IBM-Sun Deal A Desperate Move

The Wall Street Journal is reporting that International Business Machines (IBM) has made a $6.5 billion offer to buy Sun Microsystems, Inc. (JAVA) at a 100% premium over its closing price yesterday, with a potential close this week. This will be the largest acquisition that IBM has ever made.

In our opinion, this is a desperate move by both parties.

There is enough business overlap to attract the attention of the Justice Department. The purchase price is way too high to make business sense. IBM gains very little new software except for StarOffice (a Microsoft (MSFT) look-alike) and that has not made much of a mark. Java and Solaris are now open source products. Sun adds little to the service business that IBM has.

IBM’s strengths are in software and services. It has been moving away from hardware for a number of years since much of the hardware market is commoditized. Sun has had many problems and has been looking for a buyer for some time.

Both of the companies have significant sales in the server market, where Cisco Systems, Inc. (CSCO) recently announced its entry and Hewlett-Packard Company (HPQ) has been very aggressive in gaining market share.

Subscribe by RSS Subscribe by Email