Oracle as an OEM: Behind a strategic shift

In acquiring Sun Microsystems Inc.’s hardware business, Oracle Corp. is ushering in the return of the end-to-end systems vendor, industry analysts say.

Sun’s open source and software initiatives have grabbed the headlines in wake of the US$7.4 billion acquisition, with Oracle CEO Larry Ellison calling Java “the single most important software” the company has ever acquired. But behind that rhetoric, technology observers agree that Sun’s hardware business will play a key role in Oracle’s quest to become the industry’s dominant full-service IT player.

“The big story here is the reconstitution of the vertically integrated computer company,” said Gordon Haff, principal IT advisor for Nashua, Nh.-based research firm Illuminata, Inc. “While IBM never got out of this game, the industry as a whole certainly did. With HP and their EDS acquisition, Oracle buying Sun, and Cisco getting into blades and so forth, you’re really seeing a shift back to the soup-to-nuts systems companies.”

This is basically how all tech companies used to operate back in the early 1980s, before companies such as Intel Corp. and Microsoft Corp. ushered in the horizontal industry structure, he added.

Oracle has been heading in this direction for awhile, according to Haff, with its Unbreakable Linux program and in-house virtualization initiatives. The company has not been content to simply thrive as a database company and have really pushed to own more of the stack.

“With Sun, they’d have an end-to-end enterprise class hardware and software stack,” said Charles King, an analyst at Haywood, Calif.-based Pund-IT Research Inc.

“When Cisco announced they were going to be making their own servers it was a tectonic shift for the company,” King said. “Cisco has always acted in an agnostic manner with systems vendor partners.”

Oracle is in a very similar situation, but instead of being an agnostic application provider, they will now be going into their accounts with hardware in tow.

“This will make them a larger threat,” King added.

For IDC Canada Ltd. managing director Vito Mabrucco, the deal launches a new hybrid model for Oracle.

“Nobody else looks like this,” he said. “Everyone’s looking for the future of IT and the integrated stack could be it.”

“We are seeing a new model today, with Oracle looking to lead the post-recovery phase of IT with this new business model.”

As for the biggest loser of the deal, it could actually be HP Inc., according to Haff. The company does not have a middleware stack and has relied on partners — as opposed to IBM Corp. which has DB2 and WebSphere.

“This can not be looked at as particularly good news by either HP or IBM,” he said. “For instance, a lot of Oracle software runs on HP gear, such as HP Oracle Database Machine.”

“Although Larry will still be more than happy to sell HP customers Oracle software,” he added.

King said that while the hardware business vastly different from the software side of things, Oracle’s disciplined management team should be ready for the shift in focus.

Throughout the rampant speculation of the IBM-Sun merger, the burning question was surrounding how dedicated IBM would be to preserving Sun’s legacy hardware platforms.

“An Oracle deal would leave all of those platforms in pretty good shape and customers can probably rest assured that they won’t be asked to migrate to another hardware platform anytime soon,” King said.

He added, however, that Sun’s StorageTek offering would likely be one piece of hardware that garners little interest from Oracle.

“It’s probably the weakest part of Sun’s hardware infrastructure offering and I’m not sure how dedicated Oracle will be to preserving or enhancing that portfolio.”

From a cultural standpoint, the deal works because of the close working relationship the two companies have had in the past.

Historically, Oracle has favoured Sun hardware and the companies are no more than seven or eight miles apart from each other, King said.

“There are times when cultural issues outweigh whatever technology benefits come with a deal,” he said. “That was certainly the case with HP and Compaq and I think it’s also probably causing some troubled waters over at HP and EDS as well.”

But taking a look at the captains that run the Oracle and Sun ships, the merger might be in better shape than other blockbuster deals.

“Oracle under Larry Ellison and Sun under Scott McNealy, both CEOs like to play public bad boy and are known for shooting off at the lip more than was entirely healthy for their organization,” King added.

“It will be interesting to see how they pull this off.”

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Jim Love, Chief Content Officer, IT World Canada

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