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IBM could save Sun’s star from waning

23 марта 2009

In the IT world, new technologies and the companies that promote them can shoot to prominence almost overnight. When their time has passed, though, their demise can take years. So it has been with Sun Microsystems, the server company that was one of Silicon Valley’s brightest stars at the end of the last decade.

Despite recently embarking on its ninth restructuring, Sun’s fortunes have seen a long decline, and its shares recently slumped to little more than the company’s cash on hand.

Yesterday’s revelation that negotiations over an acquisition by IBM had reached a late stage could bring the curtain down on a Silicon Valley story that began with the tinkerings of a computer science student at Stanford University 27 years ago.

Yet there is more to this than the slow decline of a former tech darling.

By cementing IBM’s grip on some of the core hardware and software technologies, it could bring a sea change in the world of corporate and government datacentres.

The implications for competition are likely to make it the subject of lobbying by rivals – particularly Hewlett-Packard, which would remain IBM’s only significant competitor in the field.

Sun’s machines were the workhorses of the dotcom boom, small-scale computers which brought greater power at much lower cost to a generation of internet start-ups.

That fed a brash, youthful culture which accentuated cutting edge technology and sales above everything.

The company’s arrogant culture left it badly placed to respond quickly enough to its reduced fortunes after the tech bubble, as well as to fundamental technology changes that eventually left it high and dry.

The rise of the Linux open-source operating system and standardised, low-cost servers based on Intel-compatible chips undermined demand for Sun’s own more expensive technology, which relied on its Solaris operating system and in-house Sparc processors.

Sun eventually changed course, converting Solaris to an open-source program and itself adopting industry-standard servers, but it was too late.

It has taken a steep recession to finally expose the flaws in Sun’s approach, and the inadequacy of recent attempts to reposition its business.

While long-term contracts make software and services – the mainstay of IBM’s business – largely resilient in a recession, hardware sales have collapsed.

Combining the IBM and Sun hardware businesses, both of which have struggled in this recession, would present an answer for both.

Besides the direct benefits from cost-saving, IBM would also get access to Sun’s big customer base – primarily governments, telecoms companies and financial services firms that have invested heavily in Sun technology over the years and have been resistant to IBM’s blandishments to drop Sun and move on to its own technology.

IBM has returned to the top of the tech heap in recent years thanks to a strategy that relies on its ownership of world’s biggest IT services arm and the second-biggest software concern.

Hardware deals often also lead to the sale of IBM’s own middleware, the provision of lease finance to support the sale, and an IT services engagement to install the new technology.

With access to Sun’s customers, IBM would have a big new market to exploit these advantages.

No other tech company is as well placed to extract value from Sun’s customers as IBM, said Matt Eastwood at research firm IDC.

Hewlett-Packard, though one of the tech industry’s main consolidators, has yet to match IBM’s software and services divisions. Fujitsu, which has a close alliance with Sun and would not welcome seeing it acquired by a key competitor, would struggle to finance a rival bid, according to analysts.

In the longer term, a stronger grip by IBM on the datacentre technology market would leave it even better placed for an architectural shift in computing that is underway: the move to “cloud computing”.

This week’s entry by networking equipment leader Cisco Systems into the server business is the latest sign of how this transition is remaking the corporate IT landscape.

“We expect companies seeking to establish a strong position in cloud computing and the data centre of the future will increasingly look to make significant acquisitions both within and across traditional sectors of systems, storage, software and networking” said Jean Tardy-Joubert, partner at M&A boutique Qatalyst Partners.

For Big Blue’s rivals, the stakes look like they are about to get higher.

Источник: Financial Times

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