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Risk

12/16/2009
06:25 PM
Bob Evans
Bob Evans
Commentary
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Global CIO: Oracle-Sun A Bad Deal? Only A Fool Would Say That

Oracle buying Sun is bad business, says Motley Fool, but that analysis is simply, well, foolish. Here's why.

Lost in the melodrama of the EU's dithering over Oracle's acquisition of Sun is the original issue: will the addition of Sun's technologies, products, people, customers, and culture make Oracle more successful? Will Sun be worth every penny of its $7.4 billion price tag, or will it be a strategic error that Oracle CEO Larry Ellison will come to regret?

Over at the usually insightful MotleyFool.com stock-picking site, the prediction is that Ellison has made a huge blunder that was a lousy idea up front, is an awful pursuit right now, and will be a strategic disaster if it is consummated:

"No, the Sun deal is simply bad business," writes MotleyFool's Anders Bylund. "Oracle knows little about hardware, which is what Sun is good at. This deal positions Oracle closer to IBM and Hewlett-Packard as an all-around provider of everything, and I suppose there might be some synergies in there somewhere. But mashing together two very different corporate cultures often spells disaster, and when you sell everything including the kitchen sink to your customers, you end up competing with old partners like HP and Dell."

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I have four serious disagreements with this analysis: (1) that Oracle doesn't know anything about hardware; (2) the culture clash will wreck the combination; (3) the assertion that Oracle will be in no-man's land as an "all-around provider" like those slackers at IBM and HP: and (4) that IT vendors can't compete with each other. Let's take a look at each of those four issues.

So, Oracle doesn't know anything about hardware? Anders, pardon my reach, but that just doesn't make any sense. Sure, I agree that Oracle has never developed its own hardware, but it seems to me that a company like Oracle that conceives, develops, markets, sells, supports, and enhances some of the most complex enterprise software on the face of the Earth must know at least a little bit about that hardware stuff that its software is supposed to run on, right?

Look at it this way: Oracle's databases, middleware, and applications run on hardware from IBM, Hewlett-Packard, Dell, Sun, Fujitsu, Lenovo, Cisco, Acer, and many other hardware providers—do the elves make that happen, or does Oracle collaborate with and know a few things about all those various types of hardware?

Oracle's software runs on systems using Unix, Linux, and Windows—but "Oracle knows little about hardware?"

Maybe Anders meant that Oracle doesn't know anything about making and selling hardware, so it shouldn't buy a company that has done so for more than 25 years. But by that logic, Cisco shouldn't have expanded its empire outside of networking by buying security companies, video companies, and flip-cam companies. And IBM shouldn't have bought PwC, Dell shouldn't be trying to buy Perot Systems, HP shouldn't have bought EDS, and Google shouldn't buy anything but search engines and ad-serving companies.

So no, I'm not buying that one.

In fact, Ellison has articulated quite clearly and extensively his vision of how an end-to-end enterprise "systems" company can create optimized configurations for databases, transaction-processing systems, airline-reservation systems, banking systems, and other highly sophisticated functions.

As Ellison himself put it in a public interview at the Churchill Club a few months ago on the benefits of merging hardware and software:

" We are not going into the hardware business. We have no interest (shrugs) in the hardware business. We have a deep interest in the systems business. Let me tell you about the great systems companies: Cisco's a great systems company. They ship a hardware/software combination that allows them to be instrumental in the acceleration of the Internet.

"And we think by combining our software with hardware, that we can deliver systems that can be the backbone of most enterprises in America and around the world. So it's really the combination of the two: we have no interest in competing with Dell, and the plain old running Windows on x86's or HP with running Windows on x86's. We're very interested in running airline-reservation systems, and we're very interested in running banking systems, and telecommunications systems, and that requires both hardware and software."

To me, that hits at the heart of what more and more CIOs are looking for these days, which is this:

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