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'War of the data centers' breaks out – IBM could scoop up Sun as a result

IBM making move to buy Sun?

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RESEARCH TRIANGLE PARK, N.C. — Is the Sun rising today on a possible acquisition of the troubled high-tech firm by Big Blue? Could be, according to The Wall Street Journal. If so, the battle for worldwide server sales is about to intensify further – and the stakes are high for the Triangle.

Cisco (Nasdaq: CSCO), partnering with Raleigh-based Red Hat (NYSE: RHT) and EMC (NYSE: EMC) among others, rattled the server market Monday with its entry into that space. Those three firms and Dell (Winston-Salem) are going after an IBM-ruled market, and IBMers in the Triangle are big players in the so-called blade server space. Cisco and EMC, a huge data center player, both have major operations in the Triangle.

Now comes the Sun news. Sun (Nasdaq: Java) shares closed at $4.97 Tuesday but skyrocketed in Europe overnight Tuesday as word broke that IBM (NYSE: IBM) might buy the world’s No. 4 server-maker for some $6 billion. Not only would the deal be the largest ever for Big Blue, it also would strengthen IBM’s hold as No. 1 in the server market ahead of HP and Dell.

“It’s the war of the data centers, and an acquisition would leave only two or three players left,” Robert Jakobsen, an analyst at Jyske Bank A/S in Denmark, told Bloomberg.

Citing unnamed sources, the Journal noted that Sun and IBM “have a common interest in that both make computer systems for corporate customers that aren't reliant on Microsoft Corp.'s Windows software, and their product lines are less dependant than rivals' on Intel Corp.'s microprocessor technologies. The two companies are also strong supporters of open-source Linux and [Sun’s] Java software.”

Linux is Red Hat’s playground.

Sun lost more than $200 million in its most recent quarter and recently announced plans to slash 6,000 jobs. IBM finished 2008 quite strongly despite the global slowdown. However, IBM (-15 percent), HP (-10 percent), Dell (-10 percent) and Sun (-14 percent) all dropped in server sales in the fourth quarter, according to analysis firm IDC.

But market share totals indicate how an IBM-Sun deal might help IBM fend off a threat from Cisco. IDC figures rank global server sales as:

• IBM, 36.3 percent
• HP, 29 percent
• Dell, 10.6 percent
• Sun, 9.3 percent
• Fujitsu/FSC, 4.2%
• Others. 10.6%

If IBM makes a bid for Sun, it would do so with Sun shares at a deep, deep discount. Sun’s 52-week high is $16.72. What’s that old adage about buy low?

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