Oracle won't divest Sun's hardware business

BOSTON Thu May 7, 2009 6:44pm EDT

Oracle CEO Larry Ellison delivers his keynote address at Oracle OpenWorld in San Francisco, California September 24, 2008. REUTERS/Robert Galbraith

Oracle CEO Larry Ellison delivers his keynote address at Oracle OpenWorld in San Francisco, California September 24, 2008.

Credit: Reuters/Robert Galbraith

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BOSTON (Reuters) - Oracle Corp Chief Executive Larry Ellison said he won't sell off Sun Microsystems Inc's hardware business, dispelling speculation that he only wanted the company for its software units.

Ellison shook up Silicon Valley last month by sealing a more than $7 billion deal to buy Sun, the world's No. 4 maker of server computers and also the developer of Java and Solaris software. Oracle unexpectedly swooped in after Sun's talks with International Business Machines Corp broke apart.

"We are definitely not going to exit the hardware business," Ellison said in an email interview with Reuters. "If a company designs both hardware and software, it can build much better systems than if they only design the software. That's why Apple's iPhone is so much better than Microsoft phones."

His comments fly in the face of the belief of some analysts that Oracle, the world's largest database software maker, may divest Sun's server business and retain just its software assets, such as Java and Solaris.

Oracle's steadily rising profit margins have impressed Wall Street in recent years, and analysts say it is a risky move for it to buy Sun, which has lost $2 billion in the first three quarters of its current fiscal year.

Ellison declined to respond to a question on what he would do if efforts to turn around Sun's computer server business run into trouble. Sun's losses have piled up after losing market share to IBM as well as Hewlett-Packard Co.

His comments may reassure businesses that were hesitant to buy Sun hardware due to uncertainty over its future, said Charles King, an analyst with Pund-IT Research.

"There has been some speculation that Oracle is going to auction off Sun by bits and pieces to the highest bidder," King said. "You end up with customers, many of whom own millions or tens of millions of dollars of Sun hardware, looking for another vendor to deal with."

INVESTING IN SPARC CHIPS

Ellison said he plans to boost investment in Sun's SPARC microprocessors, which serve as the brains in its line of high-end Unix computers. The biggest buyers of these servers are large corporations and government agencies.

He believes that by jointly developing Oracle's existing arsenal of software with Sun's computers and SPARC chips, they can build machines designed for specific purposes that work better than ones pulled together from separate components.

Oracle has sought to do this in the past through partnerships with hardware makers, including HP.

"Once we own Sun, we'll be able to plan and synchronize new features from silicon to software, just like IBM and the other big system suppliers," Ellison said in the interview.

Oracle plans to work with Japan's Fujitsu Ltd, which helps Sun design its SPARC microprocessors, to add new features that will improve the performance of Oracle's database software when used on Sun's servers. That will make Sun hardware more competitive versus rival products from IBM than it is today, the CEO added.

The acquisition makes Oracle the world's fourth-largest maker of servers, and puts the software maker into the No. 2 slot in the high end of the server market, which was worth about $17 billion last year.

STORAGE

Ellison also said he intends to hold on to Sun's data storage business and its tape backup unit, which compete with EMC Corp and IBM.

"Sun was very successful for a very long time selling computer systems based on the SPARC chip and the Solaris operating system," he said. "Now, with the added power of integrated Oracle software, we think they can be again."

Sun rose to prominence in the 1990s but never fully recovered from the dot-com bubble burst in the early 2000s, when demand for its high-end servers cratered.

Laura DiDio, an analyst with ITIC, said Oracle may be able to help Sun recapture the cache it once claimed as one of the world's most-respected technology companies.

"Sun has three decades and billions of dollars in investment in superlative hardware. They have some brilliant engineers," she said. "But Sun's marketing has not matched its technology. Larry Ellison is brilliant at marketing."

(Reporting by Jim Finkle; Editing by Richard Chang)

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