Is Snorkel (Sun/Oracle) in Trouble?

Ever since the Sun/Oracle merger was announced, IBM has been carving into the Sun installed base like a starving dog through a juicy steak.

Recently, it looked like HP was positioning to be the firm that was going to acquire the hardware part of this deal when it started its “we have your back” campaign targeted at the same installed base. But what has really been bothering me was that Oracle seemed to be making no effort to defend what it had purchased, and with the recent European Anti-Trust hold, rumors that Oracle was going to walk away from this deal started to circulate. Were Oracle to pull out at this point, all it would leave is a husk and a lot of litigation.

I think Snorkel is in deep trouble, but I’m not yet convinced that Oracle will walk away. But the trend is anything but good.

Doing Merger Wrong

When I use companies as good examples of how to do mergers, I typically point to Oracle as one of the best, along with Cisco, EMC and HP. Oracle is a merger machine, protecting the assets it has acquired, getting through the approval process quickly, and assuring that most of what it purchased remains intact until the end of the process.

This is why the Snorkel merger is so troubling. It is like watching a company that has never actually done this before. There has been no significant visible effort to protect and preserve Sun’s installed base which, while making IBM very happy, doesn’t make any sense to me at all, even if Oracle intends to sell the hardware business. If someone is going to buy that business, they are more likely to be buying the installed base of Sun products, and if there isn’t much of that left then they sure won’t pay very much for that portion of the company.

Protecting employees is important, even if you want to simply purchase the intellectual property because you need the people that helped create and/or are expert on the technology so you can adopt it to your needs and effectively protect it in the market. Yet word out of Sun is that the only consistent management practice is the updating and distribution of resumes. What is currently holding the company together is that the tech job market is very tight, but not protecting key employees is a mistake a novice company would make -- not one I’d expect to see from Oracle.

It appears clear that Sun is bleeding value at an incredible rate, making me start to wonder if Oracle is planning on walking away from this thing.

Walking Away?

If a company being purchased drops so far in value that the penaliteis for walking away are cheaper than the paper loss, the purchaser is likely to walk away. Given Oracle is supposed to pay a substantial premium over what IBM thought Sun was worth, there isn’t a whole lot of margin to play with here.

If we place on top of this a lengthy and costly European Commission process that may not conclude in Oracle’s favor, the financial incentives to conclude this deal may not only be very slim but may actually no longer be enough to close the deal.

Change Too Little Too Late?

This week Oracle started what appears to be a massively underfunded effort to protect the Sun customer base. It is now promising to do some critical things though:

• Spend more money developing SPARC than Sun does now (in looking at Sun’s numbers that wouldn’t be particularly hard).
• Spend more money developing Solaris than Sun does now (also not particularly difficult given how little Sun seems to be investing).
• Have more than twice as many hardware specialists than Sun does now. (This may be them alluding to a purchase by someone like HP because, in this market, staffing up like that would clearly do ugly things for their market valuation.)
• Dramatically improve Sun’s hardware performance by tightly integrating Oracle software with Sun hardware.

This last point is the goal, but I wonder if folks who are running Oracle software on other than Sun hardware may see this as a reason to move away from Oracle and towards a more hardware-centric vendor who is more software independent.

Wrapping Up: Holy Crap Moment?

This recent light push has the feel of someone who suddenly woke up to the fact that if Oracle didn’t do something, it wouldn’t have much left once it finally got control of Sun. Granted, I doubt it really wants to keep that much, but generally the purchaser wants to make the choice and right now this choice is being made by the market. But the funding level suggests that Oracle is unwilling to throw much good money after bad.

No matter how I look at this, Snorkel looks to be at very high risk, and you folks that are on Sun hardware have my heartfelt sympathy which, unfortunately, looks like a lot more than you are getting from Oracle.