Monday, August 31, 2009

Other views on whether Oracle could incorporate Sun's hardware operation into its own

In a prior post, I advanced the notion that since Oracle has been able to incorporate various software acquisitions into the mothership Oracle, it should also be able to incorporate Sun's hardware business into the mothership Oracle. I then joked about the fact that my views on Oracle may be biased.

But it got me to wondering - what are other, potentially more knowledgeable, people saying about whether or not Sun's hardware business can fit into Oracle's operations?

Here's what ZDNet said at the time that the deal was announced:

Apple’s strategy is to integrate hardware and software to make things easy. Oracle with Sun appears to be the Apple of the enterprise. Indeed, Oracle President Charles Phillips noted that the company is looking to offer everything from apps to the disk....

My hunch is that Ellison saw the possibilities of integrating hardware and software with Oracle’s Exadata database machine. Ellison boasted that the Exadata machine has seen strong demand on Oracle’s earnings conference call.

In the end, Oracle’s acquisition of Sun won’t change the company’s overall game plan: Offer the customer a lot of product—apps, languages, middleware, databases—lock that enterprise in and collect the dough.

BroadPoint Amtech thought that the hardware business should be sold for financial reasons:

In our view, Oracle's execution has been largely flawless these last several years, most notably in its recent quarters. This is attributable to its large maintenance business and diversified product portfolio. The maintenance business (50%-plus of its revenue) provides high margins and high visibility, and its diversified product portfolio -- largely focused on infrastructure software space -- has been more resilient than the business application segment of the industry....

While its planned acquisition of Sun is likely to introduce certain integration risks, we believe most investors are comfortable with the company's ability to deliver its earnings-accretion target, despite the dilutive impact to its current margin profile....

We believe it makes strategic sense for Oracle to spin out Sun's hardware business, and that there will likely be buyers of that business. We highlight that it is in both Oracle's and any possible suitors' best interest to complete the spin-out before the current acquisition process introduces more disruptions to Sun's core server business.

But I'm more interested in the management type of question - can Oracle run a hardware business? Express Computer Online noted that Oracle is certainly willing to run a hardware business, and has been for years:

[Forrester Research's Ray] Wang said, "Expect Oracle to roll out a database machine—creating a stack play. Larry Ellison has always promoted the idea of a database machine, going back to the early 1990s when he invested in a company called nCUBE. Although adoption of the nCUBE MPP database machine never took off, (largely because databases were relatively smaller in size and the cost was prohibitive), Oracle’s acquisition of Sun could change the game."

Additionally, Oracle made a similar move last year by rolling out the HP Oracle Database Machine, a system using HP hardware and storage, which has had some success. "Oracle has already demonstrated strong engineering on operating systems, databases, and file systems, so acquiring Sun servers and storage puts a database machine well within its reach. With enterprises struggling with growing data volumes and increasing numbers of databases, the business case for a database machine becomes more compelling to lower cost, improve IT productivity, and increase performance scalability," added Wang.

But a willingness to do something doesn't necessarily mean that you can do something.

[Gartner's Asheesh] Raina said, "Oracle was never in the hardware business and hence it would face a big challenge in managing the wafer thin margins and channel partners."

Now you can speak to companies with their own axes to grind. Competitors like IBM will obviously express their opinions on the viability of Sun hardware under Oracle. And obviously Sun will express its own opinion on the viability of Sun hardware under Oracle.

But the Economist looked at the acquisition from a broader perspective - not only what Oracle is doing, but also what HP, Cisco, and others are doing:

HP bulked up its services division by buying EDS, for example, and has also moved more into networking. Cisco will soon start selling servers, and has formed an alliance with several smaller hardware and software firms to build, in effect, a data centre in a box. The industry is, in other words, going back to its past, when it was dominated by a few integrated companies that tried to do it all.

This is, in part, a consequence of the industry’s maturity: to keep growing, firms have to invade each other’s markets. In addition, customers increasingly prefer to buy integrated systems from one vendor, rather than doing the plumbing themselves.

If you believe this story, then not only will Oracle want to keep Sun's hardware business - it HAS to.
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