Sun Microsystems may shine in IBM's sky

For Sun Microsystems Inc., a reported $6.5 billion acquisition offer from IBM Corp. -- potentially merging two of the Denver area's biggest high-tech employers -- is being called a "Yahoo moment."

The company may be worth more than Armonk, N.Y.-based IBM (NYSE: IBM) is offering, but it also may be more money than Santa Clara, Calif.-based Sun (NASDAQ: JAVA) will be worth if IBM walks away from the table.

Sun bought Storage Technology Corp. in Louisville in mid-2005 and at one point had as many as 4,700 locally. Today it has close to 2,500 workers at its Broomfield facility.

IBM is one of Boulder County's largest employers, with about 3,000 workers.

News of the offer came as competition for data center hardware is heating up and "Big Blue’s" offer is seen as an attempt to respond to San Jose, Calif.-based Cisco Systems Inc.’s (NASDAQ: CSCO) announced plans that it would enter the next generation data server market.

With the move, Cisco is poised to take on Sun and Palo Alto, Calif.-based Hewlett-Packard Co. (NYSE: HPQ).

Sun “is having a Yahoo moment,” said Rob Enderle, a veteran technology analyst and principal of San Jose-based Enderle Group.

The reference is to Redmond, Wash.-based Microsoft Corp.’s (NASDAQ: MSFT) attempt to buy Yahoo Inc. (NASDASQ: YHOO) last year. But unlike Yahoo’s fierce fight to remain independent, Sun has reportedly been actively seeking an acquirer.

“If they walk away from this deal, they could bid it up,” Enderle said. “HP might now find Sun attractive because IBM wants it… this could start a bidding war for Sun.”

Sun has taken a beating in recent years. Its server was favored during the dot-com era, but the company found its products being sold at bargain basement prices following the bust. Its servers are considered to be of the highest quality, and their prices match that reputation.

But concern about Sun’s viability has been heightened by the battering of the financial services markets, which long have gravitated toward the power and scalability of Sun’s servers. The $6.5 billion IBM is said to be offering was about double what the company market cap was worth the day before the acquisition talks were reported, but less than half what the company was worth a year earlier.

Owning Sun’s Java open-source platform would also give IBM a competitive leg up in an arena where Web capability is key.

“With Cisco entering the server space, (IBM) has been put on notice to double-down and aggressively compete against Cisco,” Enderle said. “IBM also is positioning against Microsoft, because if you have the more largely used tools, you have the competitive advantage.”

Faysal Sohail, managing director of San Francisco-based CMEA Capital, a venture firm with a large investment in software as a service — or SaaS — and data center technology, called cloud computing “the holy grail” for the data centers market. With HP acquiring assets on the networking side, and Cisco now going after the server side, IBM represents the final company of the trinity racing to become market leader.

“This has been a long time coming. IBM has servers and services, but not the software platform, and no networking,” Sohail said. “The way the landscape is shaping up, you have these three major players going after cloud computing, and they’re all trying to add pieces to be competitive.”

By acquiring Sun, IBM could add the critical parts it lacks with Sun’s open-source Solaris operating system, the open-source database MySql and the Java platform. By doing so it could become the leader in cloud computing.

“They’re missing the networking part, which is what Cisco provides,” Sohail said, “but HP, Sun and IBM are off to the races.”

At Fusion Storm, one of the country’s largest resellers of Sun and IBM products (and the largest IBM reseller in the federal government sector) Chief Technology Officer Vince Conroy said the possible acquisition would be great news for Fusion and great news for customers of both companies.

Fusion, based in San Francisco, said the acquisition has the potential to end Sun’s struggles and give IBM access to great open-source technology.

“Obviously we don’t know what the road maps or merger might look like, and if it does come about, it will take awhile to unfold,” Conroy said. “But it gives the combined companies dominance in the midsize server arena and great crossover market share.”

Conroy disputes the theory that Sun has priced itself out of the marketplace for new and emerging companies in need of servers. He said Fusion has several large Web 2.0 companies buying a large number of Sun servers, adding that Sun has competitive pricing in the data center server space.

“I don’t think it’s accurate to say they’re not price competitive. In certain markets maybe, but it is a highly competitive market between HP, Dell and Sun, and that market is increasing,” Conroy said.

As talk about the possible acquisition took on fervor, questions about possible antitrust issues surrounding the deal also arose. Analyst Enderle said he doubts an antitrust case would proceed.

“Microsoft could move to block it, but I doubt they would because they’re under too much of a cloud themselves,” Enderle said. “If Google was trying to do it, then they might” seek court intervention.