Oracle Buys Sun in Data Center Land Grab

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

Sun Microsystems

(JAVA)

,

Oracle

(ORCL) - Get Report

is a step closer to dominating the data center space.

Two weeks ago, when Sun and

IBM

(IBM) - Get Report

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) - Get Report

, 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.

Oracle is the top seller of enterprise software, particularly database programs that businesses use to manage information. Sun makes servers, networked computers that run data centers. It's also the developer of Java, mini software applications used on a range of devices including PCs and mobile phones.

Sun also controls

MySQL

, an increasingly popular database developer and growing rival to Oracle's core business.

Analysts saw the deal as yet another example of Oracle CEO Ellison's ambitious acquisition campaign.

"In one wide swoop, it has taken out its number one competitor,"

GigaOm's

Om Malik wrote Monday.

To take money-losing Sun and make it profitable, Ellison and Oracle with have to make cuts that are quick and deep, say analysts.

"They don't approach it with a scalpel," says Kumar. "They come with a hatchet."