In its acquisition of Sun Microsystems, Oracle sees a technology company that is a software gem, skillful in computer design and ripe for cost cutting.
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The big database software company’s $7.4 billion bid for Sun on Monday, analysts say, also promises to make Oracle a more formidable competitor in the lucrative market for corporate computing, especially against I.B.M., Sun’s previous suitor.
The Oracle-Sun deal came little more than two weeks after I.B.M. ended its talks with Sun. The Sun board balked after I.B.M. lowered its offer to $9.40 a share from $10. The Oracle bid at $9.50 a share, would have a net cost to Oracle of $5.6 billion, after accounting for the value of Sun’s cash and debt.
Lawrence J. Ellison, Oracle’s chief executive, explained in a conference call Monday morning that Sun’s Java programming language and its Solaris operating system were the main attractions. He said Java, the language used in most computer science schools and a technology used daily by millions of software developers, was “the single most important software asset we have ever acquired.”
More of Oracle’s corporate database software runs on Solaris, a version of Unix, than on any other operating system. In the last few years, however, Oracle has moved to make Hewlett-Packard and Dell stronger allies, as Sun’s business has declined.
With Sun, Oracle will more directly compete against I.B.M., H.P. and other tech giants selling products and services used in corporate data centers by big corporations. The move by Oracle is part of the trend of the largest technology companies to assemble more offerings — hardware, software and services — for corporate customers, often through acquisitions, as I.B.M., H.P., Cisco and Oracle have all done in recent years. “Oracle is transforming itself into a soup-to-nuts information technology vendor,” said Gordon Haff, an analyst at Illuminata, a technology industry research firm.
Among industry rivals, the Oracle-Sun deal, analysts say, has the most potential impact on I.B.M. and H.P. “This deal promises to revitalize a systems competitor that I.B.M. and H.P. were writing off as dead,” Mr. Haff said.
Oracle can offer a more complete set of corporate software, from Sun’s operating system and programming tools to Oracle database and business applications to automate operations like finance and customer relations management. The combined company, according to Oracle and Sun executives, will be able tweak and integrate its software to reduce costs and bugs, and to tighten security. Sun’s computer designers, they said, can tailor hardware systems for their software stack, promising further gains in efficiency.
Executives from the two companies pointed repeatedly to the benefits of this “systems” approach, combining software and hardware. Yet while Sun makes most of its revenue from selling computers, Oracle executives emphasized that they did not regard Sun as a hardware company, which suggests owning factories and large capital investments.
Safra Catz, Oracle’s president, called Sun a “modern technology company” that “outsources nearly all the manufacturing, assembly and servicing of its hardware.”
Yet Sun has struggled, and corporate and government customers have expressed doubts about its future, eroding its business. Under Oracle’s wing, Sun, analysts says, suddenly looks much stronger.
An Oracle-Sun combination, George Weiss, an analyst at Gartner, said “really amounts to another axis to I.B.M. in offering both hardware and software. This could open up significant new opportunities for both Oracle and Sun in a lot of corporate accounts, especially the teetering Sun accounts.”
The Oracle-Sun deal also promises to subtlly alter the competitive fault lines in an industry where the biggest companies compete in some businesses and cooperate in others.
Sun is expected to be smaller and leaner under Oracle. “We will be able to run Sun at substantially higher margins,” Ms. Catz, the Oracle president, said. She estimated that Sun operations would generate an additional $1.5 billion a year in operating profit, and add 15 cents a share to Oracle’s profit in the first year.
Under Oracle, she said, the Sun businesses will be able to achieve operating efficiencies “far in excess of what Sun has done to date.”
The Oracle and Sun executives made no comment about coming job cuts at Sun, and they took no questions during the conference call. But industry analysts estimated that Oracle’s cost-savings estimates from Sun operations suggest job cuts of up to 10,000 workers, from Sun’s payroll of more than 30,000.
