451 Group, which predicted the acquisition and estimated that GoldenGate took in about $100 million in revenue over the last year.

From the official news:

Oracle announced it has agreed to acquire GoldenGate, a leading provider of real-time data integration solutions. GoldenGate’s best-in-class solutions enable real-time data integration and management by capturing and delivering updates of critical information as the changes occur and providing continuous synchronized data across heterogeneous environments. Companies are expected to gain improved business intelligence across the enterprise, with more accurate and timely analysis of real-time business performance.

GoldenGate’s complementary product accelerates Oracle’s product strategy to manage real-time data integration through a comprehensive data integration platform. This combination is expected to deliver the fastest and most scalable real-time data integration solution for customers.

Generally speaking, operating costs tend to be cheaper in a recession. Talent is easier to find because of widespread layoffs and dissatisfaction. It’s easier to find a more talented resource relatively at a lower cost. The competition is usually less fierce because, frankly, many players are taken out of the game.

Recessions can also help executives figure out how to improve products, services, and processes internally and for customers. Ideally, the creative thinking that’s needed to weather the storm of an economic downturn can lead to new markets and revenue streams. “Innovation originates from challenges,” says Vineet Nayar, CEO of HCL Technologies, a Noida (India)-based global IT services company.

HCL recently partnered with Xerox (XRX) to provide tech support for corporate customers using Xerox systems meant to reduce the amount of wasted paper. The systems themselves were inspired by the dual challenges of helping to save the environment and the need to slash office expenses during the downturn.

Inventing cost-effective and time-saving processes becomes a priority in a downturn, and it’s an area of interest for companies and organizations in a variety of fields, from high tech to health care. “In a recession, you can innovate to be more efficient,” says John Kao, author of the book Innovation Nation and the head of Deloitte’s Institute for Large Scale Innovation.

Mergers/Acquisitions

Recession is the time when major of the Mergers and Acquisitions are triggered. Though multi-billionaire companies can go bankrupt in months, there are always new owners to overhaul the system. The Fall of Sun Microsystems, Nortel are the best examples. Though they fall for bad, Innovation-driven Big Fish eats them and keep them in a more safer zone.

Mergers are driven by effectiveness of cost at which they can be done. Recession is the best time, the market being down, a good bargain is available to the bidder, no matter what is the financial state of the company on radar.
Lessons to Be Learned

Some companies are always left Recession-resistant. Best example is for Apple. Apple reported quarterly profits jumped 15%. With sky high sales for Mac, iPhone, Apple once again proved the key to survive in recession is Innovation. Innovation at technology, flashy gadgets, quality, and rumors among it’s fans .

Smart companies will continue to apply the innovation lessons learned during today’s tough times even when things pick up. The innovative processes, products, and services that hatch now can help executives understand how to curb costs or take risks on fresh ideas when the economy rebounds.

Innovation is all about, how companies are finding creative ways to come up with new products and services faster and more efficiently—with fewer resources. Industry has to look at the current recession through a variety of lenses to rethink how to approach innovation tactics even as R&D budgets have been slashed. Smart companies are finding inventive ways of keeping employees motivated and creative even when morale is low. We need to look into the benefits of outsourcing innovation in areas ranging from industrial design to corporate strategy.

All these strategies help us to prove that there’s light at the end of the tunnel.

After almost a month of ongoing discussions, the proposed amount has been set to $475 million by Nortel. As per the agreement : It includes the planned sale of substantially all of the assets of the Enterprise Solutions business globally as well as the shares of Nortel Government Solutions and DiamondWare, a maker of softphones.

On this Eve, Nortel CEO Mike Zafirovski said:

“We continue to be fully focused on running our operations and continuing to serve our

customers while actively engaged in the sale of our businesses. We have determined that the sale of our businesses maximizes value while preserving innovation platforms, customer relationships and jobs to the greatest extent possible. The CDMA and LTE Access stalking horse asset sale agreement announced on June 19th, and today’s agreements around our Enterprise business are solid proof of that value. This represents the best path forward, and we are advancing in our discussions with interested parties for our other businesses.”

