Yesterday, Oracle announced its intent to acquire Sun Microsystems for $7.4B. While it is very clear Oracle wants to roll up and control the database software market, Oracle executives also stated their intent to invest in the server (Solaris) and storage businesses with the latter be an “expanding market for us over the years to come”.
For some time Oracle have stated their intent to deliver, manage and support the whole stack from database to storage and so an acquisition of the major hardware vendor that supports Oracle makes a degree of sense.
While it is reasonable to assume that Oracle acquired Sun primary for:
· MySQL install base and to consolidate this market even further (leaving IBM and MSFT as the only other competitors)
· The Java middleware software to have a presence on desktops and another tool for application developers and to squeeze SAP and IBM who have made a major investment in Java.
· OpenSolaris as a hedge against Red Hat Linux
It remains to be seen what Oracle will really do with
· The Sun server hardware business and the SPARC processor as well as the relationship with Fujitsu.
· The Sun storage business including the StorageTek asset (namely the tape business and the tape install base), although there may be some sense in rolling this up with the Pillar storage business that Larry Ellison is already invested in.
During the initial conference call, executives stated that they would be building integrated systems (app, database, OS, server, storage) for industries (retail, telco, etc) similar to the Oracle Exadata data warehouse product released in the fall of 2008. Oracle did not mention anything about being a ‘horizontal storage systems supplier’ like NetApp, EMC, etc. Oracle may only want to be in the storage business to make purpose-built application infrastructures as the server and storage hardware margin profile is much different than a software business. However, Oracle may choose to stay in the storage hardware business and compete with the likes of its partners such as EMC, HP, NetApp, Pillar Data Systems, etc. Oracle may also execute some sort of divestiture where one of its partners buys the storage hardware business and licenses it / resells it back through Oracle – who builds a vertically integrated application stack.
Other unknowns at this point:
· Oracle’s strategy with Solaris – will it develop the O/S or let it go back to open source and then resell the services and support
· Server virtualization – Solaris has containers, Oracle used a Xen-based hypervisor. Oracle could make a play to consolidate the best of both and become a legitimate threat to MSFT and VMW. While this is unlikely, it is on the table for discussion.
· If Oracle becomes a horizontal storage systems supplier, this announcement does not bode well for NTAP, PAR, and EMC as 40% or so of corporate data is stored in databases and these companies’ sales reps look for database implementations / upgrades a buying catalysts. If Oracle sees all of these transactions first, they will capture a portion of the storage spend easily. It is likely that NTAP acquisition rumors will swirl again at HP and MSFT may need to react to protect core revenue streams. Sun’s storage products are good enough to support ORCL databases and they are certainly less expensive than traditional ORCL partners.
· RHAT is on notice as ORCL may start building solutions with Solaris (including Open Solaris). Many RHAT customers rely on ORCL for service and support. It is unlikely that ORCL stops offering the RHAT services, they may start pushing customers to Solaris to capture more revenue.
Thanks to Brian Babineaux at Enterprise Strategy Group for the initial briefing.