Oracle raises the stakes with Sun acquisition

Technology analysts weigh in on the deal that is set to make history in the computing world

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By  Vineetha Menon Published  April 21, 2009

Following yesterday’s surprise announcement that Oracle will buy Sun Microsystems for $7.4 billion, analysts predict that the software giant will now play on a levelled field through the addition of Sun’s hardware portfolio.

“Oracle now controls a significant major open source alternative and a nice piece of the high end computing business,” stated R "Ray" Wang, an analyst with Forrester Research.

The deal sees Oracle with a complete range of information technology products for all business needs, improving its standing as one of the Big 4 tech companies that include Microsoft, IBM, SAP and Oracle.

Peter Goldmacher, an analyst with Cowen & Co., believes that Oracle was not particularly driven by Sun’s attractive software assets such as Java but was instead intent that those software secrets didn’t slip into the hands of competitors.

"We are positive that Oracle never wanted to get into the hardware business but when faced with the likelihood of IBM owning Sun's Java assets and the company's installed customer base, Oracle was forced to buy Sun," Peter Goldmacher told the Wall Street Journal.

Another take is that the acquisition would bring about a rise in the profile of network computing, which is evolving into ‘cloud computing’ as we know it today.

“…Larry Ellison and Scott McNealy used to talk incessantly about the ideas behind network computing….Cloud computing is the way that is described today, and Scott and Larry can recapture the glory of past ambitions.” Daryl Plummer writes in a posting on the Gartner blog network.

Still it’s not all good news out there. Close to 10,000 people could lose their jobs as part of the deal in order to reach profitability goals.

In a company statement, Oracle President Safra Catz said that the “acquired business will contribute over $1.5 billion to Oracle’s non-GAAP operating profit in the first year, increasing to over $2 billion in the second year.” According to Tony Sacconaghi, an analyst with Sanford C. Bernstein & Co, that figure will come at a price.

"In order to deliver $1.5B in op. profit, [Oracle] would need to boost profits by $700 million assuming no material revenue erosion, which suggests incremental headcount reductions of 5,500 to 10,000 depending on timing," Sacconaghi wrote in a research note.

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