Top ten predictions from the Oracle-Sun merger

Software vendor Oracle has agreed to purchase Sun Microsystems in a US$7.4 billion mega merger.

With Oracle CEO Larry Ellison predicting the acquisition to add $1.5 billion of revenues in the first twelve months and $2 billion in year two, analysts expect "business as usual" in the short term. 

But today at iTnews we ask the analysts for a wide lens view of what a merged Oracle and Sun will look like further down the line.

Prediction 1: Oracle will drastically cut Sun staff

Analyst group Hydrasight believes Oracle's expectations to profit from Sun over such a short period of time is "unrealistic and unachievable" during the economic downturn. 

"Oracle will only be likely to achieve its objectives through aggressive and brutal reductions in Sun's workforce and operating costs," said Hydrasight analyst Michael Warrilow.

Given the global operations of both companies, Warrilow predicts these reductions will "occur equally in Asia Pacific as elsewhere."

Financial analysts have already said that some 10,000 Sun staff may find themselves looking for a new job as part of the acquisition.

Sun already slashed 6,000 staff from its ranks immediately prior to the acquisition announcement.

Prediction 2: Oracle will make an early exit from SPARC microprocessors

One thing is certain - Oracle did not buy Sun Microsystems to get into the microprocessor business.

Matt Oostveen, research manager of data centre and enterprise servers at IDC has questioned whether Oracle will continue to invest in a future roadmap for the non-x86 SunSPARC CPUs, especially while Sun's own install base are migrating to x86 servers.

"My gut feeling," agreed Gartner enterprise IT guru, Phil Sargeant, "is that Oracle will lean towards the cheaper commodity platform of Intel. Whether Oracle would be interested in expensive research and development for microprocessors in the future is debatable."

Oracle will either spin off or sell the SunSPARC business, he predicted, but he "doesn't see anybody lining up to buy it."

"In the long term, I would say Oracle will spin it off as a separate entity," he said.

Prediction 3: Oracle will inevitably sell or spin off hardware assets

If Oracle does aspire to be a hardware company, it is more likely to be as a niche "appliance" vendor than a box mover that competes with its existing hardware partners.

The margins on niche appliances, on which Oracle applications are pre-loaded and optimised, are far more attractive than on standalone boxes.

Sargeant expects that less of Sun's hardware assets will be discontinued than if the hardware-heavy IBM had purchased the company, but still expects some divestment will occur.

"There is probably a lot more synergy in this merger than there would be with a Sun-IBM deal," he said. "But there is a little bit of overlap. There are probably some areas in the hardware arena that Oracle wouldn't want. These assets Oracle is likely to spin off or get rid of."

Oracle would not be interested in competing with EMC, NetApp and IBM in the storage market, for example, he said.

"I just don't think Oracle wants to be a storage player," Sargeant said. "The only storage technology I could see being of interest in the Open Storage 7000 'Amber Road' series - which Oracle might prefer as part of its appliance initiative."

Customers of Sun's remaining storage array lines won't be too adversely affected if such products are discontinued, Sargeant said, as Sun resells a lot of storage solutions built by the likes of Hitachi Data Systems for which support is available elsewhere.

Prediction 4: The Oracle/HP appliance relationship will be put on ice

Oracle also finds itself in a challenging position with regards to an existing hardware appliance developed in conjunction with HP.

"Now that Oracle is a hardware provider as well, with competing servers and storage, there are question marks," said Sargeant.

Warrilow said that while there were early signs the HP/Oracle appliance "appealed" to certain Oracle customers, "such interest will now, understandably, be put on hold."

Prediction 5: A 'vertically-integrated' Oracle will prove over-ambitious

Should Oracle instead choose to keep Sun's hardware stack, Ovum senior vice president of IT research David Mitchell predicted the company could in fact become part of a "Big Four" of IT suppliers, similar to the Big Four that exists in accounting and consulting services.

The Big Four, which would comprise of IBM, HP, Microsoft and Oracle, would between them "define a significant proportion of the IT market landscape for the next 10 years or more," Mitchell said.

Analyst group IDC also sees Oracle becoming a vertically integrated technology supplier.

"The advantage for Oracle will be the capability to structure enterprise deals such that the profitability is spread across databases, storage, middleware, servers and applications," said Oostveen.