“The many customers I have spoken with have been highly supportive of our efforts and transparency throughout this process. They value our employees and technology platforms and are appreciative of our service levels which are at multi-year highs.

“Today’s agreements underscore the value of Enterprise Solutions and the investments we have made in enterprise telephony, unified communications and data networking core competencies. If successfully completed, this transaction will provide clarity on the path forward for our Enterprise customers, partners and employees, and enable the industry to continue to benefit from Nortel-created technology, know-how and leading-edge innovation.”

Avaya president and CEO Kevin Kennedy added to it, stating that the deal will benefit Avaya on several fronts.

“The addition of Nortel Enterprise Solutions will increase Avaya’s global scale, expand our channel partner network, and strengthen our world-class portfolio of products and services,” Kennedy said in a statement. “This is a strategic opportunity to acquire talent and complementary assets that position the combined company for growth and success. We are committed to protecting the communications investments of the customers of Avaya and Nortel, and to effectively executing the integration of Nortel Enterprise Solutions and Avaya.”
One industry analyst sees the deal benefiting all parties involved.
Want to compare LAN/WAN management products? Visit the IT Product Guides now.

“This puts Avaya ahead of Cisco for enterprise voice sales and enters them into the networking business,” says Henry Dewing, an analyst at Forrester Research. “There are advantages for Avaya and Nortel — achieving scope and scale to lead the worldwide communications market. There are opportunities for buyers to have a global vendor offering hardware, software, and services to advance their communications and collaboration capabilities. Both firms recognize the need to serve mixed vendor environments and leverage many channel options and partners for delivery.”

Avaya had 16.6% of the $16 billion enterprise telephony market in 2008 to runner up Cisco’s 14%, according to Dell’Oro Group. Nortel came in 4th, with 9.6%, trailing Siemens at 11.4%. Together, It gives more market share to Avaya.

Challenges for Avaya: Merits and De-Merits of Merger

Thouth Avaya will attain a larger customer base, and wider product ranges, challenges would remain with product overlap. As a matter of fact, Cisco, Alcatel-Lucent and Siemens, Huawei could benefit as Avaya works through the redundancies.

On the Positive side, Nortel’s LAN switching portfolio gives Avaya an entry into that market and could end its joint marketing relationship with Extreme, Kidron states.

But first, Avaya has to win the bidding.

“We see a strong possibility for an additional bidder(s) for Nortel’s enterprise assets emerging, especially given the low price,” Kidron states in his bulletin. “Siemens or private equity firms such as MatlinPatterson (a major bondholder) could participate in the bid. Both have either shown interest in the past or would make a good fit. Overall, this is another milestone in Nortel’s ultimate asset-unwinding process.”

MatlinPatterson is preparing a bid for Nortel’s CDMA and LTE wireless assets, which Nokia Siemens has already offered $650 million for in another stalking horse arrangement.

The International Nortel Networks Users Association (INNUA), which represents more than 4,000 Nortel enterprise customers worldwide, issued a statement saying that it “believes the acquisition will allow the company to refocus its energy and resources on its solutions, and quiet concerns about the corporate structure that has beleaguered the company.”
“This chapter in Nortel’s history is closed,” said INNUA Executive Director Victor Bohnert in the statement. “We understand that there is still much that can change during the auction process. However, we will begin working with Avaya as soon as it’s appropriate to determine how we can best represent the collective voice of their new customers.”

Under the stalking horse arrangement, Nortel will file the asset and share sale agreement with the U.S. Bankruptcy Court for the District of Delaware along with a motion seeking the establishment of bidding procedures for an auction that allows other qualified bidders to submit higher or otherwise better offers. Following completion of the bidding process, final approval of the U.S. and Canadian courts will be required.

As previously announced, Nortel does not expect that the company’s common shareholders or the preferred shareholders will receive any value from the creditor protection proceedings and expects that the proceedings will result in the cancellation of these equity interests. Nortel was delisted from the Toronto Stock Exchange on June 26.

So It’s all upto the Industry’s top telecom-equipment leaders. Who would bid the highest and swipe away the Avaya’s hopes.

