This is not exactly breaking news. Just last month at the combined company’s debut, Chairman Larry said he expected to revive Sun’s sagging fortunes, pulling the company back into the black even by the end of this month. At that event he said he expected to make about $1.5 billion in operating profit from Sun’s portfolio after owning the company for a full year and that he expected to take that number much higher over the next few years.
This sort of unbridled optimism gives one pause however. From early September, when the European Commission (EC) began its investigation of Oracle’s acquisition of Sun, until late December we heard a steady rant from Mr. Ellison about how that investigation was slowly strangling Sun’s chances for survival.
For instance, in late September speaking at a dinner sponsored by The Churchill Club, the chairman said the investigation was significantly contributing to Sun losing some $100 million a month. This statement came in the heels of Sun having reported a quarterly loss of $147 million.
In that talk the good chairman said the longer the EC’s approval process takes “the more money Sun is going to lose, and that’s not good for anybody. We want to get this (acquisition) done to save as many jobs as we can.”
Also contributing to Sun’s cloudy outlook around that time were multiple analyst reports surfacing indicating Sun was losing huge chunks of market share to archrivals IBM and HP in server hardware. A major contributor, of course, was the lingering uncertainty of Sun’s fate thanks to the EC’s investigation, which prompted Sun users to halt purchasing decisions or jump ship.
But with yesterday’s comments, all the angst Larry had over the EC’s four-month long investigation sun setting Sun’s future seems to have dissipated rather quickly. Now he is talking boldly about hiring a couple of thousand new employees to bolster Sun’s products instead of laying them off (although he did indicate there could be up to 1,000 employees let go), and exhibiting confidence about how the Oracle-Sun developed Exadata 2 super server, and the various stack computing strategies built around it, will soon outgun any offerings from IBM and HP.
So was Larry crying wolf to the EC about its investigation crippling Sun, or is his bold optimism about Sun’s chance simply masking the tough task he has ahead of him to make this deal succeed over the short term? It is hard to say, it may be a little of both. But given his claim he will make Sun profitable by the end of the month, it won’t take long to find out.
If you are concerned about Larry giving up his day job to spend more time plotting his defense of The America’s Cup, don’t be. The 65-year-old chairman says is not ready for retirement indicating he will continue to pursue software and sailing with an equal amount of vigor.
“I love Oracle and I love sailing, and I think I can do both,” he said.]]>
First, he outlasted the European Commission (EC) which held up his attempt to acquire Sun Microsystems for over four months. Now he has followed that triumph with another by winning the America’s Cup, one of the most valued trophies in all of sports.
Ellison’s BMW Oracle Racing team won the Cup over this past weekend sweeping the two-time defending champion Alinghi 2-0, just off the coast of Valencia, Spain. Naturally, with Ellison involved, so was technology. His trimaran, aided by the largest wing sail ever built, simply overpowered Alinghi’s catamaran in the two races.
Larry Ellison may be brash and boastful, but he is also patient and focused. This year’s win ended Ellison’s 10-year mission to win the America’s Cup, marking the first time an American challenger has claimed the trophy in 23 years. This is the same sort of dedication he applied in acquiring PeopleSoft after years of pursuit and this latest battle with the EC.
Speaking of the technology used by BMW Oracle Racing, it’s funny Larry didn’t give any props to NetSuite’s cloud computing based business management software. Apparently the team uses that business suite for a range of accounting, reporting and international tax compliance functions. He probably would have mentioned it, if it wasn’t cloud computing based.
If he decides the NetSuite product would be instrumental in bringing him another America’s Cup he can always buy it and grid enable it. I mean, what’s one more acquisition? In the first five weeks of the year Oracle completed its $7.4 billion acquisition of Sun and acquired two more companies, AmberPoint and Convergin. I am beginning to wonder if Larry made some sort of New Year’s resolution to buy a company a week in 2010.
But it is this display of steely resolve that Ellison’s major archrivals, particularly IBM, have to look forward to as he puts all the moving parts of Oracle and Sun together over the next year. It will take all of Ellison’s resolve and patience to ensure the long-term success for the newly combined company, along with maybe more than a little showmanship.
