Glyn Moody and Matt Asay have already written good articles on what Oracle + Sun means for Open Source. What I think is brilliant about Oracle's move is that they get incredibly important technologies like Java and MySQL for free.
My prediction: Oracle will sell the hardware parts of Sun's business (storage, servers and SPARC) to some combination of Hitachi, EMC, Fujitsu and HP and more than return what they paid for Sun. In the end they will get some great software assets from Sun for free.
Patience has proven the right strategy for Oracle. Rumor is that Oracle offered as much as $850M for MySQL. Oracle refused to bid up the price against Sun and Sun ended up paying $1B for MySQL. But in the end Oracle gets the last laugh. By being patient they have managed to get MySQL, plus all of Sun's other software assets, for free. Let's run some rough numbers and see how that math works.
| $7.4B | Total purchase price |
| -$1.8B | Net cash at Sun |
| ------ | |
| $5.6B | Cost after using Sun's cash |
So we have to raise $5.6B to cover the cost of the acquisition. For the fiscal year ended June 30, 2008 Sun reported $13.9B in revenues. The fact that Sun had an Enterprise value of only 40% of revenue is an artifact of people not believing in the business. It doesn't necessarily reflect the true value of those assets. This is where Oracle gets a bargain. In fiscal 2008 storage products represented 17% of revenue, or $2.4B. Natural acquirers for that business include Hitachi, EMC and HP. Using HP as an example, the company is trading at 1.4x revenue. (Yes I know we should more accurately be looking at earnings as a better proxy for valuation, but these are rough numbers and detailed earnings numbers for Sun's business segments are not publicly available.) Sun's storage bushiness should net somewhere between 1x and 2x revenues. Assuming the low end of 1x that leaves us with $3.2B.
Next, lets look at Sun's systems business. According to SEC filings sun did $6.2B in computer systems products revenue in fiscal 2008. Sun does not disclose software revenue separate from systems revenue, but industry analysts estimate about 15% of total revenue comes from software. Let's take the conservative approach and assume more of |sun's revenue is due to software, lowering the potential value of their hardware business. At 20% of total revenue that's $2.78B, leaving $3.42B for the server and Sparc parts of Sun's business. Again, taking a conservative 1x multiple of revenue we have:
| $7.4B | Total purchase price |
| -$1.8B | Net cash at Sun |
| ------ | |
| $5.6B | Cost after using Sun's cash |
| -$2.4B | Storage |
| -$3.4B | Servers and SPARC |
| ------ | |
| -$0.2B | Profit for Oracle |
So Oracle gets Java, MySQL, Solaris and Sun's other software assets for free. Seems like a pretty good deal to me.
So what's next for Oracle? The on-again, off-again rumor has been that Oracle will acquire Red Hat. Recall that Red Hat acquired JBoss for $350M. Could Oracle get a bargain on JBoss by being patient yet again and letting Red Hat make that acquisition as well? RHT is trading for $17.36/share with a market cap of $3.3B as of today. When Red Hat acquired JBoss they were trading at $29.85 per share. By being patient Oracle could be getting Red Hat and JBoss at a 43% discount. Not bad. Patience can be a virtue.
Sounds compelling but doesn't everybody these days want to offer a complete solution, why not keep the hardware and provide a datacenter-in-a-box complete with management service and consulting... oh and yeah, take some money away from IBM in the process. Or better yet, a complete cloud infrastructure powered by Oracle + Sun's software running on Sun hardware. Anybody thought about the "Sun IS the Cloud" campaign?
Posted by: Alex | April 20, 2009 at 11:58 PM
Whats the big deal about this article gloating on the discount Oracle is getting when everything on S&P 500 can be had at 40% discount compared to a year or two ago prices
Posted by: Raj | April 21, 2009 at 02:13 AM
The "net cash" will be burned up by the time the acquisition completes. I haven't spoken to anyone that has purchased any Sun hardware in years -- the few sales that happen must be lazy/fearful corporate IT organizations that can't be troubled to port.
Most importantly, will Ponyboy's tail end up in the Museum of Computer History?
Posted by: Jon Pardee | April 21, 2009 at 02:40 PM
Do you think Oracle will start charging for Java and MySQL?
Posted by: Shai | April 21, 2009 at 06:09 PM
If oracle charges for Java and MYSQL, Oracle will be the No.1 IT company in world....I wont be surprised if oracle gets into music, gaming business. :)
Posted by: vadlamani | April 23, 2009 at 07:10 AM
Oracle is already a monster. Let's hope they don't completely ruin all the "Sun" related data on the internet. When they took over BEA, they pretty much broke every link to weblogic and the WLNG on the internet. You'd search in google and click on a link, but end up redirected to some useless oracle site.
Posted by: iresha | December 17, 2009 at 05:07 PM
Oracle did a demolition job on the internet when they acquired BEA. All the weblogic/WLNG links in all the search engines were broken. I hope the same doesn't happen to Sun and MySQL
Posted by: iresha | January 01, 2010 at 12:13 AM
Sun is still the mainstay hardware supplier to engineering, medical and a number of other fields, fields Oracle would like a piece of. Solaris is still far more reliable than any Linux distro I've played with and Ultrasparc hardware is more stable and far cheaper in power costs than x86 (the City of London saved building 4 new power plants by putting in Sun Ultrasparc servers over equivalent Dells).
Many of Sun's open source software links point to dead entries and the new Oracle links point back to areas that you need a Sunsolve enterprise account to access. Perhaps this is just a transitional issue but it makes me suspicious.
As far as Java goes it would be difficult for Oracle to change much in the process, since the community includes companies like IBM that could take Oracle out in a lawsuit. I wouldn't be surprised if Oracle changes the licensing on enterprise products to only allow the open source versions to be used in not-for-profit situations though.
About competing products - what use is MySQL to Oracle besides killing it? Vice versa what use is Weblogic now other than a brand that could be used to promote Glassfish Enterprise code?
Posted by: Dasein42 | April 28, 2010 at 03:14 PM