Sun Microsystem’s shareholders, today, approved its proposed purchase by Oracle. Though it came wiht a shocking surprise underneath. CEO Jonathan Schwartz nor Chairman Scott McNealy, two of the most outspoken and visible executives, didn’t attend the meeting. It was said that Schwartz was ill and there was no information about Scott.

The meeting was run by two non-leading executives, Mike Dillon, Sun’s executive VP and General counsel, and Craig Norris, VP of corporate law.

Schwartz, once a pro blogger, hasn’t posted since May 18th. What went wrong?. Though both

Schwartz and McNealy appeared at Sun’s JavaOne conference last month, they haven’t said much publicly about the deal since a tightly scripted teleconference on April 20 that announced the transaction. (McNealy deferred to Oracle CEO Larry Ellison to do most of the talking about the transaction at JavaOne).

Sun did not conduct a conference along with its financial results for the quarter ending in March because they could foresee bigger than expected loss for the Quarter that ended in June.

SDTimes blog posted an Emotional view of what happened over the meeting::

The whole event took less than 10 minutes. And when it was over, most folks quietly funneled out of the room, looking vaguely dejected.

This was the last real day of Sun’s existence. The acquisition itself has already happened: It is backdated to April 19 and June 5. The vote today changed history, slightly, effectively giving Oracle power over Sun since this past spring.

… Make no mistake about it: This was the end. Such an ending it was, as Schwartz andd McNealy couldn’t bring themselves to show their faces. They know what is going to happen to this company, and I expect they both feel guilty and responsible for the result. How could you not feel responsible after presiding over almost 10 years of declining revenues and profits? …

But the shrinkage that is yet to come is far greater. Analysts are expecting a 33% cut in

headcount at Sun, and I think that’s conservative. Oracle expects to make more money on this deal than it did on its deals with BEA and PeopleSoft combined.

And that is why Schwartz isn’t here, I believe. Because he genuinely loved Sun and its employees. And because he can’t stand to look them in the eye knowing that most of them are about to lose their jobs.

The last line said almost everything. The hard earned company’s success was declining over the last few years which led Sun to take this step, which is ofcourse a good decision. If this woudn’t have been the case, we might have not waited long to see the Sun burning down to a cold black ball rather than a graceful Sunset that we saw today.

So it seems that Sun’s final days will continue to play out very quietly. Still, in view of how loudly Schartz and McNealy used to trumpet their views–and harsh comments to this and other blogs about their actions and severance packages–some public comments by the two men might have been welcomed by employees and shareholders.

Oracle, the industry’s leading innovator, has continued their buy out strategy for the good of the brand and the Industry. Larry Ellison is a smart and mature Entrepreneur, definitely I can trust in his visions which would take the most powerful Developer platform (JAVA), the Best open source Database(MYSQL), Most Innovative/flexible Server platform (Solaris + Sun SPARC) to the next level.

International Business Machines Corp is offering to pay at least $6.5 billion, or double Sun’s Tuesday closing price of $4.97, The Wall Street Journal reported online earlier. Shares of Sun jumped 64 percent in pre-market trading to $8.16, while IBM shares fell 2 percent to $90.89.

If they reach a deal, it would be IBM’s largest-ever acquisition, and represent a departure from its recent strategy of focusing on deals to strengthen its software and services businesses, rather than hardware.

Analysts saw the talks as part of a consolidation trend, as Hewlett-Packard Co, IBM and Cisco Systems Inc jostle for control of corporate data centers and compete to supply the high-end computers that power complex corporate transactions and networks.

“It makes sense in an industry consolidation view, but looking at Sun’s performance over the last couple of years, it’s not one of my top picks for IBM to buy,” said Jyske Bank analyst Robert Jakobsen, speaking from Denmark.

“Having said that, there’s clearly a huge synergy combining these two companies,” he said. “The market hasn’t been kind to Sun Microsystems in the last 12 months. So it’s not an expensive acquisition in my view.”

Sun, which was not available for comment, has long been cited as a takeover target for IBM, HP, Dell Inc or Cisco, which introduced a comprehensive set of data center products earlier this week. Bankers have said Sun has been searching for a buyer in recent months.

