Sun servers suffer from a bad case of the mergers

THE ORACLE buy-out of Sun is proving to be the kiss of death for its hardware business.

Last week we reported that Oracle was likely to flog off Sun's hardware business to HP, rather than having to look at it every morning when it wakes up.

However as the merger deal is starting to get bogged down in bureaucracy, things are starting to look bad for Sun's hardware business.

Ironically the bureaucracy has nothing to do with Sun's hardware business, but has everything to do with the open source database software that Oracle wanted when it bought the company.

The European Commission announced that it is launching an in-depth investigation into the proposed deal based on what it called "serious concerns" about how the merger could affect competition in the database market.

So why is this harming Sun's hardware business? Well, last week it was revealed by IDC that since the Sun / Oracle deal was announced, Sun's second-quarter server revenue plunged by 37 per cent to $981 million.

True, every hardware maker is suffering at the moment, but that figure was the worst percentage drop of the major server vendors.

The problem seems to be that buyers of servers are more than a little concerned about what Oracle will do with the hardware side of Sun's business. After all the last thing you want to do is spend a fortune on servers only to find out that the outfit has stopped making them.

IT departments have also not believed Oracle's pledges to keep Sun's hardware business running as part of its glorious five year plan to push database services to its customers.

Meanwhile competitors like IBM and HP have been targeting Sun's customers by pointing out that there is so much uncertainty about Sun technology these days that they would be better off jumping ship.

The truth of the matter was that Sun needed the Oracle deal to go through quickly to avoid losing customers. But with everything on hold, including any potential HP deal, until the EU and other regulators make up their minds, things are looking pretty bleak.

Oracle's Larry Ellison is playing hard to get with HP in a bid to jack the price up. This policy is starting to look like it is going to backfire.

The only way that Sun can pull its nadgers out of the fire is to sell off the hardware side of its business quickly. Every day it waits more customers will leave and its value will slide. With matters now out of Ellison's control, HP can sit back and wait.

If the EU takes too long, then there might not be a Sun server business around for HP to take over.

While Sun has lots of groovy hardware, HP would want to see customers and not just technology. And if Ellison and the EU muck around too long, HP might just walk away from any deal because there is nothing left for it. µ