Expect Oracle to alter Sun deal, analyst says

The European Commission’s objection to Oracle Corp.’s bid for Sun Microsystems Inc. should compel CEO Larry Ellison to either back out of the deal or spin off MySQL and reassess the worth of the acquisition price, according to an industry observer.


“I’d get the hell away from this deal as quickly as possible,” said Joe Clabby, president and founder of Yarmouth, Me.-based Clabby Analytics. “If I were Ellison, I’d have a tough time justifying this at $7.4 billion.”


Although this has little chance of happening, he added, there is a definite possibility that Oracle will look for a way to get rid of at least one piece of Sun by spinning off its MySQL database.


The open source database — which Sun took control of when it spent $1 billion to purchase MySQL AB in 2008 — is at the heart of the European Commission’s Oracle-Sun objection, with the political body arguing that “exclusive holder of copyright on the MySQL code” will hobble or eliminate a key competitor to Oracle’s own database offering.


“From my perspective, Oracle’s got to get rid of MySQL to do the deal,” Clabby said.


“They’ve got to get through the alleged conflict of owning MySQL and then restructure the deal with Sun as such that it reflects the removal of that billion-dollar error Sun made.”


In the background of these European Commission objections is the recent admission by Ellison that Sun is losing about US$100 million per month due to lost sales, with the company also being forced to lay off thousands in a restructuring plan aimed at coping with the mass exodus of Sun customers.


Both IBM Corp. and HP Co. have already claimed to have migrated hundreds of Sun customers who are jumping off the bandwagon and moving to UNIX-based systems.


Together, the European roadblock, significant migration of customers, mass firings and dwindling revenue make it increasingly unlikely that Oracle will ever achieve its stated investment goals with the deal, Clabby said.


Rathe than taking Clabby’s advice, Oracle also has the option to forge ahead, fighting the European Commission, and continuing on its path to become a hardware-software-services provider.


Oracle has repeatedly claimed that MySQL doesn’t play in the high-end server sandbox, and is instead focused at smaller shops, Web sites or less critical workloads.


Reacting to the European Commission’s statement of objections earlier this week, Oracle insisted the deal “doesn’t threaten to reduce competition in the slightest, including in the database market.”


“It is well understood by those knowledgeable about open source software that because MySQL is open source, it cannot be controlled by anyone. That is the whole point of open source,” the company said.


Oracle also added that the lack of any credible evidence of competitive harm keeps the company confident that it will eventually obtain “unconditional clearance of the transaction.”


Clabby said that while a case can be made for walking away, restructuring, or fighting back, none of the options will avoid the negative consequences headed for remaining Sun employees and customers.


He added, however, that choosing not to fight the European Commission and significantly restructuring the deal or simply walking away altogether will definitely limit the long-term damage for Oracle and might actually leave the company better off.


Other than blocking a potential Sun purchase by IBM, Clabby argued, Oracle has never made a strong case for how Sun would be integrated with the software giant or how it warranted the $7.4-billion price tag.


“Oracle said they wanted to become a full-service provider,” he said. “They saw synergies by being able to sell hardware, systems software, and their application solutions and provide services. But to me, who wants to be in the hardware business unless you absolutely have to be in it?”


The biggest value is up above in process flows, Clabby said, where Oracle could be working on automating these process flows and helping enterprises run more efficiently.


“That’s high value and that’s high consulting dollars,” he added. “Oracle should be looking to expand that direction instead of down into the hardware.”
– With files from IDG News Service

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