James Delahunty
20 Apr 2009 19:09
Oracle is jumping straight into the computer hardware market with an announced purchase of Sun Microsystems Inc. for $7.06 billion. The announcement spurred surprise and shock in the industry, as many wonder if Oracle can boost profitability at Sun's hardware unit in fierce competition with IBM, Hewlett-Packard, Dell etc.
"It's an out-of-the-box, left-field type of a deal because Oracle is buying a predominantly hardware business," said Jefferies & Co analyst Ross MacMillan. "The push-pull of the deal is the uncertainty of the hardware business with the earnings accretion of the software business."
Sun had previously rejected a bid from IBM, which was offering $9.40 a share. Oracle will pay $9.50 a share, valuing the company at about $7.06 billion. The news pushed shares of Sun Microsystems by 35.7 percent in morning trading. Safra Catz, Oracle President, said on a conference call that the company does intend to make Sun's hardware division profitable.
"The deal would strengthen Oracle's position against IBM. Oracle has done a good job on acquisitions it has done earlier," said Robert Jakobsen, analyst at Jyske Bank in Copenhagen. "It makes sense also historically. Oracle has been more successful commercializing software than Sun."
Sun will add $1.5 billion to Oracle's operating profit in the first year, and it will rise to $2 billion by the second year, according to Oracle.