One breaking report has IBM-Sun takeover talks near collapse as struggling Sun refuses to accept a lowered offer. Another says IBM has already walked away from the $US7 billion megadeal.

A Wall Street Journal news alert says: “It's possible the two sides are hardening their positions only to strike a full deal in the near future. But for now the stance is confrontational.”

The New York Times goes a step further, claiming that IBM has pulled out altogether following the Sun board’s rejection of its latest offer.

Like the Journal, it paints a picture of geek machismo run wild. “There’s lots of testosterone going back and forth,” a source close to the talks tells the Times.

On Friday, IBM (NYSE: IBM) lowered its bid for Sun Microsystems  (NAS: JAVA) to $US9.40 or below, reportedly because Sun had demanded conditions that would make it harder for IBM to walk away if regulators stipulated concessions.

IBM originally offered between $US10 and $US11 per Sun share.

Before the takeover talks started, Sun was trading below $US5.

Sun's stock closed 3.41% up on Friday at $US8.49 a share; IBM was up 1.39% to $US102.22.

The logic behind the deal
If it goes through, the acquisition would be the biggest in IBM’s history, beating its deal to buy business intelligence software maker Cognos for $US5 billion in November 2007.

Sun has a direct presence in New Zealand, with offices in Auckland and Wellington, and counts Axon and Telecom's Gen-i among its partners.

Quoting sources “familiar with the matter,” the Journal says IBM is likely to pay at least $US6.5 billion for Sun, representing a 100% premium on its Nadaq market cap.

Along with Cisco, EMC and Oracle, Sun was known as one of the “four horseman of the internet” during the dot.com boom, racking up billions in fat profits.

But since the tech boom went bust in 2000/2001, Sun’s proprietary hardware and software systems fell out of favour. And despite a well-executed shift to open source software and industry-standard x86 processors in its core server business, the company has struggled with year after year of losses.

In its Digits blog, the Journal speculates that IBM is seeking to buy Sun as a response to recent moves by HP and Cisco to encroach on its data centre business.

Also attractive is Sun’s remaining server business. Although no longer number one in servers – a market now dominated by cookie-cutter Wintel hardware – Sun is still No 4 worldwide (and regularly in IDC's New Zealand Top 5) with around 11% of the market, focussed in higher-end areas like tertiary education, telecommunications and government.

More so, Sun is a big player in open source, and the inventor of the Java programming language, which in turn has influenced the client-side JavaScript used for a majority of the internet’s interactive - or Web 2.0 - elements today.

Sun, along with IBM and Google, is also a financial backer of the freebie open source OpenOffice, which competes against Microsoft Office.

While Java and OpenOffice are near revenue-less in themselves, IBM has proved a dab hand at monetising open source software, witnessed by its service deals around Linux software created by its partner RedHat.