"The market may soon be seeing Oracle applications with Oracle middleware running on Oracle Solaris installed on an Oracle server feeding Oracle storage."

But other analysts don't give Oracle much of a chance if it takes this route.

While Oracle's acquisition trail has allowed it to successfully "surround" its main applications competitor, SAP, Warrilow doesn't rate Oracle's ability to integrate Sun's software assets with its own.

He said Oracle has taken a "slow and uncertain" path to integrating its Fusion applications play, "to say nothing of the challenges of integrating previous acquisitions such as BEA."

Warrilow noted that management of acquired companies tended to "remain largely autonomous" under Oracle ownership. Oracle's focus remains on "recurring license revenues", he said.

"The customer's benefits remain secondary to Oracle's accountants."

"For Oracle to succeed in the long term it will have to convince the market that it can deliver on its promises of an integrated stack and/or provide more flexible software licensing models," Warrilow said.

Mitchell disagreed. "Oracle has a consistent track record of delivering its expected merger and acquisition bounty," he said.

"The Oracle integration team has certainly had a lot of experience in managing the integration of newly acquired companies into the Oracle fold, having managed well over 40 of these in the past four years."

Read on to page two for the second five predictions - yes, there are five more!

Prediction 6: Solaris and Java are safe

On announcing Oracle's acquisition of Sun Microsystems, Oracle CEO Larry Ellison mentioned that he is specifically interested in Sun's Solaris Unix operating system, on which a large portion of Oracle databases run, and Java software, the underlying technology running Oracle's 'Fusion' products.

The acquisitions of BEA and now Sun effectively puts Oracle in control of Java.

"This may make companies such as IBM increasingly nervous," said Warrilow, but it may also "ultimately make Java less attractive to end user organisations."

Either way, Solaris is safe, said Sargeant.

"There has often been an assumption that Oracle database is predominantly deployed on Linux," he said, "when in fact it is most often deployed on Unix and more specifically, Solaris."

"Solaris could well become a jewel in Oracle's crown," he said.

Prediction 7: MySQL will be supported, but for how long?

News of the acquisition will be considered a substantial risk for those application developers that embed the Sun-owned open source database MySQL into their applications.

Sun has allowed MySQL to flourish under its ownership, with a high rate of downloads and use, but it had no competing product with MySQL as Oracle does.

While in the short term Sargeant says MySQL users should "not be too concerned", about the acquisition, there is a considerable risk Oracle will make changes to the product in the future.

"There is no indication as to what Oracle's commitment to MySQL might be," he said. "One should also consider that for all of Sun's success with MySQL, the company never managed to monetise it."

But Matt Oostveen, research manager of data centre and enterprise servers at IDC expects Oracle to put MySQL to good use - as somewhat of a "training wheels" database before organisations scale up to use Oracle's enterprise grade database.

"Instead of competing with MySQL, Oracle will be able to offer its customer base a popular, well-recognised entry-level database and an upgrade path to Oracle's enterprise products as customers' needs scale," he said.

Prediction 8: Oracle will review Sun's open source models

Warrilow expects the Oracle/Sun merger will "herald the end of Sun's romance with open source software."

"While both Sun and Oracle were probably the most 'vocal' organisations espousing the 'new economy' and the benefits of open source software during the late 1990's, Oracle in particular failed to translate this 'new age thinking' into revenue, and instead, decided to focus more on traditional software licensing markets," he said.

The open source model advocated by Sun may find some friction within Oracle, agreed Oostveen, particularly among Oracle's channel partners, conditioned to selling enterprise software at high margins.

"The challenge for Oracle with its focus on commercial software will be evaluating the future revenue potential of Sun's software offerings after Sun began open sourcing many of its innovations," he said.

Prediction 9: OpenOffice has a future at Oracle

Sargeant believes OpenOffice has a future under Oracle's direction, if only to be a "thorn in the side" of that other software megalith, Microsoft.

"OpenOffice might perhaps be embedded with Fusion Apps, or it might be used to compete directly with Microsoft," he said. "Open Office 3 is pretty damn good - good enough for a lot of people."

Prediction 10: More consolidation to come

Today's economic climate being what it is, Sergeant concludes, there is almost certainly more consolidation on the near horizon.

"But perhaps," he notes, "not much of this scale."