With Sun, Oracle aims at giants

The US$ 7.4 billion deal, which gives Oracle a vast hardware business for the first time, pits it against Hewlett-Packard (HP), IBM, Dell and Cisco Systems, all of which have made a flurry of acquisitions and alliances. Many of these moves broadened the companies’ products and services from their traditional specialties, like databases, computers or networking equipment. Each company wants to be able to claim to prospective customers that it, and it alone, has more of the parts to be an end-to-end service provider.

“The cost isn’t in buying the pieces,” Oracle Chief Executive Lawrence J Ellison, said in a phone interview. “The cost is in the labour of assembling them and making them work.” Ellison said that in the next few months, Oracle planned to lay off fewer than 2,000 people, while hiring more than 2,000 people in engineering, sales and other roles. He did not rule out that additional layoffs might occur later.

He added that he expected Sun’s chief executive, Jonathan I Schwartz, to resign and that he hoped that Scott G McNealy, Sun’s co-founder and chairman, would stay on at Oracle, although his title and duties were not clear. Oracle’s purchase of Sun stands out as the most game-changing corporate technology play made during the economic downturn, according to industry analysts.

“It’s the most significant deal of the decade,” said Dan Olds, an analyst with Gabriel Consulting. “Oracle has a shot here to change the rules of the industry and usher in a new era.” The corporate computing market began decades ago with IBM selling customers systems that included most of the hardware and software they would need in a single package. As time went on, a host of minicomputer makers rose to prominence with a similar strategy, in which they would build all of the crucial pieces of a large system, including its chips, main software and networking technology.

The older model of selling corporate systems was then disrupted by the rise of powerful, more standardised computers based on readily available chips from Intel and an innovative software market. Prices of hardware and software declined under this competitive pressure. Oracle, for one, wants to revert to the more traditional model. It plans to offer customers databases, business software, servers, storage systems and networking equipment from one place.

In addition, Oracle will do the hard engineering work to make sure all this technology works well together. Ellison said  “You will now be buying this complete system, and don’t have to hire IBM or someone else to assemble it for you.” While Oracle has long battled IBM in the database market, its push into computer hardware places the company in direct competition with longtime partners like HP and Dell.

Oracle’s acquisition of a hardware business should make things much tougher on HP and Dell. Thanks to its database software, which is used by most of the world’s large companies, Oracle already has a direct relationship with customers, which it can now use for moving hardware. Unlike HP and Dell, Oracle will have the flexibility of altering the price of its software in deals where customers want bundles of computing products. Sun had suffered from years of declining sales and layoffs. People familiar with the company’s culture have worried that morale will only worsen as Oracle takes over the company and begins another round of layoffs.