The Sun also rises: shares up 83% on IBM takeover rumour

The market is buying into a report that IBM will soon take Sun Microsystems out of its misery, with more than $US3 billion added to the company’s market cap overnight. Expect more big tech M&A.

In midday trading on the Nasdaq, Sun’s shares (Nasdaq: JAVA) were up more than 80% on more than 10 times the usual trading volume.

IBM investors had less appetite for their company to take over struggling Sun. Shares (NYSE: IBM) were down 2.5% on heavier than usual volume.

The broader Nasdaq and NYSE were flat.

Sun's surge shows the market giving credence to a Wall Street Journal report overnight, which claimed IBM was in talks to buy Sun Microsystems for at least $US6.5 billion - a 100% premium on Sun’s trading price, as of yesterday, of $US4.27. Today, on the Nasdaq, Sun’s shares have gone as high as $US9.27.

US financial commentators are picking that the rumoured IBM-Sun deal will be the first in a wave of mergers and acquisitions in the technology sector as some big techs (IBM, Cisco, HP) remain relatively buoyant, but others struggle.

Sun, which has offices in Auckland and Wellington and numbers Axon and Gen-i among its partners, was known as one of the "Four Horseman" of the dot.com tech boom.

In 2000, Sun's revenue surged to $US15.7 billion - representing 50% year-on-year growth - while profit boomed to $US1.95 billion.

The company's most recent quarter, however, was more typical of Sun's post-tech wreck decline, which has co-incided with the rise of lower-cost servers from the likes of Dell. In the three months to December 31, Sun made a $US209 milllion loss on $US3.2 billion revenue - it's third loss in the past four quarters.

Although there has been a serious wane in sales of Sun's proprietary hardware and software, the company has still maintained worldwide server market share of 10%-11% (often appearing in IDC's Top 5 in New Zealand), and its Java language is still a dominant presence in mobile and web development.