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By | Gavin Clarke 12th May 2009 23:00

Sun admits Oracle didn't want the hardware biz

Hope Larry gets a receipt

Oracle's management has been putting a positive spin on its proposed $5.6bn purchase of Sun Microsystems. Chief executive Larry Ellison - a man with an Ahab-like obsession for hardware appliances - has said the deal potentially makes Oracle the Apple of enterprise systems.

Elsewhere, management has been dancing around the fact that Oracle's fundamentally changing its business model, saying Oracle's experience in hardware is vastly underrated. Also, to calm Sun employees, they've claimed to have fully studied Sun's processor lines and pronounced themselves "very comfortable."

Here endeth the hardware vision. Oracle never had any intention of buying Sun's hardware business. Infact, it never even wanted the whole of Sun software business to start with.

Never mind we wrote that on March 26 - you can now take Sun's word for it, in a Securities and Exchange Commission (SEC) filing released Tuesday.

On March 12, 2009 according to Sun:

"Oracle sent a letter to our board proposing the acquisition by Oracle of certain of our software assets, a minority equity investment by Oracle in our common stock and entering into certain strategic relationships. On March 16, 2009, our board met with management and our advisors to discuss Oracle's proposal and the board's fiduciary obligations."

So much for Oracle the happy hardware maker, embracing Sun's Sparc and server manufacturing, and seeing synergies extending into the future. It's looking more like an act of corporate hubris by a software company that believes it can apply its tried-and-tested model of acquire and assimilate in the software sector to hardware.

You can read the whole sorry tale of how Sun shopped itself around the Silicon Valley here.

No reason was given in Sun's filing for why Oracle changed its mind and decided to take the whole of Sun. Maybe it was Ellison's legendary rapport with co-founder Scott McNealy, who it transpired was the real power behind the board on this deal. An attempt by CEO Jonathan Schwartz to talk up the offer price from $9.50 was turned down by Oracle president Safra Catz.

The Sun filing does suggest, though, Oracle's U-turn came in a short space of time - between March 12 and April 17 - and that this deal is born of short-term opportunity rather than long-term strategy. But, hey, we're all open to a bargain - it's just this isn't a pair of pants in the M&S January sales, and the stakes are slightly higher for all concerned.

We also reported on March 26 that Oracle joined with Hewlett-Packard to carve up Sun, with Oracle taking software and HP the hardware portion of Sun's business.

No mention was made of HP in Sun's filing. However, there are repeated references to a mysterious "Party B" in close proximity to Oracle's name before and after March 12.

"On April 6, 2009, our board met to discuss certain inquiries we had received from Oracle and Party B and the impact on the company and our employees, customers and other business partners of the media reports suggesting that we were seeking a strategic transaction. Following this, our management and advisors recommenced discussions with Oracle and Party B with regard to a possible transaction. Party B recommenced its due diligence investigation of the company on April 9, 2009."

Why did Sun enter the market? Sun cites a number of challenges, including the economic meltdown hitting its customer base of large users and its on-going failure to diversity. Investors, though, were already pushing for action well before last year's economic implosion.®

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