ORACLE PLANS to enter the computer hardware market by buying Sun Microsystems for more than $7 billion (€5.4 billion), swooping in after Sun’s talks with IBM fell apart.
The announcement surprised many Oracle watchers, who believed the company could boost profitability at Sun’s software businesses but were unsure if it could be as successful with Sun’s hardware unit amid stiff competition against IBM, Hewlett-Packard, Dell and new entrant Cisco Systems.
“It’s an out-of-the-box, left-field type of a deal because Oracle is buying a predominantly hardware business,” said Jefferies Co analyst Ross MacMillan.
“The push-pull of the deal is the uncertainty of the hardware business with the earnings accretion of the software business.”
Oracle will pay $9.50 a share for Sun, which values the high-end server and software maker at about $7.06 billion, based on 743 million shares outstanding as of the end of its second fiscal quarter on December 28th.
Sun had previously rejected IBM’s offer to pay up to $9.40 a share, according to sources.
Shares of Sun jumped 35.7 per cent to $9.08 in morning Nasdaq trading, while Oracle shares fell 3.7 per cent to $18.36.
Oracle president Safra Catz said Oracle intended to make the hardware division profitable. Sun’s top-selling products are high-end servers and storage equipment.
Ms Catz said the acquisition, which the companies expect to close this summer, will add at least 15 cents a share to earnings in the first full year after closing. It will be more profitable on a per-share basis in the first year than Oracle had planned for its previous purchases of BEA, PeopleSoft and Siebel combined, Ms Catz said.
Oracle chief executive Larry Ellison and Sun chairman Scott McNealy are Silicon Valley pioneers who have become close friends over the years as their businesses worked together to take on rivals including Microsoft and IBM.
Oracle and Sun have been partners for more than 20 years: Oracle’s database and related software already operate tightly with Sun’s Java software and Solaris operating system. Sun would add more than $1.5 billion to Oracle’s operating profit in the first year, rising to more than $2 billion in the second year, Oracle said.
Sun rose to prominence in the 1990s but never fully recovered from the bursting of the dotcom bubble in the early 2000s, when demand for its high-end servers collapsed. The company has been looking for a buyer for months, according to bankers, with IBM, Oracle, HP, Dell and Cisco having all been cited as possible buyers.
Sun employs about 175 staff at a software development centre in Dublin, while Oracle has about 900 staff in the Republic, primarily engaged in sales and marketing for European markets. –
