IBM and Sun: Engaged to be Engaged?

A long-speculated acquisition by International Business Machines Corp. (IBM) of Sun Microsystems Inc., is close to fruition, according to Wall Street Journal’s morning report. Though the specifics are not known, the deal would be a solid one.

The mix of these two companies would boost IBM’s Internet backbone presence, and improve its standing in the software, finance and telecommunications markets. CNet reports a bidding price of $6.5 billion.

Shared by both companies is an active interest in making computer systems for corporate customers that aren't reliant on Microsoft Corp.'s Windows software. Additionally, both companies’ product lines are less dependent on Intel Corp.'s microprocessor technologies than their rival’s. The two companies are also strong supporters of open-source Linux and Java software.

It’s unclear whether Computer Sciences Corp. may have predicted the marriage between the two technology giants, but last fall offered Java to its insurance industry customers as a way for them to work through some of the legacy issues plaguing insurers across all lines of business.

“In our current market conditions, insurers can’t afford a legacy system any more,” Sun CEO Scott McNealy, told INN at the CSC meeting. “The insurance industry is changing because their customers are changing. They want to conduct business online, they don’t want to talk to people, and legacy systems need to keep up.”

The key to the success of a potential IBM/Sun deal may be in Scott McNealy’s own famous words: the network is the computer.

McNealy touted Java to INN last fall. “Java was built to be in a network-based environment,” he said. “Applications can only talk back to the server they are uploaded on. It’s safe and secure, and carries with it a high amount of authenticity.”

And if the network is the computer, IBM and Sun may heed the news this week that networking technology giant Cisco Systems said it was entering the server market. This means the competition is expected to heat up, especially if Cisco’s blade servers offer storage and networking, too. Cisco reports that the new servers will include support and software integration from several vendor partners, including chipmaker Intel, and perhaps most notably, software from Microsoft. The company has also struck a deal with EMC for storage technology and virtualization partner VMware among several others. In essence, Cisco throws a monkey-wrench into the mix: it will now compete with its current business partners on the networking side: HP and IBM.

It’s well known that IBM is a software and services company, but it needs hardware in order to sell its software and services. In fact, say experts, hardware is often the entry point for IBM's software and services. And by marketing Sun servers, it would be better able to compete with HP (and now Cisco). Experts say that by acquiring Sun, IBM would achieve more scale so it can endure the margin squeeze that may arise from Cisco’s entry to the market. That same argument holds for storage hardware too.

As of this writing, it’s unclear whether IBM wants to purchase all or parts of Sun. Procuring all or part is moot when looking at the other issues that would need to be resolved, specifically, around the servers each company offers. One thing seems certain: IBM stands to acquire server and storage market share out of the deal.

Additional coverage on this story is available at Information Management.