Now that IBM Corp.’s $7 billion takeover of Sun Microsystems reportedly is kaput, communications service providers might wonder how their businesses are affected. The frank answer looks to be, “not much.” But that's not to say the scuttled deal doesn't have a big impact on Sun itself.
Service providers have any number of vendors to choose from for servers, unified communications, consulting, and, as it grows more widespread, cloud computing. Statistically, providers are more likely to have IBM as a supplier than Sun. For example, when it comes to server market share alone – the space where IBM and Sun compete the most – IBM boasted 31.4 percent of customers in 2008. On the other hand, Sun, according to research firm IDC, came last on the list at 10.6 percent. So carriers are more likely to buy from IBM than the weaker Sun anyway.
In fact, the likely collective shrug from the service provider community points out that a failed IBM-Sun merger stands to hurt Sun more than anyone else. IBM is the largest and most fiscally sound out of the two. Analysts expect Sun to report another billion-dollar loss in its next round of quarterly earnings, while IBM is fresh off a $4.4 billion fourth-quarter 2008 profit.
In fact, Sun has shopped itself around Silicon Valley and IBM was the one taker. Now, Sun won’t have IBM’s cash and people resources to fall back on, nor will it be able to rely on IBM’s brand reputation, an area where Sun is faltering as it continues to infuriate investors. It doesn’t help that Sun’s share prices had plummeted almost 23 percent on April 6 as news of the failed buyout circulated.
Finally, Sun’s market cap totals $4.9 billion. IBM’s is $134.9 billion. That means the proffered $7 billion price was more than fair for Sun. But something – or someone – got in the way.
More than one observer already has noted the parallel between the collapsed IBM-Sun transaction and last year’s disaster-laden dealings between Microsoft Corp. and Yahoo! Inc.. And there are reports that Sun’s chairman and co-founder, Scott McNealy, has been fighting an IBM takeover much as former Yahoo! CEO Jerry Yang resisted Microsoft, leading the software giant to declare it had washed its hands of the search engine.
IBM appears poised to declare the same of Sun. And yet, these deals have a way of reviving after a few months have passed. Take note of Microsoft’s recent statement that it’s again open to negotiating with Yahoo!. It’s all just gamesmanship until the deal is sealed, right?
Ramifications Good and Bad
Carrier business plans might not be affected too much, but the collapse of the deal does have a couple of ramifications worth noting. Those come in the two areas where an IBM-Sun union held the most promise: servers and cloud computing.
The combination of the server businesses would have invigorated IBM’s aging Unix portfolio, and might have given bigger legs to open-source initiatives. But pundits also expected inordinate amounts of redundancy from the combination. There was talk last week that up to 10,000 Sun employees would lose their jobs during integration. Those positions, however, are safe. For now.
On the cloud computing side, however, there seemed to be more room for growth. Sun recently bought Q-layer, and IBM could have used that asset to strengthen its cloud computing software initiative. The combination of Sun and IBM’s cloud computing expertise also would have lent gravitas to the burgeoning tech craze. As it is, that doesn’t look to be in the companies’ futures.
