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Again: IBM Tech’s Cash King in talks to buy Sun Microsystems

By Amarendra Bhushan for CEOWORLD Magazine Updated:March 18, 2009

The company IBM is currently negotiating a deal in which it will buy Sun Microsystems for the hefty sum of US$7 billion. The deal will be a very important one, and according to The NY Times could result in an anti-trust challenge.

IBM Corp. is in talks to buy Sun Microsystems Inc. for at least $6.5 billion in cash, a deal that would shake up Silicon Valley and the corporate computing market, The Associated Press has learned.

A person familiar with the situation told the AP of the negotiations, confirming an earlier report Wednesday in The Wall Street Journal. This person spoke on condition of anonymity because the talks are ongoing.

Sun Microsystems

— Sun Microsystems is one of the world’s largest makers of computer servers

— Demand for its high-end hardware collapsed, and so did its share price, in the dot-com bust at the turn of the century

— Sun rose to prominence in the 1990s, when start-ups flocked to buy its servers, which ran on the widely praised Solaris system and were popular in financial services

— After the bubble burst in 2001, Sun tried to reinvent itself by acquiring companies and expanding production of Linux-based computers, which tend to be cheaper

— Sun has since announced no fewer than ten restructuring plans, culminating in last November’s announcement of 6,000 job cuts

— In January 2008 the group spent about $1 billion to buy MySQL, an open-source database provider that gives its software away in the hope of future service revenues

— Sun’s shares were down 71 per cent in the last 52 weeks. They touched a record high of $258.75 during the dot-com boom

IBM

— With almost 400,000 employees worldwide, IBM is the largest information technology company in the world

— The New York-based company, which dates from the 19th century and is nicknamed Big Blue after its corporate colour, has bucked the trend of steep declines for technology companies amid the economic downturn

— In January it reported a 12 per cent gain in fourth-quarter net income

— It sold its hard disk operations to Hitachi in 2002 and its PC business to Lenovo in 2005

— This year, when IBM reported fourth-quarter hardware sales down by 20 per cent, this was offset by strong results from its far larger services and software groups

— IBM has held up better than many of its peers because of its global reach and its mix of businesses, analysts said. About 40 per cent of revenue and 60 per cent of profits come from products and services sold on a subscription basis as licences or contracts that are renewed every year or so.

The Journal cited unnamed people familiar with the matter and said the deal could occur as early as this week.

The report sent Sun shares soaring $3.92, up 78.9 percent, to close at $8.89 Wednesday. IBM shares fell 96 cents, or 1 percent, to $91.95.

Armonk, N.Y.-based IBM and Santa Clara, Calif.-based Sun both make computer systems for corporate customers. A purchase of Sun could help IBM in the finance and telecommunications markets as it tries to expand its role in digitizing key pieces of infrastructure, from electric utilities to water supplies.

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