Oracle Buys Sun in Data Center Land Grab

In buying database rival and No. 1 partner Sun Microsystems (JAVA Quote), Oracle(ORCL Quote) is a step closer to dominating the data center space.

Two weeks ago, when Sun and IBM (IBM Quote) failed to reach a deal, Sun was left to ponder a dim future alone and hope for brighter prospects of another deal. Oracle, one of the most acquisitive players in tech, seized the opportunity.

"Oracle is now in the pole position" in the data center race with IBM and Hewlett-Packard (HPQ Quote), said Collins Stewart analyst Ashok Kumar. For "[Oracle CEO] Larry Ellison, the common thread isn't acquiring technology, it's acquiring customers," Kumar said.

Oracle says it will use cash and debt to finance the $9.50 a share takeover and hopes to close the $5.6 billion transaction this summer. Oracle says Sun's business will add 15 cents a share of adjusted profit, excluding one-time charges and gains, to its bottom line in the first year.

For Sun, Oracle is a savior. Sun has suffered a big drop in demand for its IT systems. Sun is expected to post a loss of 18 cents a share for the March quarter and nearly double that loss in the June quarter. Already reeling from a spending downturn, Sun was in its ninth round of job cuts, having eliminated about 7,500 workers last year alone.

Understandably, Sun executives Scott McNealy and Jonathan Schwartz were pleased with the deal. A combination of Sun and Oracle "redefines the industry," Sun chief Schwartz said on a conference call Monday.