But the challenge of valuing Sun’s intertwined software, hardware and services businesses could put off potential buyers, analysts say. Sun has never fully recovered from the dotcom bubble burst in the early 2000s, when demand for its servers cratered.

IBM, which had nearly $13 billion in cash at the end of $2008, declined comment. Its largest acquisition to date is the $5 billion purchase of Canadian software maker Cognos in 2008.

The Wall Street Journal said HP had declined to buy Sun, citing a person briefed on the matter.

TECH SPENDING CUTS

IBM was the top supplier of servers in the fourth quarter, with a market share of 36.3 percent, according to market researcher IDC. HP has 29.0 percent, followed by Dell with 10.6 percent, Sun with 9.3 percent, and Fujitsu with 4.2 percent.

These five server vendors all posted declines in their fourth-quarter server revenue, hurt by pullbacks in corporate spending on technology due to the weak global economy.

IBM’s move, as well as Cisco’s announcement on Monday, may signal a new wave of partnerships and acquisitions in the data center market as companies strive to provide more comprehensive products and services to their customers.

Cisco’s move could put into play data equipment maker Brocade Communications Systems Inc, infrastructure software maker Citrix Systems Inc and niche network optimization companies, such as Blue Coat Systems Inc and Riverbed Technology Inc, analysts said.

“IBM wants to become a one-stop shop for all IT related offerings, whether it is hardware, software services or solutions,” Avinash Vashistha, chief executive at IT consulting firm Tholons Inc. “They have been executing this strategy for the last few years and with the Sun deal, they will only accelerate that move.”

Sun, whose name stands for Stanford University Network, rose to prominence in the 1990s when start-ups flocked to its high-end computers, which run on its Solaris operating system and have been widely used in the financial services industry.

When the Internet bubble burst in 2000-01, funding for start-ups dried up along with much of the demand for Sun’s computers.

Sun has tried to reinvent itself by offering more services and software, and expanding production of Linux-based computers, which tend to be cheaper. But that failed to revive its stock price. The company is shedding up to 6,000 jobs, or 18 percent of its workforce.

Sun shares are down 71 percent in the last year, a far cry from an all-time high of $258.75 during the dotcom boom.

IBM’s potential purchase of Sun: Here’s why it makes sense

IBM is reportedly in talks to buy Sun Microsystems for $6.5 billion and the deal is long overdue. The companies mesh on the open source software front, Sun is struggling and IBM can consolidate some server market share.
First, the headlines. The Wall Street Journal is reporting that IBM could acquire Sun as early as this week (Techmeme). IBM would pay all cash for Sun. The Journal also reported that Sun has approached a number of large companies about an acquisition; a move that throws cold water on CEO Jonathan Schwartz’s everything is fine video.

Dana Gardner counterpoint: IBM buying Sun Microsystems makes no sense, it’s a red herring

Schwartz: Perhaps this IBM deal looks pretty good after all. Will the pony tail go?

Behind the scenes here, we’ve frequently had chats about how IBM would take out Sun. The only real debate was whether Big Blue would acquire Sun in parts or as one sum. The working assumption was that Sun would be broken up and sold in parts, but the IBM deal also works nicely. Here’s why the deal makes some sense:

IBM can acquire server and storage share. Sun still has a lot of hardware on the market in key verticals such as finance and telecom. The problem is that Sun is reliant on U.S. sales and that’s not a fun place to be right now. With Cisco entering the server market the profit margins could be squeezed—especially if the server essentially becomes a storage and networking box too. By acquiring Sun, IBM gets more scale so it can endure the margin squeeze. That same argument holds for storage hardware too.

There are issues to be worked out on the hardware side though. IBM has refrained from commodity servers and Sun plays in that space. Meanwhile, servers run on different chips–Sun has Sparc and IBM has the Power architecture.

The time is now. IBM is a software and services company, but it needs hardware, which would be roughly a third of revenue with Sun, to sell its other offerings. Hardware is often the entry point for IBM’s software and services. With a stronger hardware business it can fend off HP in the marketplace.

