Three years since his Sun gobble, what hath Ellison wrought?
Can li'l Larry build a better Big Blue than Big Tom Watson?
Analysis It is hard to believe that three whole years have passed since software giant Oracle instantly became a systems player by snapping up beleaguered Sun Microsystems for a cool $7.4bn – about $5.6bn net of Sun's cash hoard.
No one took El Reg up on our suggestion to start up a Sun clone we called Moon Macrosystems by grabbing all of the open source goodies (including chip designs) to create integrated Sparc and X86 systems running Solaris and the rest of Sun's considerable software stack, denying Oracle the control of Java and Solaris that it sought.
That's a damned shame, because it would have been a lot more fun.
But let's face it, if Sun had been acquired by IBM, which was the original plan back in November 2008, it would have been a lot less fun.
Oracle cofounder and CEO Larry Ellison, as it turns out, has caught a bit of Big Blue hardware bug and actually seems to like the idea of peddling "engineered systems" to enterprise customers who know Oracle mostly for its database, middleware, and application software.
So, was Oracle's Sun acquisition worth it, and has it created something that will live and grow? Ellison certainly wants everyone to believe that, and has told Wall Street and his investors that he believes that. And if you look at the Sun deal from a lot of different angles, it's hard to show that it was not a good deal for Oracle – or for the egos of its top brass.
To understand why, it helps to remember the context in which Sun Microsystems' former CEO, Jonathan Schwartz, started shopping the formerly upstart Unix workstation and server maker and Java creator to IBM.
In late 2008, the Great Recession was just starting to build momentum – although we may not have known how truly ugly it was going to get – and during recessions, spending on systems is usually one of the first things to take a dive. Usually, sales of X86 iron get frozen first, when possible, but big Unix and mainframe systems, which endure a long process during an upgrade, continue with their budgetary inertia and deals proceed.
This is great at first, but eventually you'll want to do new deals for Unix and mainframe servers - and customers will be slow to rebuild that momentum.
Moreover, recessions tend to cause system transitions. It's no coincidence, we can now surmise, that IBM was talking to Sun just when Intel was prepping its "Nehalem" Xeon 5400 server processors and Cisco was about to launch a new category of modular systems – and itself – into the server business that following March.
While HP and Sun were both selling blade servers with some integrated and virtualized networking and I/O, Cisco came up with a new form factor and bootstrapped itself into the server racket from a standstill. Now, nearly four years later, it's jockeying for position to get into the top five – if it can grow enough to knock out Japanese server giant Fujitsu, that is. It may take a while longer, but Cisco could do it.
Sun's own "Constellation" integrated systems were well regarded and had a fair amount of engineering compared to standard rack or blade servers. But Sun's initial and exciting foray into x86 servers, driven by its early and enthusiastic support for AMD's Opteron processors a decade ago and widened by the adoption of Xeon processors from Intel, eventually ran out of gas.
Sun could not increase x86 server revenues fast enough to make up for the ground it was losing to IBM in the Unix system biz, even if its overall server shipments increased radically. Sun tried to make it up in volume – by selling more stuff and by making more noise by open-sourcing everything, er, under the sun.
That strategy really didn't work all that well, although it made for lots and lots of interesting times in Server Land.
Not surprisingly, Oracle's acquisition of Sun has made for a continuation of interesting times in the Land of Tin and Iron. And thank heavens for that, because without Oracle being a gadfly as Sun always was, the rest of the nobles in Server Land might be boring us all to death. Say what you will about Larry Ellison – seriously, that's what Comments are for – but he is almost always interesting, he is often right (even if he rewrites history a bit here and there), and he has the money to prove it.
Which brings us to the first point to consider about the Oracle acquisition of Sun three years ago? Did this deal pan out? Did it make financial sense?
On Monday, El Reg asked Oracle co-president Mark Hurd – the former HP chairman and CEO who had a chance to buy the Sun server and storage businesses when all Oracle wanted was Solaris, Java, and MySQL, but turned it down – those very questions. And Hurd was unequivocal about the Sun deal having paid for itself.
"Yes, materially so," Hurd explained. "If you look at something like cash flow from the deal in relationship to the purchase price, the cash flow has far exceeded the purchase price of the acquisition."
We have to take his word for that because Oracle does not report cash flow from any of its divisions and segments – more on that in a minute.
The point of the acquisition of Sun was to instantly make Oracle a systems player – and to give Oracle some leverage in the data center where it was previously dependent on other's hardware to support its products. And to that end, Mr. Hurd, what has the effect of the Sun deal been on Oracle?
"Phenomenal, because it had multiple dimensions," he said. "There's a Java element, which has a financial element as well as the enablement piece of Java as it relates to our development activities. Point two, obviously the support base that it gave us. Point three, the hardware revenue stream that was extremely positive and accretive in addition to the platform on which it gave us to develop Exadata, Exalogic, etcetera.
"So [it was a success] financially when you look at the acquisition price compared to the cash flow that has been generated, and second the development tools and foundation it has given us to build a whole new series of technologies."
It is not easy to do a before and after comparison of the Sun Microsystems business and the bits of it that shine through the Oracle financials. That's not just because Oracle is obfuscating, but because bits of Sun are spread all over the place inside of Oracle these days.
Oracle sells Sun systems and books their revenues in different ways, as well, which complicates things further. Sun broke out computer systems product sales and Solaris sales separately as it was getting eaten by Oracle, and put Solaris support revenues in its services segment. Oracle bundles the Solaris and Linux operating systems with its machines (not just a physical bundling, but also in the price) and sells hardware support contracts separately.
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