Oracle Corp's $7.1-billion purchase of Sun Microsystems Inc is expected to shake up the technology market as it adds hardware cpapbilities to the enterprise software giant.
The deal propels Oracle to the No. 2 position after International Business Machines Corp (IBM), in the $17-billion market for high-end Unix computers. (See: Oracle trumps IBM, acquires Sun Microsystems for $7.4 billion).
Hewlett Packard Co is the No. 3 player in this space.
Servers, the computers that run web sites and networks, account for almost half of Sun's revenue and its acquisition gives Oracle control of Sun's Java software, one of the world's most widely-used computer languages, and the Solaris operating system for Unix servers.
Although Oracle had spent more $34.5 billion in acquisitions since 2005, Sun is seen as the jewel in its crown. Oracle had spent $8.5 billion last year on BEA and $10.3 billion on PeopleSoft in 2005.
While there are questions about Oracle moving into the hardware business, the benefits of it buying Sun's software units are clear. The purchase would enable Oracle to offer a complete package of information technology products for all of businesses' technology needs. At the same time, getting into the hardware business could hurt Oracle's margins and test its management's ability to fight an uphill struggle in an industry other than software.
According to analysts the combination is much more formidable than Sun standing alone. With the Oracle's backing , Sun's customers feel safe, one expert said.
Further, Oracles software will increasingly allow businesses to use inexpensive x86 computers to handle complex tasks that once required the use of Sun's high-end Unix systems, he added.
Dell Inc competes with Sun in selling x86 servers, a $30-billion market where Sun has just a 2.5-per cent share versus 22.3 per cent for Dell, according to Gartner Research.
Oracle's plan is to boost sales of existing products as well as the ones it is acquiring by bundling its software with Sun's hardware, selling pre-configured machines that it promises will cost less and perform better than rivals.
The strategy is to gain a much more competitive footing against IBM and HP. However, according to analysts, Oracle may find it difficult to turnaround Sun's hardware business in shape.
Both Oracle and IBM develop software using Java, which Sun licenses out to most software makers. Java code is used in web applications, as well as devices ranging from cellphones to PCs and servers, and it competes with a group of programing standards from Microsoft Corp known as .Net.
While Java is not a growth business - revenue was flat in Sun's most recent fiscal year at $220 million - Oracle will likely seek to use the clout that comes with controlling Java and setting industry standards as a weapon in its long-running battle with Microsoft.
Under Oracle's stewardship of Sun, Microsoft could also face more competition in the database market, where its SQL server competes with Sun's mySQL software.
IBM chief financial officer Mark Loughridge was quoted as saying the dspite the change in Sun's ownership, it would continue to have the same people aginst whomBig Blue had been competing and winning.
California-based Oracle, known for its aggressive marketing and tight cost controls, has about 85,000 full-time employees on its pay-roll, while Sun has about 33,000 workers.
''This is going to be a pretty tough integration,'' one said.
Oracle has to cut at least 5,000 jobs, mainly in the declining hardware division, to make the combined entity profitable, analysts say, adding that cost cutting measures are essential for an IT company to survive in this age. He recalled that Sun posted a loss of $1.9 billion in the first half of its current fiscal year. Sun to post full-year revenue of $13 billion, more than half the $23 billion projected for Oracle.
In November Sun hadannounced its plan to reduce the workforce by as much as 6,000.
Oracle is also expected to restructure Sun's business model, and close those businesses that continue to lose money.
Some analysts said Oracle wants to buy Sun to boost revenue as it grapples with a recession and currency headwinds. New software sales fell 6 per cent in its most recent quarter.
Some feel that this deal could trigger others. Industry observers are already discussing whether IBM should buy SAP, the world's largest vendor of business software. Cisco may also react by buying some of the firms it has teamed up with for its ''Unified Computing System''.
Both the companies' shares rose in the two trading sessions after the deal was unveiled.
Sun climbed 6 cents to $9.21 on the Nasdaq Stock Market. Oracle rose 71 cents, or 3.8 per cent, to $19.53.