Sunlit Oracle Could Become Formidable Hardware Vendor

Oracle's planned $7.4 billion acquisition of Sun Microsystems could make the business software maker a formidable server vendor, challenging IBM, Hewlett-Packard, and others in delivering data center appliances of integrated software and hardware.

Oracle chief executive Larry Ellison gave a peek at the future in a teleconference announcing the acquisition Monday, saying Sun's $8 billion hardware business can move Oracle from being a software company to a provider of all-in-one technology "from database to disk."

Ellison's use of the word "disk" implies that Oracle is likely to promote Sun's storage business, including its StorageTek hardware, said Tony Iams, analyst for Ideas International, a research firm focused on enterprise IT infrastructure. On the server side, Oracle is likely to focus on Sun Sparc systems. Oracle says the leading deployment platform for its software is systems running Sun's Solaris operating system and Sparc processors.

If the Sun acquisition is completed, Oracle would enter the hardware business at a time when the IT industry is moving toward consolidation of systems, not selling separate hardware and software, said Chris Foster, analyst for Technology Business Research. Holding on to Sun's server and storage business, as well as its Java-based infrastructure software and Solaris, would place Oracle in a position to "reshape the IT landscape through the creation of integrated data center appliances."

"One potential appliance would conjoin Sun servers, storage, Solaris, and Java with Oracle database and Fusion middleware," Foster said in an e-mail. "The resulting appliance would be unique to the IT industry and provide a single-vendor system solution that could threaten the hardware landscape and allow Oracle to rapidly penetrate the SMB [small and medium-sized business] market."

On the high end of the market, an Oracle/Sun combined product would be an integrated alternative to IBM's mainframes with z/OS and the DB2 database. Besides IBM, Oracle would also compete with many other companies, some of which support Oracle's flagship database, as well as its ERP and CRM applications. As a result, Oracle will have to be cautious in entering the hardware market.

"Most of the major server vendors in the industry support Oracle’s database software to some extent," Iams said. "If Oracle now promotes its own hardware platform based on Sun’s technology, other hardware vendors may become increasingly hesitant to encourage their customers to deploy Oracle’s software offerings, for fear of drawing their attention to Oracle’s competing hardware."

How key hardware partners Hewlett-Packard and Dell respond to the Sun acquisition could depend on what Oracle does with Sun's x86 commodity server business, which overlaps with their businesses much more than Sparc/Solaris systems. Such servers represent less than 13% of Sun's hardware business, so Oracle is less likely to promote these systems, Iams said.

Jack Gold, analyst for J. Gold Associates, expects Oracle to "phase out or sell off" the x86 business, possibly to IBM or HP. Foster said other likely buyers include Fujitsu, EMC, and Dell -- "any of which may benefit from adding Sun offerings to their portfolio."

Whatever strategy Oracle adopts, it's likely the industry won't be the same. "Regardless of its ultimate plans for Sun’s server products, Oracle’s entry in the server market will change the balance of power in the IT industry, and it should not be taken lightly," Iams said.

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