Sun/Oracle Deal: The Hardware Implications

The blockbuster US $7.4 billion deal bringing Sun Microsystems into Oracle Corp.'s big tent (please see Bolt from the Blue: Oracle, Not IBM, Captures Sun Micro) has more than a few wondering what the world's largest business software company will do with a firm best known for its hardware offerings.

After the merger was announced Monday, Oracle CEO Larry Ellison said the acquisition of Sun would enable his company to offer customers applications and data-storage hardware in a bundle that will be tuned to help solve their business computing needs. Yet, some industry analysts speculated that by entering the hardware field Oracle could hurt long-standing partnerships with other computer vendors (especially Dell and Hewlett-Packard), as well as challenge Oracle's management to profitably run a new unit in the notoriously competitive hardware sector, where margins are historically thin even in good times.

"We have a track record of integrating acquisitions very quickly, and this will be no different," said Safra Catz, one of two Oracle presidents under Ellison, on Monday. Catz said Oracle intends to quickly make Sun's hardware operations a profitable operating unit inside the company.

The Oracle executives said its management could wring profitability out of Sun by integrating hardware and software services synergistically in the lucrative corporate marketplace as the global economy improves in the years ahead. They noted that this systems approach to providing business solutions could generate an additional $1.5 billion a year in operating profit.

"Oracle is transforming itself into a soup-to-nuts information technology vendor," Gordon Haff, an analyst at Illuminata, a technology industry research firm, told The New York Times in the wake of the announcement. "This deal promises to revitalize a systems competitor [Sun] that IBM and H-P were writing off as dead," Haff noted in a Times article.

Yet, Catz carefully mentioned that Sun "outsources nearly all the manufacturing, assembly, and servicing of its hardware." This remark did not go unnoticed by industry pundits. In a commentary typical of computer press reaction to news of the deal, Larry Dignan at ZDNet wrote that Oracle can now "pick and choose its hardware spots, unwind some systems and sell others."

The Dignan column went on to speculate that Oracle may have deemed Sun's hardware units as insignificant and Ellison's team may have few if any plans to try to turn them around. "Look for Oracle to do a little pruning before it blows any dough on Sunâ''s hardware business," Dignan concluded generously.

However, that outlook most likely underestimates Ellison's ambitions by light years.

Ellison is a person not unlike Bill Gates and Steve Jobs in his determination to leave a profound mark on the computer industry. As most observers have gathered over the years, Ellison is fiercely determined to battle it out with the giants of the industry at whatever cost is necessary, and that means going directly after the H-Ps and the IBMs and the Microsofts of the world.

When it comes to the hardware units he will be acquiring from Sun, look for Ellison to pursue new opportunities to grow Oracle into a general computing powerhouse.

Past history will only tend to goad Ellison into being even more determined to prove successful in any future foray into the world of chips and metal. In the late Nineties, Oracle moved into the hardware sector with a stripped down microcomputer that used a network connection for all its information tools. It was called the NC (for Network Computer), and it was supposed to revolutionize low-end computing for businesses.

The set-top-box-size device, however, proved to be a flop in the marketplace, as well as an embarrassment to Ellison personally. The NC, which counted on the promise of the network literally being the computer was a product too far ahead of its time to succeed. Oracle's partner a decade ago in the doomed venture was none other than Sun.

Don't look for Ellison to make the same mistake twice. He's got an entire arsenal of weapons at his disposal now to make another assault on the future of the whole industry.

Kieron Murphy is a contributing editor to IEEE Spectrum. He has covered the computer industry for more than 20 years.


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