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IBM-Sun deal breaks down, what's next?

Posted: 08 Apr 2009     Print Version  Bookmark and Share

Keywords:Java  server blade  communications technology  Sparc processors 

With its proposed acquisition of Sun Microsystems apparently shelved, IBM Corp. executives are breathing a sigh of relief. Meanwhile, Sun's managers must be reaching for the Maalox as they need to figure out how to survive the on-going consolidation of the computer industry accelerated by the steep recession they are caught up in.

The opportunity must have been tempting for Big Blue to buy up its third largest competitor for as little as Rs.34,803.43 crore ($7 billion)—a little more than half the cash IBM has on hand. But it would have been hard even for the leviathan IBM to swallow Sun.

The two companies have significant overlap in their microprocessor, server and storage products. Customers of the two companies would want all the products to continue indefinitely. IBM's shareholders would demand the company rationalise its overlapping businesses for maximum cost savings—likely killing Sun's Sparc processors, eliminating many server blade and system designs and several disc and tape systems.

Anyway you walk that line some people are unhappy and the company spends time and money on transitions rather than innovations that move the market forward.

"It was certainly going to be messy," said Nathan Brookwood, principal of Insight64. "It takes the better part of a decade to wean an installed base off a hardware architecture," he added.

Martin Reynolds, a senior analyst with Gartner Dataquest, speculated if the deal went through IBM might have ported Sun's Solaris OS to the IBM Power processor to move Sun users to IBM systems. Solaris is state-of-the-art in its multi-core support, but the porting effort would not have been easy, Reynolds said.

So I expect IBM execs are breathing a sigh of relief. In the end, it's better for IBM to let Sun twist in the wind than try to rationalise the two big server makers. What IBM really needs is an injection of communications technology—not more servers—if it wants to best compete with current and emerging rivals Hewlett-Packard and Cisco Systems.

Sun struggles to rise
Two truths remain in the wake of the failed talks. The computer industry is consolidating and Sun needs a plan to survive that consolidation.

Since the dotcom bust, Sun has struggled to regain profitability and is currently working through its ninth reorganisation plan. Since August 2007 it has announced plans for layoffs of as much as 10,000 people and restructuring costs of more than half a billion dollars.

The company entered the recession in a weak state with computer sales down thanks to many products being near end-of-life and Advanced Micro Devices Inc. delivering its quad-core Barcelona chip late.

Sun's one shinning hope has been its novel Niagara processor which trumps Intel Corp, and AMD in packing more cores per processor. But so far sales of systems using those Sparc chips have only "partially offset" declines from other products.

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