Oracle - Sun: IT Convergence on Steroids

Last Updated Apr 22, 2009 7:39 PM EDT

Yesterday, Oracle agreed to acquire Sun for $7.4 billion. The move surprised analysts since Oracle - an enterprise software company - has until now avoided hardware, Sun's core business. The deal even left Microsoft CEO Steve Ballmer speechless - a first.

But Oracle's bold move indicates an accelerating trend as IT giants IBM, Cisco, and Oracle integrate distinct product-lines into complete IT solutions. They're all coming at it from different directions, but their common weapon of choice is M&A.

Convergence, once the exclusive domain of the consumer electronics space, has now officially bled into the business world - enterprise, small business, and infrastructure. Whether Oracle's move was indeed defensive - intended to keep Sun out of the hands of IBM - is immaterial. What matters is that Oracle does not intend to be left out of the IT solutions game.

According to CEO Larry Ellison, Oracle was most interested in Sun's software products, most notably the Solaris operating system and Java programming language, strengthening its competitive position against rival Microsoft. But the move also positions Oracle squarely against HP (a current server partner), IBM, Dell and now, Cisco in the server space.

Moreover, according to the Wall Street Journal, Oracle expects Sun to contribute $1.5 billion to Oracle's operating profits in the first year. That's better than its acquisitions of PeopleSoft, Siebel Systems and BEA Systems combined. And that means that Oracle's already honed acquisition competency is continuing to improve, since Sun was anything but a profitable company.

What's next? Eric Savitz at Barron's thinks Oracle's move makes SAP an attractive acquisition target for IBM, since much of SAP's application software will now be running on competitor Oracle's servers. Makes sense to me.

I'm thinking Dell, which is looking more and more like David in a land of Goliaths, may end up having to give up its autonomy just to stay in the game. So who buys Dell? Cisco? Does anybody even need or want Dell? Here's an idea: how about a three-way merger between Microsoft, Intel, and Dell. Think about it.

[image of Larry Ellison courtesy of CBS News]