IBM reaches for cloud with possible Sun acquisition
The Wall Street Journal today reported that IBM may soon bid $6.5 billion in cash for Sun Microsystems.
Such a price would represent a 100% premium over Sun’s Tuesday close price and would make the acquisition IBM’s largest buy in its history.
Sun, according to the WSJ article, has been shopping itself around. The company has been struggling for some time and in recent quarters put its focus on lower cost servers and software, while still showing success with Java.
IBM has had a few less-than-stellar quarters, but is far from struggling. With some $13 billion in cash, it could easily afford the rumored Sun buy. Big Blue, as exampled by its ThinkPad line sale to Lenovo in 2005, has been moving away from hardware and putting its focus on software and services.
The WSJ sources "people familiar with the matter" in its report. As a reporter, I can tell you people truly familiar with a matter, meaning those high enough to know what they are talking about, rarely leak information unless they want it leaked. And I find it very suspicious that the WSJ just happened to land the story the same day that Sun announced its cloud computing plans here in New York at its CommunityOne conference.
Some Sun watchers believe that clouds, both public and private, could lead to a bright future for the company’s technologies. While much of Sun’s cloud details are still to be released, the company is seemingly well prepared for its market entrance with secure, inexpensive, and readily available cloud-enablement software, virtualization technologies, and open source technologies that host and manage software stacks for virtual machines.
Sun’s announcements today are solid, but still come late to the cloud game. HP, for one, has already announced its cloud strategy. Microsoft has done so, too. And IBM is one of the forerunners here. A Sun buy would bolster IBM’s presence and provide it with more tech muscle (and more potential customer lists) to battle its rivals.
Cloud isn’t the only attractive attribute Sun has. The traditional server aspect of the possible acquisition is significant, so much so that an obstacle to such an acquisition could be antitrust authorities. Based on revenue, a combined IBM/Sun entity would have an approximate 65% stake in the Unix server space, leaving only HP as a formidable near-term rival. Beyond Unix, it would have an approximate 42% stake in the total server market. These are the types of numbers that make antitrust authorities break out their magnifying glasses and look at every detail of a deal.
As a reminder, there’s no guarantee that such a deal would even get past both companies’ boards. And as nothing has been formally announced by either company, any acquisition is far off at this point. Of course that hasn’t kept Wall Street from placing its bets. On the rumors, as well as Sun’s cloud news, Sun’s stock, JAVA, was up more than 80% by 2:15pm eastern today trading at $8.97. IBM, meanwhile was down more than 2% to $90.99.
What do you think? Would such a deal go through? Does Sun technology hold cloud value for IBM? Share your thoughts below.
*Editor’s note: FYI, I do not own any tech stock. It is considered unethical for a journalist to hold stock in what they report on.
John commented:
TomF commented:
Carlos commented:
