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Tech Check
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IBM's $6.5 billion play for Sun Microsystems is surprising only in that it took so long to get a deal going. And with details still so fluid, I'm hearing a lot of chatter.
Here are some of the key nuggets:
First, the $6.5 billion cash offer being reported might be only part of the transaction. IBM's opening offer, I'm told, was $10 a share, and that the cash being reported would be in addition to stock.
Second, IBM is not the only, merely the latest, with Dell, Hewlett-Packard and Cisco all passing on the deal to date.
Third, IBM's negotiations for Sun have been in the works for months, so to say that IBM is merely answering the news earlier this week that Cisco would be entering the server market misses the broader aspects of what's going on in the server business right now.
Make no mistake: IBM's move for Sun isn't about Cisco. This is all about Hewlett-Packard, and that could be a problem for the runaway server industry leader.
The stakes right now in enterprise computing are huge. Corporate spending has fallen off a cliff in the current economic climate, even though server software, hardware and data center build-outs will be a $100 billion industry this year. But next year, when purse strings loosen, and wallets open, spending will begin anew, and that's why these companies are positioning themselves now. Stocks are cheap (Sun is a mere carcass of its former self), and both IBM and Cisco have enormous cash positions to invest in the turnaround. Which is coming. At some point. And they need to prepare now for it.
Hewlett-Packard threw down the gauntlet last year when it acquired EDS. It was a stroke of genius as CEO Mark Hurd sought to make inroads against the IBM services juggernaut. Operationally, Hurd spent very little time integrating the massive acquisition into the HP fold, and in one fell swoop, created a significant and nimble competitor to IBM. Seeing the writing on the wall, IBM needed to look at what businesses it could start to take on as far as HP was concerned. Where was the vulnerability? Was there one? With rumors circulating that Cisco would be making a massive investment for its entry into the server market, IBM began to think that opening up a second front against HP could yield some market share dividends.
But it could only do so much on its own. A deal with Sun gives IBM access to a load of new customers, and entrée into the higher end, higher margin server business. HP is in the crosshairs in a key business that has done very well for the company. And competitors want a piece of the action.
So where does that leave Dell and its distant-third server business? This could be a gem of an acquisition for someone. I don't think Dell is a take-out target as a whole, but it could certainly sell off its server business for a nice premium now that the industry is heating up. Heck, if a company like Sun can command a near 100 percent premium, Dell might be able to write it's own ticket for its servers, and it could certainly use the cash.
Lots of intrigue in an otherwise fairly stodgy part of the tech sector. But it might be the part of the tech sector that carries with it the best opportunities for investors looking for a bright spot.
Questions? Comments?
Data is a real-time snapshot *Data is delayed at least 15 minutes