Sun is a powerhouse in Unix, which is still a key platform, but isn’t exactly gaining in the market these days. IBM could acquire Sun and establish two key beachheads: Linux and Unix. The former will ultimately take over for the latter in the data center. IBM can play both and sell you the services to migrate while it’s at it. Bonus for Big Blue: Sun would enable it to pressure HP’s Unix-based businesses too.

One problem: IBM sells AIX Unix servers. Sun sells Solaris (hat tip to a reader pointing that out).

Sun has to do something. Sun is a company that has to transition a legacy hardware business to one modeled more on open source software and services. That’s a wrenching change that may not work out. An exit ramp makes sense right now. Besides, Sun was reportedly turned down by HP and Dell was mum.

This about HP NOT Cisco. The initial headlines will paint IBM’s move as a reaction to Cisco’s entry into the data center. The reality is HP is the target. HP acquired EDS to directly take on IBM. IBM is returning the favor by squeezing HP on hardware.

Open source software. Sun’s future is offering an open source stack of software led by MySQL at its core. IBM is all about open source. The two together make a lot of sense and IBM could pull MySQL, Lotus, OpenSolaris and other parts together in a nice stack. In addition, Sun’s open source software needs distribution—it recently did a deal with HP. IBM has distribution galore. Matt Asay has a good post on how IBM can monetize open source.

One problem: There’s a lot of software overlap here. In databases, IBM has DB2 and Sun has MySQL.

Java. Java is arguably Sun’s best asset, but the platform was never monetized. Perhaps IBM will have better luck.

Cloud computing. Sun has some interesting ideas on cloud computing and its plans could work. Sun has also made targeted cloud computing acquisitions. Meanwhile, Sun has a cloud computing press conference Wednesday morning, a shindig that will be dominated by IBM talk now. A few folks seemed to buy that Sun-as-cloud-player marketing, but it really looks like a relabeling to me. IBM could absorb Sun’s plans in its big cloud services offering. Also see: Handicapping cloud computing: The big picture.

It’s about consolidating the data center. Data center managers will want fewer throats to choke and Cisco isn’t going to make life easier. Sun can allow IBM to consolidate a data center rival and bring things back to equilibrium now that Cisco has entered the market.

What could go wrong? A few items. For starters, there are regulatory concerns. Who knows whether the Obama administration would approve this deal. IBM would have roughly 42 percent of the server market with Sun, according to IDC. HP, however, would be second wind 29.5 percent. With Dell a strong No. 3 with 11.6 percent share the IBM-Sun deal should pass scrutiny. But it is a wild-card.

Here’s a look at the server market share standings:

And then there’s culture. If you want to know the big cultural difference look no farther than Schwartz’s ponytail vs. IBM’s typical look. IBM is all business and Sun is sort of business with a lot of Silicon Valley shtick. That said Sun’s workers may find themselves relieved by the IBM deal. Sun’s upcoming struggles are fairly obvious and IBM looks like a great option for those that choose to look ahead.

Update: Sun shares had a predictable response to the news, soaring 72 percent in premarket trading.

Update 2: Pondering the valuation: As of its most recent quarter, Sun had $2.6 billion in cash, equivalents and short-term marketable debt securities. So the rest of the business is worth $4 billion roughly. One working theory is that IBM would potentially buy Sun and sell the hardware business to Fujitsu, a close partner of Sun. IBM could license Solaris, since it would own the code, to Fujitsu. Assuming IBM does sell some hardware assets to Fujitsu for $1 billion or so the Sun acquisition doesn’t look so large.

Meanwhile, analysts are mixed on the deal. UBS analyst Maynard Um says in a research note:

Our Sun thesis has been that there is a potential restructuring story given relative inefficiencies. We do think IBM would be in a position to take out cost more quickly, however, we expect Sun revs to continue to be pressured in FY09 & FY10 given its reliance on high end servers and limited ability to monetize its software. And while IBM is certainly financially capable of purchasing Sun, we would note that a $6.5bn acquisition would be large even by IBM’s standards, and would also be a deviation from IBM’s current strategy of tuck-in acquisitions.