The first thing he has to do is to stop the steady migration of Sun customers over to IBM and HP’s hardware platforms. Sun has lost a significant number of accounts to its archrivals since the deal was first proposed on April 20, 2009.
A good way to start is to be straight forward with Sun’s remaining top accounts about exactly what hardware lines he is going to keep and what he is going to jettison. By selling a range of products and services directly to Sun’s top 4,000 accounts, Larry must treat these accounts more like strategic business partners, and do away with some of the overly aggressive, nickel-and-diming strategies some users accuse them of to win product and maintenance support deals.
Another way to hold on to skeptical Sun accounts is winning them over to Oracle’s still-not-quite-defined stack computing strategy. While the company made an appetizing pitch to its customers and the press at its Jan. 27 rollout, buying stacks of mission critical hardware and software is just not in the blood of large heterogeneous IT shops. This is where Larry’s showmanship will come in handy.
A third approach, and maybe the most difficult, would be to come up with an attractive and innovative licensing strategy for their various stacks and individual software and hardware offerings.
Lord knows there are legions of existing Oracle customers unhappy with the 22% maintenance fees the company charges, especially given the quality of service they get in return. And some Sun customers have one foot out of the boat anticipating Oracle will find a way to jack up licensing fees on a per processor or per box basis for hardware.
I have yet to hear of any such licensing program(s) being proposed that would convince Sun users to stay put. But if you have, or you have one of your own, let me know.]]>
I am only half kidding, of course, about the good news part. For better or worse (worse many users say) Oracle doesn’t fret much over whether it should license servers by the processor core or by the box. It unflinchingly continues to license by the number of cores, which could prove an expensive proposition for some buyers.
The bad news I may not be kidding about so much. With Sun kicking its five-year old Rock project to the curb, Oracle can’t make the next leap in the game of performance leapfrog it plays with chip rivals IBM and Intel.
In fact, Sun has failed to leap a couple of times having canceled its UltraSparc-V chip project earlier this decade because it essentially ran out of development funds. The company rushed out its UltraSparc-IV chip as a stop-gap product that didn’t do much. And when Sun was skipping a leap, a couple of other times it was very slow to leap, being months even years late in delivering a new chip.
Sun officials have talked consistently the past few years about the Rock being a game changer. The chip was designed to achieve a much higher per-thread and floating point performance, along with greater Symmetrical Multi-Processing capabilities than its Niagra family of chips.
Rock, which was to anchor the company’s Supernova line of servers, was supposed to really shine when it came to handling high-end data facing workloads including database servers. Just guessing here, but I think a machine delivering great database performance would be important to Oracle.
With Rock out of the game Sun will continue to use Fujitsu processors, which will be fine, but hardly represents the game changer the company was hoping for. One positive aspect to all this is that Sun’s research and development costs just got significantly lower. This won’t make Larry Ellison unhappy as he tries to complete the $7.4 billion acquisition of Sun.
But once again Sun has opened the door wide open for a number of competitors to rush through, most notably IBM. With one less competitor at the high end, IBM figures to rip away more server market share from Sun over the short term. Some speculated over the last day or so that Oracle might start to emphasize the next gen Niagra III Sparc chips, as well as pushing Solaris on x64 servers fueled by Intel’s upcoming Nehalem EX servers.
Sun has been relying on chips from Fujitsu for its larger servers while it waited for the Rock development to be finished. Now it is likely to just continue using Fujitsu chips, which should lower research and development costs.
But what does the lack of a “game-changing” chip like Rock do to Oracle’s plans to sell vertically integrated hardware-software stacks (as has been rumored) ala its Exadata Database Machine? It could hurt its newly acquired hardware business for sure, but perhaps more importantly hold back its flagship database business at the high end in some key markets, along with other proprietary and open source software offerings.
We knew Oracle was buying some damaged goods with its acquisition of Sun, but I am not sure if Redwood Shores was assuming its chip business might be this damaged.]]>
Several years ago or so Oracle chairman and CEO Larry Ellison made a typically brash prediction that eventually there would only be two or three major IT vendors left standing. Of course he believes Oracle is going to be one of them.
It is the kind of prophecy most people discount as self serving, and that couldn’t possibly come to pass.
