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What's next after IBM-Sun merger talks fizzle?

Posted: 08 Apr 2009 ?? ?Print Version ?Bookmark and Share

Keywords:Sun-IBM merger? Java market? industry computing?

With its proposed acquisition of Sun Microsystems apparently shelved, executives at IBM Corp. 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 $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 rationalize its overlapping businesses for maximum cost savings!likely killing Sun's Sparc processors, eliminating many server blade and system designs and several disk 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 multicore 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 rationalize 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.

Can Sun rise in downturn?
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 reorganization 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.

Meanwhile, Sun's R&D budgets have slipped from 15.7 to 13.2 percent of sales. It appears the company can no longer afford to maintain the Sparc line on its own, and efforts of the last two years to find merchant markets for the chip have turned up nothing.

Through no fault of the excellent technology, Sparc is starting to look like one of the last of the RISC chips left standing. Just last week, Intel crowed that it has gone from 700,000 to nearly seven million in annual server sales for its x86 processors largely at the expense of many now-defunct RISC chips.

Moving forward
Certainly in the wake of the scuttled IBM acquisition, Sun will have to move quickly to reassure its users!and find another way forward.

And it must move fast. Not only are sales shrinking in the recession, Sun has slipped back into losses after a brief period in the black, and cash on hand has fallen to less than half what it held four years ago.

Microsoft must also feel some relief. Certainly the Windows giant did not want to see IBM gain control of Java technology. That would have given Big Blue a significant boost in mind share with software developers who throng to the annual Java Once conference.

"The general consensus was IBM wanted to buy Sun for its software portfolio including Java and MySQL!and maybe Solaris!but the hardware came with the deal," said Brookwood. "Sun gets all sorts of service revenues from that and that's what IBM is all about these days," he added.

- Rick Merritt
EE Times

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