Despite the complexity involved in merging companies of such colossal size, the process should be a smooth one for Oracle’s US$7.4B takeover of Sun Microsystems, analysts said Tuesday.
“Oracle has demonstrated ability in taking very complex mergers and doing well by them,” said Interarbor Solutions president and principal analyst Dana Gardner.
Not only does Oracle have a good track record with previous acquisitions of JD Edwards, PeopleSoft, BEA, Hyperion and others, the physical proximity to Sun will also help, he noted.
“These two companies are literally only a 20 minutes drive apart in California, so they are really just a stone’s throw away,” said Gardner. “Their campuses are very centrally organized in terms of their leadership and so there’s synergy there as well.”
Unlike Oracle’s previous acquisitions, the merger is not about taking up market share and consuming competitors, according to Info-Tech SVP James Alexander. The acquisition more complimentary than competitive in nature because the product offerings are already in Oracle’s solutions stack, he said.
Sun has stronger R&D, but Oracle has a larger and deeper sales force, according to Gardner. “There’s obviously a complimentary fit on those two areas, not a lot of redundancy,” he said.
Gardner suggested Oracle could improve its position in both areas by keeping Oracle as the predominant sales organization and making Sun the R&D arm.
Oracle is a pretty innovative company for R&D, but Alexander expects budgets will be trimmed. Oracle spent $2 billion last year on R&D, while Sun spent $3 billion, he pointed out. “Five billion is a lot on R&D and while it’s certainly in their interest to keep innovating, I expect to see that trimmed.”
Alexander doesn’t see any overlap in consulting practices. Oracle performs a different type of consulting than Sun, which is more about the data centre than enterprise applications, he said.
Oracle-Sun consulting won’t pose a challenge to IBM Global Services either, according to Gardner.
“Sun consulting was really about how to get their products up and running and keep them running, so more of a maintaining and support function than a consulting or system integration or organizational management function – and similarly at Oracle,” Gardner explained.
Layoffs at Sun are inevitable, according to Gardner, but this isn’t a direct result of Oracle. “If Sun stays independent there are going to be more layoffs. If Sun gets sold, regardless of who it gets sold to, there are going to be layoffs,” he said.
But there will probably be less layoffs with an Oracle acquisition than there would have been with IBM, Gardner added. “Given the fact that again, the campuses and their leadership are very close in Silicon Valley and there’s still a lot of engineering talent at Sun that I’m sure Oracle will make some use of,” he said.
Significant layoffs are likely in redundant areas of leadership, marketing and general management across basic back office functions, he noted.
“Sun’s got a pretty strong position in Canada compared to other regions, whether they have layoffs or not, it won’t change the organizational model,” said Vito Mabrucco, managing director of IDC Canada.
“Oracle from an organizational point of view went to a North-South model,” he continued. “Oracle doesn’t have a large management office in Canada like Sun, which has a Canadian managed subsidiary.”
One interesting part of the announcement was that Oracle didn’t mention ongoing roles for Sun chairman Scott McNealy or Sun CEO Jonathan Schwartz, Alexander pointed out. Oracle’s other acquisition announcements mention that the individual who ran the last company will have an ongoing role, he said.
Oracle’s acquisition of Sun is good for the industry, according to Alexander, because it creates an enterprise-class competitor to IBM that didn’t exist. “If you think of Oracle, Sun and the partnership they have with HP, it’s truly a world-class competitor to what IBM can offer,” he said.
IBM would have folded the company, according to Gardner. “I think IBM was buying Sun in order to cherry pick a few product lines, sunset the rest of the business and gain control over Java and perhaps a couple of products,” he said.
“I’m not sure that IBM would have used Solaris nearly to the same degree that Oracle will … I think there is a significant strategic alignment improvement with Sun going to Oracle versus IBM,” he continued.
There are around 6 million Java developers out there, Alexander pointed out. “When your strategy and applications are based on Sun’s Java and Solaris, it’s a prudent move to have them in your own pocket than see them get bought out by IBM,” he said.
“If this goes through with Sun, Oracle basically possesses everything from a top down bottom in IT … Oracle is evolved now to the point where they have everything from the binaries on the actual metal – on the silicon – right up to the very top of the business process and applications,” said Gardner.
“One of the key reasons that Oracle’s acquisition strategy has been so successful is that we buy companies with market leading products,” said Oracle CEO Larry Ellison in a conference call yesterday to investors and media. “Java is the foundation of Oracle’s Fusion middleware and the single most important software asset we have ever acquired,” he said.
“The transaction also positions Oracle as the world’s largest supplier of open source software,” Swartz pointed out.
“With today’s transaction, Oracle is positioned to solve a broader array of business problems than any other technology company on earth,” said Schwartz.