UPDATE 4-Sun Micro to buy MySQL for $1 billion

Wed Jan 16, 2008 3:08pm EST

(Adds Benchmark Capital partner comments, updates shares)

By Duncan Martell

SAN FRANCISCO Jan 16 (Reuters) - Sun Microsystems Inc JAVA.O said on Wednesday it would buy Swedish open-source developer MySQL AB for about $1 billion to expand into the $15 billion database market, and that preliminary quarterly results showed no impact from the slowing U.S. economy.

Sun shares rose more than 6 percent, which analysts said had more to do with Sun's results easing concerns about its financial services customers than about the acquisition.

Sun and its Chief Executive Jonathan Schwartz have sought to emphasize the company's small but fast-growing software business, which includes the Solaris operating system and Java programming language. If Sun is successful with MySQL, whose database software is used by huge Internet sites such as YouTube and FaceBook, it could mean increased bundled sales of support for MySQL and more hardware sales.

"Sun is looking for new growth engines, and this is one of the areas they're going to try and make a bet on," said Pacific Crest Securities analyst Brent Bracelin.

Schwartz said in an interview that Sun was not seeing less interest in the Internet from consumers due to the U.S. economic slowdown, and pointed to 7 percent growth in its bookings for the December quarter.

"In times of recession, companies look to technology to drive efficiency," Schwartz said.

Forrester Research analyst Mike Gilpin said the acquisition was not so much about going head to head in the database market with Oracle Corp ORCL.O or IBM (IBM.N), but about strengthening its position in helping to run the Internet.

"This is Sun girding its loins for battle against Microsoft in terms of who's going to run the Web," he said.

Many of the biggest Internet sites are built on what is known as a LAMP software bundle: a combination of the Linux operating system, a Web server from open-source provider Apache, MySQL, and the PHP computer programming language.

"Sun is very enthusiastic about making the LAMP (software) stack available in a scale-out way to their customers," Gilpin said, referring to a vast collection of Intel servers lashed together in a high-speed network.

BOLD MOVE FOR SUN

Sun said it would pay about $800 million cash for all MySQL stock and assume about $200 million in options in the deal.

Analyst Trip Chowdhry of Global Equities Research said the price was too steep, noting "less than 1 percent of MySQL users pay."

Although MySQL did not disclose revenue or profit figures, Kevin Harvey, general partner at Silicon Valley venture firm Benchmark Capital, which has a 26 percent stake in MySQL, said the company was growing "extremely well."

Harvey, who has been involved in the sale of companies like TellMe Networks to Microsoft Corp and Zimbra to Yahoo! Inc, said the acquisition "solidifies (Sun's) position as a very large open source vendor."

Sun said it expects MySQL's open-source database, widely used across operating systems, hardware vendors and applications, to bring new markets for Sun's systems, software and other technologies.

Sun said it expected the deal to add to its fiscal 2010 operating income, and to close late in the third quarter or early fourth quarter of its fiscal 2008.

Sun also said it expected revenue for its fiscal second quarter ended Dec. 30 to show a rise of about 1 percent to $3.6 billion. Analysts were expecting $3.58 billion, according to Reuters Estimates.

Sun said net profit would range between $230 million to $265 million, or 28 cents to 32 cents per share, up from $133 million, or 15 cents per share, a year earlier.

The company said gross margin in the quarter was around 48 percent, up about 3 percentage points from a year ago. Net bookings were seen up 7 percent at $3.85 billion.

Sun shares were up 89 cents, or 5.9 percent, at $15.87 in afternoon trading. (Additional reporting by Anupreeta Das in San Francisco, Michele Gershberg in New York and Jim Finkle in Boston; Editing by Gunna Dickson, Toni Reinhold)

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