An IBM-Sun deal will shake up Silicon Valley

 

Merging the corporate cultures of IBM and Sun Microsystems would be a challenge, and lots of Sun's jobs would probably be cut.

SAN FRANCISCO: If IBM Corp scoops up Sun Microsystems Inc for at least US$6.5 billion (US$1 = RM3.66) in cash, as the companies are discussing, IBM would be making an opportunistic grab for a deep well of technology that Sun has nearly buried itself developing.

The proposed acquisition would be IBM's biggest yet. It would shake up Silicon Valley and the corporate computing world, marrying two traditional foes whose animosity was relatively recently squashed.

A person familiar with the negotiations confirmed the talks on Wednesday to The Associated Press. This person spoke on condition of anonymity because the discussions are ongoing and might not lead to a deal. The acquisition negotiations were reported earlier by The Wall Street Journal.

The news sent Sun shares soaring 79 per cent, to US$8.89. IBM shares fell 1 per cent, to US$91.95.

Merging the corporate cultures of Armonk, New York-based IBM and Santa Clara, California-based Sun would be a challenge, and lots of Sun's jobs would probably be cut. Sun revealed plans in November to jettison up to 6,000 jobs, or 18 per cent of the global workforce, after slashing 7,000 jobs the previous three years in several rounds of layoffs.

But Sun would come relatively inexpensively, because its shares have been on a steady downfall since the dot-com bust. Although US$6.5 billion would represent a significant premium over the market value of less than US$4 billion that Sun had before the talks leaked, Sun's last quarterly report shows it with more than US$2.6 billion in cash and securities that could be readily converted to cash.

IBM would get access to many businesses that use Sun's servers or software and could be pitched on buying other things from IBM. Despite its long-running financial problems, Sun's customer base is loyal: market research firm IDC estimates that there are more than 1.6 million active Sun servers in use worldwide.

Rick Hanna, an equity analyst with Morningstar Inc, said one advantage for Sun in selling to IBM is that the move could give longtime customers peace of mind that Sun will continue investing heavily in its technologies. A deal would also give Sun customers access to more technologies that IBM offers.

"It's a necessary move for Sun - Sun by itself wasn't viable long term," Hanna said. - AP