IBM in talks to buy Sun

IBM is bidding to buy Sun Microsystems for at least $US6.5 billion - a 100% premium on the market - according to a Wall Street Journal newsflash.

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 [UPDATE: Sun shares are up more than 80% today; read The Sun also rises].

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 number four 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.

Neither IBM nor Sun had any immediate comment on the story.