But with persistent rumors swirling around the last couple of weeks involving IBM, Hewlett-Packard and Oracle all interested in buying Sun Microsystems, as well as rumors circulating that Oracle again wants to gobble up Red Hat, the possibility of a three vendor IT world seems more possible.
The development with the most potential to create this three vendor world is not the one where IBM buys Sun, but the one involving Oracle and HP dividing up Sun. According to those rumors Oracle is willing to put up $2 billion to buy Sun’s software business, most notably its crown jewels, Java and the open source data base, MySQL. At $2 billion it would be the steal of this young century.
Rumorologists have yet to attach a figure to what HP is willing to plunk down to take over Sun’s server-based hardware business. It is safe to say it would cost HP $3 to $4 billion, and that too could be worth it to secure HP’s top position in the overall server market.
But its Oracle’s possible move on Sun and Red Hat, in tandem with its increasingly chummy relationship with HP the last few years, that is at the center of all this.
First, there is the prospect of Oracle taking over control of Java. It is unlikely that even Oracle would consider monkeying around and changing the technical working of Java to serve its own development needs and so put a major competitor such as IBM at a disadvantage.
But it could make life difficult for competitors, most notably IBM, by raising the fees on Java next time Big Blue’s Java licenses came up for renewal. It could put IBM server products at a price-performance disadvantage against those of Oracle.
If it grabs hold of MySQL, Oracle could significantly enhance its credibility in the open source world, as well as gaining a low-end data base that could effectively compete against Microsoft. As more IT shops strongly consider open source products in these recessionary times, the prospects for MySQL are looking better and better.
Some might suggest that acquiring MySQL would threaten the margins Oracle makes on its much higher end bread and butter Unix-based data bases. I don’t believe it will. With Linux-based operating systems and their applications taking on increasingly mission critical applications, along with the high-end Unix market slowly shrinking, Oracle can avoid MySQL canabilizing the lower end of its proprietary databases and make this work.
Couple MySQL with Red Hat’s Linux, particularly the Enterprise versions of that product, and Oracle gains direct control of half the LAMP stack (Linux, Apache, MySQL, and PHP) and suddenly Oracle becomes the strongest vendor in the open source world — certainly the richest.
Then there is the increasingly tighter relationship between Oracle and HP. Oracle and Sun once had a very close relationship. Back in the hay day of the dot com boom, the “miracle stack” was Oracle’s databases, Sun’s SPARC servers and operating systems, Cisco’s communications hardware and the Apache Web server.
But a few years ago Oracle and Sun drifted apart over issues involving Oracle dissatisfaction about the cost of Java licensing fees, and the competition imposed by Oracle’s Unbreakable Linux.
Stepping in to take Sun’s place has been HP, as evidenced by deals such as the one last year between the two that resulted in the Exadata appliance server. That product, which is the marriage of HP hardware and Oracle software, that allows 11g to run insanely fast. Oracle hasn’t shown that kind of tight cooperation with a major vendor since its dealings with, well, Sun. And given that HP can provide all the servers Oracle could need (especially if HP acquires Sun’s SPARC servers), along with storage products, and a large worldwide maintenance organization would make for a very formidable team. And oh yes, Red Hat already has a good working relationship with HP, which makes Red Hat Linux available on its servers.
Oracle’s continued control of the proprietary data base market, its strengthened position in the open source world, and a tight relationship with HP, would put every major competitor, possibly excluding IBM, at a major disadvantage.
Even mighty Microsoft would have difficulty keeping up. As the world gravitates more towards open source for higher end applications involving cloud computing and SOA initiatives and turns towards a rich well positioned supplier like Oracle, Microsoft would have to go on the defensive. And with Oracle working more closely with HP to deliver higher-end margin rich solutions, Dell too could be commoditized down to a second tier player in the enterprise market.
Two other things lend further credence to this scenario materializing. One, Oracle has a proven track record of making large acquisitions work, and two Sun, despite IBM engaging it in talks first, prefers to sell to a west-coast based company, according to rumors.
Lord knows what Sun’s poor board of directors is thinking given the possibilities potential buyers have presented to them. But if Mr. Ellison can entice Sun, Red Hat and HP to go along, his outrageous prediction of just three IT companies left standing, namely Oracle, HP, and IBM, is not so outrageous.]]>