Rumor Mill: IBM Eyes Sun Microsystems

Arthur Cole

There's nothing like a down stock market to kick the deal-makers on Wall Street into high gear.


The big news this morning is that IBM is considering a takeover of Sun Microsystems, a move that would add serious hardware capabilities to IBM's already impressive line-up, and quite probably catapult the company onto a new data center vendor tier, competing not so much against HP and Dell but against the likes of Cisco Systems.


For Sun, the deal looks like a way out of a bad situation, ironically one brought about by its over-investment in the very high-powered computer systems that IBM now covets. The deal is valued at $6.5 billion, which represents nearly twice the value of Sun's $4.97 per share closing price on Tuesday, before the rumors started swirling. Still, that's a bargain, considering the stock price is about 70 percent off what it was a year ago.


As expected, the deal brings with it a mix of the good and the bad. ZDNet sums it up nicely with these two contrasting analyses, one by Editor-in-Chief Larry Dignan and one by analyst and frequent contributor Dana Gardner. Dignan's take is that Sun's hardware will provide a nice wedge for IBM to expand the base for its more lucrative services and software, and also gives IBM more leverage to wade through the dismal North American server and storage market. Gardner argues that the deal brings little that IBM doesn't already have, save for some intellectual property and MySQL. He also smells a rat, speculating that Sun is floating the rumors as a way to boost its stock price to fend off unwanted buyers who would break the company up and sell off the pieces.


An IBM-Sun merger would be the latest move in the rapidly accelerating evolution of the enterprise industry. Earlier this week, Cisco Systems announced a new Unified Computing System (UCS) platform that aims to shift data center architectural designs away from the server-centric models of the past and into a more modular style in which servers, storage and networking are treated as co-equal branches. With Sun technology in hand, IBM will be in a better position to counter any solution from Cisco.


All this is pure speculation at the moment, however. There isn't even an offer on the table. But the fact is that, one way or another, the Sun Microsystems that was such a major fixture of the dot-com boom of the 1990s will probably not remain in its present form for much longer. Its passing will truly mark the end of an era.



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